- Small-cap returns more common
- One successful FTSE reappointment, although research points to poor returns more often
Some of the biggest US companies have brought back former chief executives to bring back the good ol' days. In 1997, Steve Jobs returned to Apple (US:AAPL), having been ousted 12 years earlier. Michael Bloomberg, Michael Dell and Charles Schwab also rejoined their eponymous creations, and more recently Bob Iger returned to Disney (US:DIS) and Howard Schultz started – and ended – his third stint at Starbucks (US:SBUX).
Google (US:GOOG), Twitter, Snapchat (US:SNAP), Best Buy (US:BBY), Yahoo, DuPont (US:DD), Enron, Procter & Gamble (US:PG), Reddit (US:RDDT) and Urban Outfitters (US:URBN) have proved similarly magnetic to former board members.
Such homecomings are rarely straightforward though. Indeed, research published in the MIT Sloan Management Review concluded that “boomerang” bosses tend to perform “significantly worse” than peers.
On average, the annual share price performance of companies led by these chief executives is 10 per cent lower than the performance of “non-boomerang” contemporaries, according to the study, which looked at thousands of groups listed on the S&P Composite 1500 index between 1992 and 2017.
“These results held true even when we compared them with other chief executives who were hired in times of crisis,” said Christopher Bingham, a professor at the Kenan-Flagler Business School at the University of North Carolina.
The return of founders is particularly common and – with some notable exceptions – particularly troublesome.
“Although founders possess the entrepreneurial skills required to lead a new venture, they often lack the administrative skills necessary to manage the challenges associated with a larger, more complex organisation,” Bingham warned.
Restoring order
In the UK, there are far fewer cases of bosses returning to the helm. It can happen, however, and has big implications for shareholders when it does. Investors in Restore (RST), an Aim-traded document storage company, are right to be wary of the above study, given its previous chief executive is now back in charge after a poor run for the company.
Between 2009 and 2019 it was run by Charles Skinner, who oversaw strong profit and share price gains. When Skinner was replaced by Charles Bligh in April 2019, however, things took a turn for the worse.
During the pandemic, Bligh expanded the group’s technology division, which recycles IT assets such as laptops. In 2021, he splashed out £86.3mn on acquisitions and more than doubled the size of the tech business.
Many of these purchases were made when valuations were sky-high and the threat of impairment now looms large, with the division experiencing a “significant decline in recycled IT equipment”. The shredding business has also struggled, and 2023 was punctuated by two profit warnings and a 26 per cent fall in adjusted pre-tax profit to £30mn.
On the day of the second warning, Bligh resigned and Skinner is now back in the saddle. Investec analyst Tom Callan is optimistic he can bring on a turnaround. In particular, he stressed Skinner’s “deep working relationship” with the different divisions. “One complaint about the previous board was that it was too disconnected from the unit heads; that it was trying to build an empire from central London,” Callan said.
Panmure Gordon analyst Andy Smith is also hopeful, noting the important shift in management style. However, he said that Skinner was fundamentally an M&A merchant and earned his reputation at Restore through acquisitions. Right now, however, Restore is focusing on its existing operations.
“That’s where the scepticism comes from,” said Smith. “People like Skinner, there’s no doubt about that. But he needs to add another string to his bow.”
Superdry: a cautionary tale
It can be unwise to put too much faith in one person – as evidenced by fellow small cap Superdry (SDRY). After co-founding the fashion brand in 2003, Julian Dunkerton abruptly left Superdry in 2018. The following year, he elbowed his way back in, arguing that his creation had veered off course and he had arrived to “save Christmas”. The entire board resigned in protest.
Dunkerton’s intervention didn’t pan out as hoped. Profit warnings have continued to flood in and the retailer is now loss-making and marred by “significant doubt” over its ability to continue as a going concern.
Earlier this year, Dunkerton – who owns about a fifth of the company – was in discussions with potential financing partners to explore whether he should make a cash offer for Superdry and take it private. However, he has now walked away from such a deal.
Superdry remains in discussions about alternative structures, including a possible equity raise fully underwritten by Dunkerton, which would provide additional firepower for the turnaround plan. It is expected that any equity raise would be at a “very material discount to the current share price” and be conditional on a delisting.
For now, however, the company continues to limp along the stock exchange with a market cap of just over £10mn, compared with a peak valuation of £1.7bn.
Dunkerton returned to Superdry intent on reversing a brief period of perceived mismanagement. However, his failed attempts to revive the brand spotlight the unforgiving world of fashion, the unpredictable nature of turnaround plans, and the sometimes misguided efforts of founders with too much emotional and financial skin in the game.
Take comfort from Whitbread
FTSE 100 company Whitbread (WTB) is the most encouraging test case. The owner of Premier Inn is currently headed up by Dominic Paul. Paul was chief executive of Costa Coffee when it was owned by Whitbread, before leaving for Domino’s Pizza (DOM) in 2020, only to come back again in 2023.
This isn’t a case of saviour syndrome; Paul was simply poached back. He is “well known to investors and highly regarded”, according to Liberum, and returned when Whitbread was roaring back to life after the pandemic. Rather than turning things around, he is implementing an agreed strategy following the planned departure of his predecessor.
Indeed, Paul’s decision to move roles might say more about the state of affairs at Domino’s. The pizza chain has had seven finance directors and four chief executives in the past 10 years, suggesting that something has gone wrong with the corporate recipe.
Companies are at their most vulnerable during times of boardroom upheaval but – as the cases of Restore, Superdry and Whitbread show – general statements about boomerang bosses have limited use. Much depends on the circumstances in which they return. However, while new chief executives come with inevitable risk, familiar faces demand extra scrutiny.
