Headline: US Corporations Turn to Seasoned Leaders Amid Economic Challenges
In response to current economic fluctuations, many US companies have appointed experienced executives as CEOs to stabilize operations and address investor concerns. Last week, CVS Health announced David Joyner as the new CEO, replacing Karen Lynch. Under Lynch's leadership, the company's shares saw a decline of about 11%. Additionally, CVS revised its 2024 profit forecast downward three times due to rising Medicare-related expenses. A few weeks ago, Nike appointed former senior executive Elliott Hill as the new president and CEO to boost sales and compete more effectively. Earlier this year, Boeing selected industry veteran Kelly Ortberg as CEO to tackle legal and regulatory challenges.
Brian Jacobsen, chief economist at Annex Wealth Management, noted that investors typically prefer executives with proven track records during challenging economic times. According to a report by Challenger, Gray and Christmas, the US saw a record number of CEO resignations this year, reaching 1,450 from January to August, a 15% increase from the same period last year, partly attributed to economic uncertainty. On Monday, Walt Disney appointed James Gorman, a veteran from Morgan Stanley, as board chair. Gorman is also involved in the search for a successor to CEO Bob Iger, who returned to the company after a brief retirement to address the pandemic-induced downturn.
Michael Ashley Schulman, investment director at Running Point Capital, explained that some companies are focusing on stability and experience to implement emergency turnaround strategies rather than pursuing long-term transformation. The success of reinstating experienced leaders or "boomerang CEOs" has been inconsistent. While Steve Jobs and Howard Schultz made successful returns to Apple and Starbucks, respectively, other firms like Dell, Twitter, and Procter & Gamble did not see the same positive outcomes when bringing back former CEOs.
A 2020 study published in MIT Sloan Management Review suggested that "boomerang CEOs" might struggle to adopt new strategies, potentially leading to underperformance. The study showed that companies with returning CEOs lagged behind their competitors' annual stock performance by an average of 10%. Xu Jiang, an associate professor at Duke University's Fuqua School of Business, observed that these CEOs might be overly confident and less adaptable, exacerbating issues if they adhere to old strategies.