Dell joins ranks of once-hot trend: Boomerang CEOs
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By Del Jones
USA TODAY
Posted 2/2/2007
Does Michael Dell signal a new era of the "comeback kid?"
When he was rehired late Wednesday, Dell became the first so-called boomerang CEO to be brought back to rescue a Fortune 500 company since 2005. Dell, 41 and founder of the PC maker (DELL), replaced Kevin Rollins, 54, who was Dell's hand-picked replacement two years ago.
Boomerangs used to be common. From 1999-2003 an average of 10 former CEOs were brought back each year at the largest 1,500 companies, so many that it prompted Ohio State assistant finance professor Rudi Fahlenbrach to co-author a study published last November called "The Market for Comeback CEOs."
But there were no boomerang CEOs at Fortune 500 companies in 2006 and just two in 2005 (at TJX Cos. and First Data (FDC)), says Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick.
Gaines-Ross blames the drought on Enron, the most infamous boomerang ever when Ken Lay was brought back to replace Jeffrey Skilling in 2001. A few months later Enron tumbled into scandal and bankruptcy. "The sea change in board oversight has created less need for boomerang CEOs," she says. Those who do return will be like Dell, because "founders are the ultimate guardians of corporate reputation," she says.
Michael Dell is a true comeback kid at one year younger than Steve Jobs when Jobs returned to Apple in 1997 to begin his iPod curtain call and oversee a stock rise approaching 2,000%. Jobs is also an atypical boomerang CEO because most leave again within three years, or just long enough to right the company and line up proper succession planning.
It won't be easy for Michael Dell to mimic Jobs, says Jeremy Garlington, who runs an executive leadership consultancy. Unlike Apple, Dell is in an industry "racing to the bottom of the commodity barrel. No one will bet against Michael Dell, but even he would have to admit that a turnaround could take a long time," Garlington says.
The typical comeback CEO has been more like Larry Bossidy, who at 66 returned to run Honeywell (HON) when Michael Bonsignore resigned in 2001; or like Harry Stonecipher, who at 67 replaced Phil Condit at Boeing (BA) in 2003.
Fahlenbrach studied 65 CEOs rehired from 1993-2005. The average age was 61. So common were they that if a retiring CEO remained on the board of directors they stood a 24% chance of getting their old job back. Stocks underperformed the Standard & Poor's 500 index by 25 percentage points in the 12 months before the comeback, but then outperformed the S&P 500 during the next two years by 8 percentage points, Fahlenbrach says.
Dell stock fell 1.7% Thursday to $23.80 on Wednesday night's news. Fahlenbrach says that's fairly typical, because the announcement of a boomerang CEO usually comes with downward estimates of upcoming earnings.
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