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. Thats, of course, not counting UBS, which recently rehired Sergio Ermotti, the banks 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 companys stock price, excluding a few high-profile examples. However, Insightias data challenges that thesis. It suggests that boomerangs dont cause slumps; they start at a disadvantage, arriving when companies are already in a tough spot. In actuality, theres 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 Insightias 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 (Insightias measure of stock performance with dividends) following the boomerangs 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 its also true that CEOs appointed for the second time dont 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 thats 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 theyre bringing back a CEO and how long they expect the stint to last. They might share details about their succession strategy or indicate theyve hired a recruiter, Black advises, so that investors know courting an ex-executive wont become a habit.
Lila MacLellan
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A Word of Advice
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On the Agenda
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In Brief
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Editors Pick
Luis von Ahn, the Guatemalan-born cofounder of Duolingo and creator of captchas, is one of the more fascinating figures in U.S. tech. His goal to democratize access to education inspired the creation of his bot-based language app. In a recent New Yorker profile, von Ahn describes the impact he imagines todays rapidly advancing A.I. apps will have on the future of learning, particularly for the poor. Inside his companylong beset by users who complain that mastering Duolingo did not bring them any closer to real-life fluency in a foreign tonguehe's responding to modern A.I. with quick pivots. One day after he tried Chat GPT-4, he scrapped two new teaching programs that centered on humans.
Heres a snippet looking at what came next:
Six months later, Duolingo, in partnership with OpenAI, launched two new features. These features, both powered by GPT-4, are part of a new, pricier subscription tier called Duolingo Max. The first, RolePlay, prompts you to tap on one of the apps animated characters, then drops you into an imaginary scenario. Youre a customer at a café in France, say, and the character is a barista. She asks if you want coffee or tea, and the conversation continues from there. All of a sudden, we actually have an opportunity that we thought was five years out, which is replicating what the human experience is like when youre learning language, and being able to scale it, [Edwin] Bodge, the product manager, told me.
Read the rest here, and have a great weekend.
