The search committee forms, and vets dozens of candidates. Deliberations stretch for months. After an exhaustive process mulling all possible options, a decision is made. The new CEO is — the old CEO.

It’s a familiar scenario of late. Statistically, an uptick in CEOs returning to their former posts is hard to prove, but some high-profile cases – either meant to bring back the magic, or to clean up the mess they helped create – are drawing increased scrutiny. Michael Dell of Dell Inc. and Steve Jobs of Apple are prime examples, as are A.G. Lafley of Procter & Gamble, Myron “Mike” Ullman of J.C. Penney, Howard Schultz of Starbucks and Charles R. Schwab, who returned to his eponymous firm. Most recently, in September, former New York City mayor Michael Bloomberg announced that he will return as head of media firm Bloomberg LP, which he founded.

With all of the talent streaming through the corporate sector and the increased use and sophistication of executive search firms, why are companies going back to the future? Wharton management professor Matthew Bidwell says that companies turn to former CEOs because when they tick off the wish list of qualifications, the person they know often ends up being the best choice. 

“Ideally, you want someone who knows the industry, someone with a clear idea of the company, and someone who has senior level experience,” Bidwell notes. “There is a sense that being the CEO is a job like no other. You are dealing with a wide array of issues and are also the public face of the company, and it’s hard to know whether someone can do it until someone has done it. Your prior CEO is one of those few people.”

Instances of returning CEOs appear to be more frequent, says Mark A. Cohen, a former chairman and CEO of Sears Canada who is now director of retail studies at Columbia University’s Graduate School of Business. Often it signals weak vision on the part of the board, he says. “When a board is composed of cronies, and the retired CEO has a big block of stock, and the stock appears to be collapsing — and the board, by the way, has a big block of stock — they incorrectly reach for same old, same old.”

“It’s hard to know whether someone can do [the CEO’s job] until someone has done it.” –Matthew Bidwell

“I haven’t done an analysis, but I would guess that in tough times, it happens a little more frequently,” adds Richard Vague, managing partner at Gabriel Investments and former CEO of Energy Plus and First USA. “When there are strong tail winds behind the corporate sector, it’s easier for average people to look good, and when the headwinds are strong, you default more toward proven leaders.”

And while bringing back the former CEO may seem like a safe decision, it can also bring unseen folly. “It isn’t always clear that the CEO wants to do the job, at least at the level they did it before,” says Wharton management professor Peter Cappelli, director of the school’s Center for Human Resources. “There is a risk of settling old scores and backing up in terms of direction. The big risk is that the CEO won’t be there long, so it’s yet another transition for the organization.”

Cheap Coffee and the Goldfish Bowl

Whether it’s just as good the second time around hinges on a variety of factors, says Wharton emeritus management professor Lawrence G. Hrebiniak. Among them: whether the CEO still has the support from the board and staff he or she had on the first tour of duty; whether conditions in the industry have changed in intervening years, and a certain dash of luck. 

Hrebiniak cites J.C. Penney, where retired CEO Ullman was brought back 17 months after former Apple retail chief Ron Johnson failed to reinvent the store with a new hip edge. “Conditions in the industry changed in those 17 months, and Ullman came back, but frankly he was facing a wall of competition and opposition, and he hasn’t been able to pull the company back,” notes Hrebiniak. “Schultz leaves Starbucks, the stock plunges by 50%. Why? Competition from Dunkin’ Donuts. Schultz comes back and introduces new varieties of coffee and starts giving away free samples, and it’s having some effect, but Starbucks has not come back to its dominant position. Competitive conditions can trump even a returning strong leader’s actions.”

A beneficiary of sheer luck was Schwab, says Hrebiniak. “Schwab left his company [when] he felt the company had lost its heritage, had lost touch with customers, that the culture had changed. He was coming back to [bring] back the old Schwab, yet he was lucky. He came back right after the tech bubble burst — and when you’re coming in when things are at the bottom [and] things can’t get worse, there’s a higher probability they will get better.”

That said, it also matters how the public discussion gets framed around a returning CEO, says Bidwell. “It’s a tricky argument to make, isn’t it?” he notes. “I mean, I think it’s easier in the kind of Starbucks, Dell, bringing-back-the-magic case than it is in the J.C. Penney we-really-screwed-up case. I think in that case it’s transparent: ‘We made a mistake; we recognize that we made a mistake. We’re doing our best to fix it.’ That is strongly how it appears outside, and it’s not clear to me that it’s a terrible storyline. It’s embarrassing. But on the other hand, it’s nice to see people confronting the issues rather than stubbornly staying the course when it’s not working.”

