Procter & Gamble Co. (PG:US)’s move this week to hire back A.G. Lafley as its chief executive officer recalls the successful returns of former leaders from Steve Jobs to Starbucks Corp. (SBUX:US)’s Howard Schultz.
While bringing back an old hand isn’t a guarantee of success, it’s a clear sign that something has gone haywire. In the case of Cincinnati-based P&G, ex-CEO Bob McDonald struggled to turn around the world’s largest consumer-products maker, lost market share to rivals like Unilever and was under pressure from activist investor Bill Ackman, who pushed for his exit.
“It’s always an emergency when this happens,” said Jay Lorsch, a professor at Harvard Business School in Boston who has studied boards and management for 25 years. “You don’t go back to the old guy unless you made a mistake and it means you didn’t have another candidate ready to go.”
Investors shouldn’t lose sight of the fact that in most cases, even successful ones, bringing back a former leader means the board failed to groom a solid successor, Lorsch said.
McDonald, 59, who was handpicked by Lafley, lowered profit forecasts (PG:US) three times in 2012. Ackman, who bought a stake about nine months ago, wanted him out.
Lots of Forewarning
“They had so much forewarning, so how could they be in this spot of not having a clear successor,” said Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management. “This company has groomed so many top executives that it’s hard to understand why they’re in this spot.”
Now that Lafley is back, he got a vote of confidence from P&G shareholders: the stock rose 4 percent yesterday, the biggest gain since October 2009, following the announcement of his return.
The board conducted a “comprehensive review of alternate approaches to succession,” P&G said in an e-mail, and determined that the best option was to bring back the former CEO “to a role he had held and for which he is uniquely qualified.”
Returning CEOs carry a sense of obligation to the companies that a newcomer might not have, said James Post, a professor at Boston University School of Management.
“They are coming in to repair damage done to the company,” he said. “They can more quickly assure people inside the company and placate unhappy investors outside.”
The late Steve Jobs came back to Apple in 1997 as the company he co-founded in 1976 struggled for survival. Under his second reign, Cupertino, California-based Apple developed the iPhone and iPad and became the world’s most valuable technology company.
Schultz, 59, returned as CEO at Starbucks in 2008 after eight years, as the Seattle-based coffee chain reported its first quarterly drop in U.S. visits. The shares have risen more than eightfold from a 2008 low of $7.17.
Michael Dell, who faced an industry slump since he replaced his handpicked successor in 2007, was less successful. The 48-year-old founder has offered to take Round Rock, Texas-based Dell private in a leveraged buyout as consumers turn to tablets and smartphones, shunning Dell’s PCs.
At Yahoo, co-founder Jerry Yang stepped down in 2009, two years after taking the helm, following Yahoo’s rejection of a $47.5 billion takeover offer from Microsoft Corp. rankled investors.
“Bringing back a CEO doesn’t always work, but in P&G’s case it will,” said Douglas Ehrenkranz, a recruiter at Boyden in Houston who worked at P&G for about 15 years, including under Lafley. “A.G. is not only iconic, but completely gets the changed world we live in. This is a company that badly needs a win, and they just got one.”
Lafley, who started working at P&G in 1977, was president and CEO from 2000 to 2009. Unlike Dell, Jobs and Schultz, neither he nor J.C. Penney’s Ullman are company founders.
Lafley, 65, will also be more like Ullman, 66, in that he isn’t going to run the company for an extended time, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware in Newark.
“The companies want someone whom the employees know, who is trusted by the vendors and can bring confidence to the market and stabilize the shares,” he said.
Ullman, who was J.C. Penney CEO from November 2011 to February 2012, was brought back in April after the retailer forced out his replacement, former Apple and Target Corp. (TGT:US) executive Ron Johnson. In a twist, it was Ackman, also a J.C. Penney board member, who lobbied for Johnson to replace Ullman.
Recalling former leaders isn’t confined to the U.S., nor to the corporate world. Japanese Prime Minister Shinzo Abe returned to the job in December, the seventh prime minister in six years. Abe held that post for a year ending in 2007, when he quit, citing a stomach ailment. In sports, George Steinbrenner, former owner of the New York Yankees baseball team, hired and fired manager Billy Martin five times over a 14-year period.
Johann Rupert had three stints as CEO of Geneva-based luxury-goods maker Cie. Financiere Richemont SA. He was CEO for 14 years after founding the company in 1988, returned to manage the owner of the Cartier brand in 2003 as the SARS crisis dented sales in Asia and again in 2010 when then-CEO Norbert Platt resigned for medical reasons.
At Air France-KLM Group, Jean-Cyril Spinetta, 69, returned in 2011 to replace Pierre-Henri Gourgeon, who had succeeded him as CEO in 2008 and who was slated to stay in the post until 2013. Spinetta, who had run Air France from 1998 through the 2004 merger with KLM that created Europe’s biggest carrier, was brought back amid declining earnings and a safety analysis that concluded pilot training was a factor in a 2009 crash that killed 228 people. He will step down again on July 1.
In the end it’s about calming down the crisis both inside and outside the company, said Boston University’s Post.
“When Lafley walks down the hall, people will feel better,” he said. “He has a great reputation for what he did before. That’s a lot like how people felt about Jobs and Schultz and other CEOs who came back.”
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