Apple Computer Inc. brought Steve Jobs back to the company in 1997 and was incredibly successful, but it led to “Steve Jobs Syndrome” that convinces companies to bring back once-successful senior executives, even though an academic study shows that this may not be a good idea.
The Walt Disney Co. DIS,
is the latest to rehire a former chief executive, surprising investors with the news that Robert Iger has returned to replace his hand-picked successor, Bob Chapek. It follows the return of Howard Schultz to Starbucks Corp. SBUX,
earlier this year, when this company was facing a wave of unionization, and one wonders if Amazon.com Inc.’s AMZN,
The board will be urging Jeff Bezos to return if this company cannot emerge from its current slump.
Wall Street praised the move, with Disney shares jumping nearly 6% on Monday after the news broke. The tenor among analysts was clear in a note from MoffettNathanson analysts titled “The magic is back.”
“We have never made a secret of our affection for Mr. Iger and the work he has done to build Disney into the global powerhouse it has become,” MoffettNathanson’s Michael Nathanson wrote in a note to clients on Monday. “We haven’t recommended stocks since May 2020 for several reasons, including concerns that former CEO Bob Chapek may have become married to a streaming strategy that didn’t make sense given today’s reality. today.”
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This enthusiasm should be tempered, however, as academics believe that this type of recruitment is not successful, on average. Known in these circles as a “boomerang CEO”, research shows instead that the returning leader may face unique challenges that put him on the same footing as any new CEO.
Iger was rehired for a two-year term to undertake an operational turnaround of the entertainment icon, a difficult task for any seasoned CEO. But according to a 2020 study published by the MIT Sloan Management Review, a company may be unrecognizable since leaving because business terms differ significantly — which may be conducive to Iger’s return.
The MIT study concluded that boomerang CEOs aren’t always the saviors Wall Street hopes for. “Boomerang CEOs have indeed realized significantly worse than other types of CEOs,” was the conclusion. The authors compared data on 167 boomerang CEOs from 1992 to 2012 from the S&P Composite 1500 Index, and compared their tenures with 6,000 other non-boomerang CEOs.
“On average, the annual stock market performance of companies led by boomerang CEOs was 10.1% less than their counterparts in the first relay. These results held true even when we compared them to other (non-boomerang) CEOs who were hired in times of crisis,” the report said.
Among some of the failed comeback attempts was Paul Allaire of Xerox Holdings Corp. XRX,
The return of Twitter co-founder Jack Dorsey and Jerry Yang’s second stint at Yahoo. Shultz’s return to Starbucks and Jobs’ much-heralded return to Apple both adopted a tactic of taking each company back to its roots: in Apple’s case, Jobs focused on innovation and simplicity in its products and line, while Shultz focused on the core Starbucks principles that made it an initial success as a premium coffee company. Jobs also guided the development of the iPhone, arguably the most important technological innovation of the past 25 years.
In Disney’s case, Iger is reverting to a strategy he largely put in place before stepping down as CEO just before the COVID-19 pandemic and executive chairman late last year. Since leaving the company at the end of 2021, Disney shares have fallen about 37%, compared to a 17% drop since the start of the year for the S&P 500 SPX,
Read more: Disney shares soar as Bob Iger returns as ‘perhaps media’s best leader’ returns
Much of that stems from the disastrous fourth quarter fiscal results, which made it clear that Disney is relying on profits from its theme park business to fund its foray into streaming, operating profit from its media and entertainment that fell 91% in the quarter. .
Investors were also concerned about Chapek’s overly optimistic subscriber targets, a potentially risky scenario in a shrinking economy with a looming recession. As Morgan Stanley analyst Benjamin Swinburne summed up, Disney shares “already reflect macro pressure on the parks business and do not reflect any meaningful value for Disney’s streaming business. Specifically, the Disney content is underpaid and undermonetized.
Again, however, this is largely the product of the strategy put in place by Iger as CEO and overseen until less than a year ago as executive chairman. The only difference is Iger’s seemingly magical ability to woo Wall Street – while Chapek’s performance on a conference call following these results led to an even bigger drop in stocks after hours trading, Iger has shown his ability to save stocks with his words and cues on coming changes even in difficult times.
Iger’s return, amid so much hope and anticipation, will be clouded by a slowing economy. He will be under pressure to change a strategy he has largely implemented amid inflation and a potential recession he cannot control. The hope that Iger can fire another Steve Jobs will weigh heavily on him for the next two years, and history is not on his side.