The boomerang CEO club keeps getting bigger.
Last year, 19 CEOs at Russell 3000 companies circled back for round two at the helm, according to governance data from Insightia. By comparison, the data provider found only 13 returnees led firms between 2018 to 2021.
So far this year, four companies in the index have reinstated former CEOs. That’s, of course, not counting UBS, which recently rehired Sergio Ermotti, the bank’s chief from 2011 to 2020, to oversee an unexpected rescue of Credit Suisse.
But is this trend a worrying sign? Probably not.
True, some studies suggest that boomerang leaders tend not to produce strong results for a company’s stock price, excluding a few high-profile examples. However, Insightia’s data challenges that thesis. It suggests that boomerangs don’t cause slumps; they start at a disadvantage, arriving when companies are already in a tough spot. In actuality, there’s no reason to believe returning CEOs are either the perfect solution or a mistake. (Insightia is owned by Diligent, which sponsors this newsletter.)
Here are some highlights from Insightia’s figures:
- Among Russell 3000 companies, 35 have reappointed the same person to the CEO role since 2018. Of those firms, 16 saw a positive total follower return (Insightia’s measure of stock performance with dividends) following the boomerang’s arrival, while 19 saw their stock decline.
- Of the 22 Russell 3000 companies currently employing a boomerang CEO, 12 are deemed highly vulnerable to an activist investment.
- Boomerang CEOs are absent for an average of two years and four months before being reappointed. During their second go-around, CEOs stay in the role for about 1.5 years, compared to an average seven-year tenure across the index.
Josh Black, editor-in-chief at Insightia, sees the risk that boomerang-led companies will attract activist attention as a sign that companies who look in the rear mirror to find their future chief are in a rocky transition period. But it’s also true that CEOs appointed for the second time don’t stick around for long. Adopting the boomerang solution might be an effective and quick “necessary evil,” rather than waiting for a new leader to find their footing.
If a boomerang CEO can patch up a company quickly, he says, “that might be acceptable to a board that's looking over the long term and asking, ‘Can we afford a year and a half to right this ship?’”
Still, boards ought to be clear about why they're bringing back a CEO and how long they expect the stint to last. They might share details about their succession strategy or indicate they’ve hired a recruiter, Black advises, so that investors know courting an ex-executive won’t become a habit.
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
