CEOs and Board Leadership - are your younger, rising leaders ready to be the next CEO? Or are we going with a boomerang CEO?

They were the stuff of legend—CEOs who generated outsized returns for shareholders. They knew the business, could bring stability to the company and had credibility with employees.?And now they are back.

Recently, well-known firms in tech, retail, and other fields have hired former CEOs. Employees and investors have often applauded these moves, but some experts have wondered why younger, rising leaders weren’t ready.?Kristi Drew, a senior client partner and global account leader in the?Financial Services practice at Korn Ferry, says bringing in a “boomerang CEO” may say more about a board’s performance than it does about the former leader’s.

The fiduciary responsibility sits with the Board of Directors to ensure a plan is in place for who will be the company’s next CEO leader has long been one of the board’s most important responsibilities, says Cliff Locks, Executive Consultant, and Coach to the Board of Directors, Investment Capital Growth. Without the right person at the top, even the best companies with the most innovative strategies will struggle. Businesses need strong leadership more than ever. Yet all too often, boards are caught unprepared when they need a change in leadership. Why does this happen? For a start, it can be challenging to have a conversation. In high-performing companies, directors may be concerned that broaching the topic of succession will cause the current CEO to think they are looking for a replacement. In underperforming companies, directors may want to avoid doing anything to make the CEO worry about job security when they need to focus on driving strategy.

So, why not put off what could be a painful process? Primarily when the CEO performs well and the conversation doesn’t feel urgent. Because planning for the company’s next leader is in the company's and its shareholders' best interest. Seven leading, practices in CEO succession planning.

“Many organizations are woefully behind in succession planning,” says Drew. Having a few candidates lined up isn’t enough anymore, she continues, especially if those the boards have identified haven’t worked out.?Today,?in the face of an unprecedented number of sudden and unplanned executive?departures , she recommends that boards maintain three separate succession lists: ready now, ready short-term, and ready long-term.?

While each company’s circumstances are different, the underlying rationale for bringing back a former leader is to steady the ship and get it back on course, says?Joe Griesedieck, vice chairman and managing director of the?Board and CEO?Services practice?at Korn Ferry.?Boomerang CEOs bring familiarity to a time of inherent upheaval, for instance, which can make big strategic shifts or operating changes less disruptive. Former leaders also know and understand the culture, says Griesedieck, whereas outside CEOs need to assimilate, potentially slowing down needed changes in the process.?

Stalled or declining performance is the biggest reason boards bring back former CEOs. Often, the boomerang CEO previously led the company through a period of expansion, extended earnings, and share-price growth—and the hope is that they can do it again. Steve Jobs’ return to Apple and Howard Schultz’s first comeback with Starbucks are the examples many boards are thinking of when they bring back a former leader. Stock prices at firms often jump if a legendary CEO returns.

But in the long run, most returning CEOs don’t do as well the second time around, says?John Long, a senior client partner and North America?retail sector?leader at Korn Ferry. A 2020 MIT Sloan Management study found that the stock performance of companies led by boomerang CEOs underperforms that of companies led by first-time CEOs by 10%. “Often the environment has changed dramatically since the last time they were in charge,” says Long. In fact, a fast-transforming landscape was one of the reasons cited in the MIT study for the lower stock-price performance of returning CEOs. Another major reason: a lack of succession planning.?

Risk aversion is often the unspoken reason many boards bring back former leaders, say experts. After failing with a new name, the thinking goes, it’s too risky to appoint someone new—at least right away. Former CEOs are not a long-term solution, says?Bradford Frank, a senior client partner in the?Technology practice?at Korn Ferry. “But in the absence of better options, they buy the board time.”

Contributor: Kristi Drew, Joseph E. Griesedieck, John Long, Bradford Frank, Korn Ferry, and edited by Clifford Locks, CEO | COO | Executive Consultant and Coach | Board of Directors | Governance | Private Equity Podcast?Host | Reverse Logistics | Supply Chain | Advisory Board | SaaS | Clean Tech | Med Tech | Metaverse | AI | Thoughtful ESG & DEI

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