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JCPenney Board Plays Russian Roulette Succession

Recently a fight broke out among the board of JCPenney about the retail giant’s future and who should lead it. Hedge fund activist Bill Ackman wants the board to find a long-term replacement for Mike Ullman, who was brought back from retirement after the board fired former Apple marketing executive Ron Johnson last Spring. The retail giant, still tumbling from earlier management shake-ups, now faces a gun-to-our head succession process. The outcome will not be pretty.

JCPenney’s search for a new CEO should not be undertaken with a “gun to the head” mentality,” says Michael W. Peregrine, a partner at McDermott Will & Emery who focuses on corporate governance issues and on succession planning. “Rush the process, and you’ll just make a mess of it,” says Peregrine. “If the board after careful analysis—and considering the alternatives—thinks the interim CEO is the right guy for the permanent position, then that’s their call. But they better be right, when we’re talking about a company in upheaval.

Peregrine adds that “Ackman’s point is well taken to the extent it underscores the vital need for boards to have an up to date, fully vetted and reliable executive succession plan in place. This means plans for both permanent and emergency succession.”

Last April the board abruptly dismissed former Apple executive Ron Johnson and brought back Mike Ullman to replace him on an interim basis. Yet in frustration, Ackman who is the company’s largest shareholder, wrote a letter to the board indicating he wants a new CEO installed in less than 45 days.

His letter to the board reads in part as follows:

Considering the scale of J.C. Penney, the seriousness of the issues it faces, and the complexity of its business, there are only a handful of executives with sufficient talent and experience to take on the CEO role. We need a CEO with extensive, ideally department-store retail experience, strong operational skills, and a strong public company track record. When non-competes, geographical considerations, and other personal and timing issues are considered, the number of potential CEO candidates is quite limited.

Allen Questrom, who saved the Company once before – the stock rose from $13.94 to $39.10 during his four-year tenure – has agreed to return as Chairman of the board and assist in the turnaround as long as we hire a CEO that he supports. Allen believes that a thorough vetting of the limited potential available candidates can be accomplished in 30 to 45 days.

For his part Questrom isn’t interested in coming back without full support of the board. And who can blame him? So far the board hasn’t shown a great deal of unanimity around its CEOs for any great length of time. In an interview with CNBC, however, Questrom said that he would only consider a return to the embattled retailer under the right conditions— adding that he would not come back under hostile circumstances. Questrom said he was strongly in favor of bringing back Ullman last April.

Some argue that the search for a new CEO should not take more than 30 to 45 days, as there are probably not more than five people who’d be qualified for the job. But if that were true such candidates would have already been approached long before this. CNBC reports that the board “strongly disagrees” with Ackman. “Mike is the right person to rebuild” Penney, board chairman Thomas Engibous said. This suggests that the board is not of one mind about certain basics of mission, goals, strategy and execution. Some like Ackman would appear to be searching for an Arthurian-like savior to bring the company back to an earlier golden age. The truth is tragedies and triumphant comebacks of great leaders are remote, bordering on the mythological. Steve Jobs managed it at Apple. Jamie Dimon returned to power to lead BankOne and JPMorgan Chase. But for most companies there is no substitute for the hard, plodding work of long-term succession planning, the kind that saved McDonald’s when it tragically lost three CEOs in the space of just over a year. That board had its wits about them. There’s no reason why Penney’s can’t do the same.




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