Does hiring ex-CEOs really add value to a company?

In the past three years, several publicly traded US companies have reappointed former bosses during tumultuous times

While such reappointments tend to steady or even jolt slumping stocks in the short term, they rarely claw back lost gains. Bloomberg

When Dollar General brought back Todd Vasos for a second stint at the top earlier this month, it became the latest struggling household name to try to fix its problems by reappointing a successful former chief executive.

In the past three years, at least five other publicly traded US companies – Walt Disney, Starbucks, DuPont de Nemours, Bausch & Lomb and Stitch Fix – have reappointed, or boomeranged, former bosses during tumultuous times when their share prices were falling.

Dollar General is currently marred by worker safety issues, Disney was fighting an activist and struggling to navigate a streaming transition, Starbucks was battling a union drive and DuPont needed to cut costs.

Yet while such reappointments tend to steady or even jolt slumping stocks in the short term – Dollar General is up about 20 per cent since the Mr Vasos announcement – they rarely claw back lost gains.

The six companies collectively shed about $88 billion in market value in the six months before the reappointment announcements, but half a year later only $10 billion of that had been recovered, according to data compiled by Bloomberg. Triumphant examples like Steve Jobs at Apple are the exception, not the rule.

“Every boomerang chief executive is a failed succession,” Elena Botelho, a partner at leadership advisory firm ghSMART, said in an interview.

Badly managed C-suite transitions cost companies in the S&P 1500 an estimated $1 trillion in market value every year, according to a recent analysis in the Harvard Business Review.

The spate of reinstatements emphasises the difficulty of transitioning away from long-serving, successful bosses – like Disney’s recent boomerang of Bob Iger after his anointed successor, Bob Chapek, was ousted after less than three years.

They are tacit acknowledgements that the chosen heir was not up to the task, and while the formers can seem like a reassuring return to a safe pair of hands, the opportunity costs can include lost shareholder value and complicated successions if future leadership feels undermined.

“[Chief executives] are always walking on eggshells for the first couple of years, and now there’s increased likelihood that the guy who just handed over the reins to me might actually come back if I make a misstep,” Ms Botelho said.

Dollar General, Disney and DuPont declined to comment. Starbucks did not respond to a request for comment.

Boomerangs can sometimes reflect a superficial selection process, where a board is “seduced” by a charismatic, extroverted executive, Ms Botelho said, while conversely a more thorough process can net replacements like Microsoft’s Satya Nadella, who has overseen a $2 trillion surge in the company’s market value since his 2014 promotion.

There has been a broad increase in executive turnover this year with more than 1,400 chief executives stepping down, up almost 50 per cent from a year ago and the most since at least 2002, according to a recent report.

Companies with long-tenured chiefs face difficult successions, increasing the possibility they may boomerang.

Besides Warren Buffett – whose Berkshire Hathaway has been dogged by succession anxiety for decades – BlackRock’s Larry Fink and Regeneron Pharmaceuticals’s Leonard Schleifer are among the most tenured bosses of S&P 500 companies.

On average, the financial industry has the longest tenured leaders of any sector, leaving it primed for new chief executives.