Amazing reappearing acts by U.S. executivesProcter & Gamble’s move last week to hire back A.G. Lafley as its chief executive officer recalls the successful returns of former leaders from Steve Jobs to Starbucks’ Howard Schultz.
Yet for every Apple or Starbucks, there’s a Dell or Yahoo, where comebacks couldn’t reverse sagging fortunes.
While bringing back an old hand isn’t a guarantee of success, it’s a clear sign that something has gone haywire. In the case of Cincinnati-based P&G, ex-CEO Bob McDonald struggled to turn around the world’s largest consumer-products maker, lost market share to rivals like Unilever and was under pressure from activist investor Bill Ackman, who pushed for his exit.
“It’s always an emergency when this happens,” said Jay Lorsch, a professor at Harvard Business School who has studied boards and management for 25 years. “You don’t go back to the old guy unless you made a mistake and it means you didn’t have another candidate ready to go.”
Investors shouldn’t lose sight of the fact that in most cases, even successful ones, bringing back a former leader means the board failed to groom a solid successor, Lorsch said.
McDonald, 59, who was handpicked by Lafley, lowered profit forecasts three times in 2012. Ackman, who bought a stake nine months ago, wanted him out.
“They had so much forewarning, so how could they be in this spot of not having a clear successor,” said Jeffrey Sonnenfeld at the Yale School of Management. “This company has groomed so many top executives that it’s hard to understand why they’re in this spot.”
The board conducted a “comprehensive review of alternate approaches to succession,” P&G said in an e-mail, and determined that the best option was to bring back the former CEO “to a role he had held and for which he is uniquely qualified.”
Returning CEOs carry a sense of obligation to the companies that a newcomer might not have, said James Post, a professor at Boston University School of Management.
“They are coming in to repair damage done to the company,” he said. “They can more quickly assure people inside the company and placate unhappy investors outside.”
The late Steve Jobs came back to Apple in 1997 as the company he co-founded in 1976 struggled for survival. Under his second reign, Cupertino, California-based Apple developed the iPhone and iPad and became the world’s most valuable technology company.
Schultz, 59, returned as CEO at Starbucks in 2008 after eight years, as the the Seattle-based coffee chain reported its first quarterly drop in U.S. visits. The shares have risen more than eightfold from a 2008 low of $7.17.