Why do companies bring back former CEOs?

  • Disney is bringing Bob Iger back as CEO less than three years after he stepped down.
  • A former CEO is a known quantity, which may seem like a reasonable choice during a volatile period.
  • Disney faces financial and political challenges — and Iger has a track record of success.

There are undoubtedly hundreds of qualified candidates for the position of Disney CEO. So why is the company going back to the well and bringing back Bob Iger less than three years after he resigned?

After all, returning CEOs have a mixed record. An oft-cited working paper, published in 2020 in the MIT Sloan Management Review, found that the stock performance of companies led by returning CEOs was 10.1% lower compared to companies led by first-time CEOs.

However, some companies have seen success shift to former leadership. Howard Schultz led a financial turnaround during his second stint as CEO of Starbucks. Steve Jobs returned to Apple after being fired, saving the company from near-bankruptcy and turning it into one of the most valuable public companies. Michael Dell took over as CEO of his namesake company and made it relevant in the tech industry once again (he’s still CEO today).

There are, after all, some significant advantages to bringing back a former CEO, namely that a known quantity can be an attractive option during a time of crisis. A familiar face can be reassuring — and practical.

Disney faces challenges

Iger enters a challenging environment, particularly for major Disney streamers Hulu, Disney+ and ESPN+. Even beyond Disney, several premium streaming services have seen subscriber numbers slow or remain flat year-over-year for at least the past three consecutive quarters.

There are also political challenges. Iger will need to rebuild relationships with stars like Scarlett Johansson. the “Black Widow” actress is suing the studio after its decision to release the superhero film only via streaming — and not in theaters — in 2020. The lawsuit has drawn attention and highlighted the conflicts that can arise between Hollywood studios and their stars as the industry shifts, in some cases, from big-screen releases to streaming services.

Disney also stumbled in the political fight over Florida’s “Don’t Say Gay” law. Chapek and the company were criticized for their initial response, particularly by LGBTQ workers at Disney. The former CEO had to issue a public apology.

Iger, with a track record of success leading Disney, could seem like a safe bet in a period of volatility.

An old hand doesn’t need much training

Iger won a number of wins at Disney in his first term, including overseeing the acquisition of brands such as Pixar, Marvel and Lucasfilm and the launch of Disney+ in 2019. Disney shares jumped as much as 10% on Monday after the company announced that Iger would be returning.

But investors looking to own a star for the good old days might want to think twice. The authors of the MIT Sloan Management Review paper write that the familiarity of a returning CEO is “a characteristic often important to employees and investors seeking reassurance that a company can get back on track.”

When the corporate world faces strong headwinds, Richard Vague, managing director of Gabriel Investments and former CEO of Energy Plus and First USA, said in a 2014 interview for the Wharton School at the University of Pennsylvania, “you default more to proven leaders. “

It may also seem reasonable to knock on a CEO who has done the job before. Iger was Disney’s CEO for 15 years — probably, it won’t take much installation.

A returning CEO will “know the company, understand the stakeholders and have credibility from the start,” Michael Watkins, a professor of leadership and organizational change at Switzerland’s IMD Business School, wrote in an email to Insider.

At best, the returning CEO learned more in the time he left. “So when he becomes CEO again, he’s really very fully informed,” said Carol Kauffman, an executive coach, assistant professor at Harvard Medical School and co-author of the forthcoming book Leadership in Real Time.

To be sure, critics say Disney’s board was somewhat short-sighted in rehabilitating Iger.

In an opinion column for Bloomberg, Beth Kowitt wrote that “Iger’s return reveals a more pressing question about what’s happening inside these boardrooms, where executives can see no alternative to the future than what has worked in the past”.

Indeed, there is always the danger that returning CEOs rely too heavily on their past experience. “They may think they understand what to do and how to do it,” Watkins wrote. “But the world and the company may have changed fundamentally.”

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