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MarketWatch First Take: ‘Steve Jobs Syndrome’ strikes as Disney brings back Bob Iger, but history says that’s a bad idea

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Apple Computer Inc. brought Steve Jobs back to the company in 1997 and found amazing success, but that has led to a “Steve Jobs Syndrome” that convinces companies to bring back formerly successful top executives even as an academic study shows it may not be a good idea.

The Walt Disney Co.
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is the latest to rehire a former chief executive, surprising investors with the news of the return of Robert Iger to replace his handpicked successor, Bob Chapek. It follows the return of Howard Schultz to Starbucks Corp.
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earlier this year, as that company faced a unionization wave, and makes one wonder if Amazon.com Inc.’s
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board will urge Jeff Bezos to return if that company can’t pull out of its current doldrums.

Wall Street was effusive in its praise of the move, with Disney shares surging nearly 6% on Monday after the news was announced. The tenor among analysts was clear in a note by MoffettNathanson analysts entitled, “The Magic is Back.”

“We have never hidden our affection for Mr. Iger and the job that he did in building Disney into the global powerhouse that it has become,” Michael Nathanson of MoffettNathanson wrote in a note to clients Monday. ” We have not recommended the shares since May 2020 for multiple reasons, including concern that the former CEO Bob Chapek had become wedded to a streaming strategy that did not make sense given today’s reality.”

More from Therese: As Netflix and Disney move into ads, will Roku look to sell?

That excitement should be tempered, though, as academics believe this type of hire does not succeed, on average. Known in those circles as a “boomerang CEO,” a study instead shows that the returning executive can face special challenges that put them on the same footing as any new CEO.

Iger has been rehired for a two-year period to embark on an operational turnaround of the entertainment icon, a tough task for any seasoned CEO. But according to a study published in 2020 by the MIT Sloan Management Review, a company may be unrecognizable since their departure, because the business conditions differ dramatically — which may be apt for Iger’s return.

The MIT study concluded that boomerang CEOs actually are not always the saviors that Wall Street is hoping for. “Boomerang CEOs indeed performed significantly worse than other types of CEOs,” was the conclusion. The authors compared data on 167 boomerang CEOs from 1992 to 2012 from the S&P Composite 1500 Index, and compared their tenures with 6,000 other non-boomerang CEOs.

“On average, the annual stock performance of companies led by boomerang CEOs was 10.1% lower than their first-stint counterparts. These results held true even when we compared them with other (non-boomerang) CEOs who were hired in times of crisis,” the report said.

Among some of the failed comeback attempts were Paul Allaire at Xerox Holdings Corp.
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Twitter co-founder Jack Dorsey’s return and Jerry Yang’s second stint at Yahoo. Shultz’s return to Starbucks and Jobs’ much-heralded return to Apple both took a tactic of returning each company to its roots: In Apple’s case, Jobs focused on innovation and simplicity in its products and lineup, while Shultz focused on Starbucks’ core principles that made it initially successful as a premium coffee company. Jobs also guided the development of the iPhone, arguably the most important innovation in technology in the past 25 years.

In Disney’s case, Iger is returning to a strategy he largely put in place before stepping down as CEO just ahead of the COVID-19 pandemic and as executive chairman at the end of last year. Since he left the company at the end of 2021, Disney shares are down about 37%, compared with a 17% year-to-date decline for the S&P 500
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For more: Disney stock rockets upon Bob Iger’s return, as ‘perhaps the best leader in media’ is back

Much of that stems from disastrous fiscal fourth-quarter results, which made it clear Disney is relying on the profits of its theme-park business to fund its foray into streaming, with operating income in its media and entertainment business falling 91% in the quarter.

Investors have also been concerned about Chapek’s overly optimistic subscriber targets, a potentially risky scenario in a down economy with a recession looming around the corner. As Morgan Stanley analyst Benjamin Swinburne summed it up, Disney’s shares are “already reflecting macro pressure on the parks business and not reflecting any significant value for Disney’s streaming business. Specifically, Disney’s content is under-earning and under-monetized.”

Again, though, that is largely a product of the strategy Iger put in place as CEO and oversaw until less than a year ago as executive chairman. The one difference is Iger’s seemingly magical ability to woo Wall Street — while Chapek’s performance in a conference call following those results led to shares falling even further in after-hours trading, Iger has shown an ability to rescue shares with his words and hints about coming changes even in tough times.

Iger’s return, amid so much hope and anticipation, will be clouded with a slowing economy. He will be under pressure to change a strategy he largely put into place amid inflation and a potential recession that he cannot control. The expectation that Iger can pull another Steve Jobs is going to weigh heavily on him over the next two years, and history is not on his side.

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