Retired CEOs Are Coming to Rescue of Faltering Firms
When the European Union blocked Honeywell International’s merger with General Electric last month, throwing Honeywell into limbo, its board of directors knew they needed a new leader fast to reassure skittish shareholders and stabilize the company.
They didn’t look far.
The board had already been courting retired Chief Executive Lawrence Bossidy. Within hours of the EU’s announcement, CEO Michael Bonsignore was out and Bossidy was back at the helm of the automotive and aircraft equipment maker in Morris Township, N.J.
With so many other companies laying off workers amid a slumping economy, falling sales, missed earnings targets and plunging stock prices, a number of major corporations have tried bringing back a respected leader from retirement.
“I think we started really seeing it about a year ago,” said John Brandt, editorial director of Chief Executive magazine. “I call them re-CEOs.”
Companies that have reappointed a retired chief executive, at least temporarily, amid a leadership crisis include such household names as Xerox, Campbell Soup and computer makers Apple and Gateway.
Sometimes the executive’s chair is barely cold when company directors call.
At San Diego-based Gateway, founder and Chief Executive Ted Waitt left in January 2000. A sales slump and layoffs led the board to announce last January that Waitt was returning as CEO; the news sent Gateway’s shares up nearly 15%.
Others include telecommunications giant Lucent Technologies, financial software company Intuit and the nation’s largest for-profit hospital chain, HCA. Contact lens maker Bausch & Lomb rehired its previous CEO last month, and fiber-optics maker Corning did the same in June.
“I think there’s generally acclaim from the shareholders when they bring back these legendary CEOs,” Brandt said. “They tend to be someone who had a run of anywhere from five to 10 to 20 years and really established a role of dominance and leadership.”
One reason for the trend is that corporate boards often must give an outgoing CEO a golden parachute worth tens of millions of dollars, said Yale Tauber, senior executive compensation consultant at William M. Mercer.
If no internal candidate is ready to take over, the board probably would have to pay millions more to lure a CEO away from another company--to make up for unvested stock options and other perks the executive would lose by changing jobs.
“So who better but to take the CEO whom I know and like, at least for the time being?” Tauber said.
That person already might be drawing a pension and thus is less likely to demand big bucks.
“I do expect more [of this] because we have much more shareholder activity, much more media coverage, and boards are much more sensitive to their responsibilities,” Tauber said.
Honeywell’s board saw plenty of appeal in Bossidy, who delivered 31 straight quarters of earnings growth and increased productivity during his tenure as CEO of Morristown, N.J.-based AlliedSignal from 1991 through April 2000. Bossidy engineered the 1999 merger of that company with Minneapolis-based Honeywell, then stepped aside a few months later.
While GE appeals the European Union’s ruling, Bossidy must review Honeywell’s options, continue integrating the Honeywell and AlliedSignal businesses and boost falling operating margins.
At Lucent Technologies in Murray Hill, N.J., Henry Schacht, the first CEO of the AT&T; spinoff, remained at the helm until October 1997. He was a consultant to the once highflying maker of telecommunications equipment until February 1999.
Under successor Richard McGinn, Lucent stumbled repeatedly, misreading trends, missing earnings targets and even restating previously reported earnings. Schacht was brought back in October 2000. He’s since cut tens of thousands of jobs and started a restructuring and cost-cutting plan that even eliminates free coffee for employees.
Sometimes a CEO’s reincarnation is brief, with a carefully chosen successor soon in place.
At Campbell Soup in Camden, N.J., CEO Dale F. Morrison resigned suddenly in March 2000, after a year of disappointing earnings and a difficult restructuring. Directors at the world’s biggest soup maker promptly brought back David W. Johnson, the CEO who tripled the company’s market value from 1990 through 1997.
Johnson beefed up marketing and instituted a back-to-basics plan focusing on soup. He retired again in January, when the board installed Douglas R. Conant.
“Often the CEO will come back because he or she has been with the company a long time, built it all up and as a matter of pride doesn’t want to see it destroyed,” Tauber said.
