When things go wrong, companies often re-install retired CEOs

By Linda A. JohnsonAP Business Writer
Monday August 20, 2001

TRENTON, N.J. – When the European Union blocked Honeywell Inc.’s merger with General Electric last month, throwing Honeywell in 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 Morris Township automotive and aircraft equipment maker. 

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 Honeywell’s strategy, 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. 

In Cupertino, Apple Computer co-founder Steve Jobs left the company in 1985 but returned as an adviser in 1996. The following summer, the board removed CEO Gil Amelio after several years of losses and named the charismatic Jobs interim CEO. 

In January 2000, after slashing costs, introducing popular new computers such as the iMac, returning Apple to profitability and sending its stock shares soaring, Jobs reassured Mac enthusiasts by dropping the “interim” from his title. 

Sometimes the executive’s chair is barely cold when company directors call. 

At San Diego-based Gateway Inc., founder and chief executive Ted Waitt left in January 2000. A sales slump and layoffs led the personal computer maker’s board this January to announce Waitt was returning as CEO; the news sent Gateway’s shares up nearly 15 percent. 

Others include telecommunications giant Lucent Technologies, chemical maker Hercules Inc., financial-software company Intuit and the nation’s largest for-profit hospital chain, HCA. Contact lens maker Bausch & Lomb last month rehired its previous CEO as chairman, and fiber-optics maker Corning Inc. did the same thing 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 5 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 the outgoing CEO a golden parachute worth tens of millions of dollars, said Yale Tauber, senior executive compensation consultant at William M. Mercer consultants. 

If no internal candidate is ready to take over, the board likely 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 might already be drawing a pension, and thus 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 while CEO of Morristown-based AlliedSignal from 1991 through April 2000. Bossidy engineered the December 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 all the Honeywell and AlliedSignal businesses and boost falling operating margins. 

At Lucent Technologies in Murray Hill, Henry Schacht, the first CEO of the AT&T spinoff, remained at the helm until October 1997. He was a consultant to the once high-flying maker of telecommunications equipment until February 1999. 

Under successor Richard McGinn, Lucent stumbled repeatedly, misreading industry 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 Co. in Camden, 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 rather than other food products. He retired again in January, when the board installed veteran food company executive Douglas R. Conant. 

Occasionally the CEO reincarnation is a personal mission. 

“Often the CEO will come back because he’s or she’s 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.