Some Distressed Firms Send An SOS To Former CEOs

San Francisco | Updated: Jul 27 2004, 07:28am hrs
Youre a multibillion-dollar company thats struggling like a 20,000-ton freighter trying to make a snappy U-turn. Your market has undergone a fundamental change, your old customers have fled, your razzle-dazzle marketing plan is a bust, your brash new CEO has alienated upper management.

Who ya gonna call Often, your previous CEO.

Last week Mr Charles Schwab resumed the chief executive officer post at his namesake company, which had left its discount brokerage roots in a quest to be all things to all people, catering to everyone from deep-pocket investors to regular folks.

Mr Schwab is just the latest in a long string of once-and-future CEOs who returned to bail out the companies they once led.

The comeback-kid CEOs sound like a high school yearbook roster. There are Steve Jobs of Apple Computer (most successful) and Ken Lay of Enron (most notorious). Then there are Jamie Houghton of Corning (most pedigreed: Besides being a former CEO, he is the founders great-great-grandson), Ted Waitt of Gateway (most freewheeling) and Mo Siegel of Celestial Seasonings (most countercultural).

In a tie for most self-propelled are AP Giannini of TransAmerica/Bank of America and Kirk Kerkorian of Metro-Goldwyn-Mayer. Mr Giannini initiated a shareholder proxy battle to regain control of the company he had founded. Mr Kerkorian simply bought back MGM.

Broaden the concept to the world of sports, and you have Billy Martin of the New York Yankees (most times returnedfive stints as manager). Even the nation has had a comeback CEO: Grover Cleveland, the only president to serve two non-consecutive terms in the White House (1885-89 and 1893-97).

The reasons are obvious: Who knows the organisation better Who cares more

(Companies) bring these people back because they have a sense of institutional memory, said Joseph Pastore Jr, a professor at the Lubin School of Business at Pace University in New York.

You need aspects of that past to understand your future. Sometimes we realise we never had it so good as when we had this person. Sometimes the new generation of executives looks pretty good on the way in, but dont look good once theyre there, he said.

Moreover, whom can you get, and get up to speed, quickly When theres a problem, you need to be thinking about who is the best person, and its a timing issue, said Betsy Atkins, who was on the board of Lucent Technologies in October 2000 when it brought back former CEO Henry Schacht for a second go-round.

The best person may be who youll find when you do a very thorough and thoughtful search, but that could take nine months, she said. When you know you have an issue, you need to face it and act.

For the Lucent board, the choice was clear. The company was going through a very trying time because of the telecom market implosion, said Ms Atkins, who now sits on the boards of UT Starcom, Polycom Corp and Paychecks Corp. Henry was the original CEO when Lucent spun out from AT&T. He knew the business, was very well respected by the senior management team. He understood who the major customers were and had credibility with them. We needed to restore trust.

Helpful To Stay On Board
If the former CEO has maintained a connection by serving on the board, then theres no re-education process. That was the case for Mr Schwab, who had retained his chairman role, and for Mr Schecht, who had stayed on the Lucent board.

Sometimes the comeback CEO ends up being purely a caretaker, nurturing the company through a couple of tough years until a long-term successor can be found. Sometimes, as with Jobs, he reinvigorates the company to such an extent that no one can imagine it without him.

If the ex-CEO happens to be the companys founder, so much the better.

Founders are a particular, unique breed, Mr Pastore said. They have a very clear personal sense of what the companys all about. No ones ever going to match that.

The ex-CEOs motivation is no mystery. Sure, he or she could loll on a private South Seas island forever, but the company is a legacy, a lifes work, the vessel of years of blood, sweat and toil.

Oracles Larry Ellison summed up the underlying psychology explaining why his good buddy Mr Jobs agreed to return to Apple at a tumultuous time for the computer company.

Its as if Apple is an old fiancee from college that Steve met again at a 20-year class reunion, Mr Ellison told Fortune magazine in 1997, just after Mr Jobs had returned as a consultant at the company he had co-founded. Steve is happily married now with children and has a great life. When he meets his old girlfriend again, shes an alcoholic and is running around with a bad crowd and has made a mess of her life.

Even so, in his minds eye, he still sees the beautiful woman he once thought was the love of his life. So whats he supposed to do Of course, he doesnt want to marry her anymore, but he cant just walk away because he still cares about her. So he puts her in a detox program and tries to help her meet a better class of friends and hopes for the best.

Mr Ellison got one thing wrong, though. Mr Jobs did want to marry Apple. He ended up in a successful menage a trois with Apple and his new love, Pixar Animation Studios, serving as CEO of both firms.

Mr Jobs was unusual in that he was a prodigal returnee, someone who had been ignominiously shown the door a dozen years before his return. The more-common scenario is for a winning CEO to return after a successor falls short.

The Usual Situation
The classic example is a highly successful guy goes out on a high, a new guy comes in, the new guy gets fired, the old guy comes back, said Mr Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, citing Maytags Len Hadley and Xeroxs Paul Allaire as case studies.

Hellen Davis, an executive coach and CEO of Indaba, a Philadelphia management consulting firm, isnt a fan of CEO comebacks.

If they bring a CEO back, the board looks like idiots because they brought in the new guy who was supposed to turn everything around and instead burned a whole lot of months and resources, she said. It just rattles the staff. Why go backward Its the wrong message to send. My opinion is: If you have to bring the old CEO back, they should fire every member of the board because they made a huge mistake and didnt pick the right person to succeed.

But Mr Pastore said whatever mistakes were made should be laid squarely at the feet of the upstart CEO who didnt work out.