“Boards … want to hire someone who is a known quantity because they are working in a goldfish bowl.” –Lawrence Hrebiniak

In fact, Hrebiniak points out, public perception might be an inhibiting factor in boards’ willingness to take chances on outside choices for CEO spots. “Everything is transparent now, and because of this transparency, people are quick to criticize,” he says. “Boards have become very conservative. They want to hire someone who is a known quantity because they are working in a goldfish bowl.”

Several observers say boards may be choosing to bring back former CEOs out of fear of market reaction. But one 2007 study found that despite an immediate downward market reaction to such announcements, longer-term financial performance was unaffected. “While the market reacts negatively to the rehiring announcement, the accounting and stock market performances of rehired CEO firms do not differ from those of a control sample over the two years following the turnover,” wrote Rüdiger Fahlenbrach, Bernadette A. Minton and Carrie H. Pan in “The Market Comeback for CEOs.” “Our evidence suggests that firms rehiring their former CEOs hire the best available candidate given the circumstances.”

Go-Getters Get Going

When a company is considering the return of a former CEO – or any employee – it’s important to consider a number of questions, says Hrebiniak: “What has this person been doing since he left — has he been successful? Has he been doing something in some other industry we didn’t see the first time around? Was he held back by a culture that didn’t make him shine? What were the conditions that led to his ouster, and have those things changed? And if we bring this more experienced person back to the company, can we say that conditions are more conducive to success?”

Bidwell says professional growth is an important consideration, but so is the question of why the CEO left the first time. “It may be that the decision to fire the CEO initially was something that the entire board was not comfortable with, or driven by a particular group within the board, so part of what’s happened is a slight shift within the board as well [i.e.] ‘We tried our idea, and that was disastrous, so we’ll go back to plan A.’”

In that case, it’s important for the returning CEO to have some skin in the game, such as founder status or stock ownership, says Martin Conyon, a senior fellow at Wharton’s Center for Human Resources and professor at the University of Lancaster (U.K.) management school. “There are two sides to this market transaction, not only the demand for the CEO on the part of the board, but secondly the willingness of the former CEO to do the job,” he notes.

But why aren’t boards better prepared for CEO turnover with a succession plan? After all, CEO turnover has been on the rise since 2008, according to several studies, and companies have become more proactive about developing succession plans, according to Strategy&, formerly Booz & Company. “Companies are now planning carefully to ensure they have the leaders they need,” stated a 2013 report published by the firm. “Planned successions made up 72% of all 2012 successions (up from 69% in 2011), and forced turnovers were at 19%, their second-lowest share ever. This shift indicates that companies are now able to take a more thoughtful approach to transitions.”

“There is a lot more time and effort involved in getting to know all the nuances of a company than is generally appreciated.” –Richard Vague

But that’s not necessarily the impression out in the field. “Most companies have no effective succession planning, or if they do it’s flawed, as evidenced by CEOs who are anointed who fail,” says Cohen. Effective succession planning is easy on paper, hard in practice, says Vague — no matter the route you choose. “If you have a visionary executive, it’s hard to have someone underneath them willing to stay under them for 10 or 20 years,” he notes. “It’s hard to find someone who has demonstrated that vision in another context. I don’t think there is a formula as such. I have been a party to numerous succession plans where the organization carefully maps out what they need, a person steps in and the moment of truth comes and that person may not be able to deliver. It’s extraordinarily hard. It’s human nature – if you are an independent go-getter, the question is really how much are you willing to support the CEO and for how long? And for true leaders, the answer is not that long.”

One potential CEO pipeline, Vague says, could be sitting under the board’s nose. “Organizations that are truly decentralized with several operating entities with no overlapping, and where folks can operate with autonomy, that’s where you are most likely to find the most successful context for seeing a successful succession. They’ve got plenty of room to operate, they haven’t been sitting right under the CEO taking orders. They’ve been initiating action.”

Vague adds that “there is a lot more time and effort involved in getting to know all the nuances of a company than is generally appreciated. There is a lot of complexity, a lot of personalities, a lot to know about the competition, a lot of knowing where the bodies are buried. That really takes even the most extraordinary executive a while to come to grips with, and in particular in periods of concern, bringing back a CEO who has done well in the past eliminates that period of learning, which frankly may be a year or two or three.”

As examples of returning CEOs who have made a success of it, Cohen cites Starbucks and P&G. “Lafley has a much bigger view than just quarterly results. He keeps the company on a successful strategic path and doesn’t preside over a stricture of allowing the company to just play to the crowd,” he says. “The same thing [is true] with Starbucks. [Schultz’s] successor started opening stores as if there were no consequences for forever-proliferating Starbucks, and when Schultz came back, they closed stores. Also, his successor seemed to lose sight of the mojo that made Starbucks special, where the CEO lives and breathes the products they preside over.”

For a worst-case scenario of a former CEO’s return, there’s one ignominious episode that still stands out. Conyon points to Enron: “Ken Lay came back,” he says, “and that didn’t work out well for anybody.”