'Boomerang CEOs' don't always work out; Disney hopes this one bucks
Send a link to a friend
[November 23, 2022] By
NEW YORK (Reuters) -Can Walt Disney Co bank on another hit sequel?
That appears to be the hope behind the company's surprise decision to
bring back former chief executive Bob Iger to replace Bob Chapek. The
decision was largely cheered by Wall Street, with Disney's stock gaining
more than 6% on Monday to cut its loss to 37% for the year to date.
The move is effective immediately.
During his first tenure from 2005 to 2020, Disney's annualised
shareholder returns were more than 14%, well above its rival Comcast
Corp and the broader stock market, and in total in that period the stock
rose more than 400%.
Yet analysts and some investors say that a returning CEO repeating their
past success is not a given, and the decision to once again hand them
the reins may be a sign that a company's culture is sputtering.
"From a governance perspective it's a big red flag," said Brian Frank,
whose Frank Funds has owned Disney on and off in the past and currently
does not have a position in the company, viewing its valuation as too
high. "This is one of the highest- quality companies in the world with
the best brands in the world but it shows to me that they're bad at
Disney did not return a request for comment for this story.
GAME-CHANGER OR DUD?
Overall, the stock performance of companies led by CEOs who returned for
another stint in their former position - so-called boomerang CEOs - was
10.1% lower during their tenures than companies led by chief executives
who had not had the job before, according to a 2020 study published in
the MIT Sloan Management Review by Christopher Bingham, Bradley
Hendricks, Travis Howell, and Kalin Kolev.
Chief among the factors for the poor performance of repeat CEOs were if
the executive was a company founder, if they worked in a dynamic or
fast-changing industry, and if the company had neglected succession
planning, the study found.
Shares of Xerox fell 60% in the year after Paul Allaire returned as CEO
in 2000 as the company was unable to adapt to new digital technologies,
the study found. Shares of Procter & Gamble Co, meanwhile, rose about 3%
during A.G. Lafley's two-year second stint as CEO, while the broad S&P
500 index rose about 26% over the same time.
Xerox declined comment and P&G did not respond to a request for comment.
[to top of second column]
Robert Iger, Chairman and CEO at The
Walt Disney Company, sits with moderator Diane Sawyer of ABC News as
he speaks to the Economic Club of New York in Manhattan, New York,
U.S., October 24, 2019. REUTERS/Mike Segar
Yet there are reasons to think that Disney may have made the right
decision in bringing back Iger, Bingham said.
"There might be more reason for optimism relative to some of these
other boomerang CEOs as Iger was not the founder, was not gone for
too long, and is coming back in with a plan to help succession," he
said in an email to Reuters.
Apple Inc's Steve Jobs is perhaps the best-case scenario of a chief
executive returning to their previous company. Jobs famously resumed
his position as CEO in 1997 when Apple was near collapse and remade
it into the world's most valued company by the time he stepped down
again in 2011.
Howard Schultz, who built the Starbucks Corp franchise, was also
successful in his second stint. Shares rose more than 1,000% in his
tenure between 2008 and 2017.
Starbucks did not comment on this story, but directed Reuters to its
earnings results that topped expectations after Schultz’s third term
“I think this is a game-changer," said Stephanie Link, chief
investment strategist and portfolio manager at Hightower Advisors,
about Disney. Link has owned the stock in the past and is bullish on
the name. "This reminds me very much of Starbucks 2.0 or 3.0 with
Howard Schultz returning to Starbucks,” Link said. “I think the only
thing [Iger] is not great at is finding a successor.”
While Wall Street is cheering Iger's return, Disney's long-term
success will rest on whether he can successfully turn the company's
streaming business profitable while managing the decline of its
traditional television business and a likely slowdown in its parks
division if the economy falls into a recession, said David Heger, an
analyst at Edward Jones.
"Iger may have dodged a bullet because the time period when Chapek
was CEO was not ideal with the pandemic shutdown of the parks and
the shutdown of movie production," Heger said. "But it's not an
enviable position to come back in to because there are so many
different challenges across the business and industry."
(Reporting by David Randall in New YorkEditing by Megan Davies and
[© 2022 Thomson Reuters. All rights
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.