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Ron Johnson ex-CEO JC Penney – Where Did the Board Go Wrong?

April 9, 2013
Ron Johnson, ex-CEO JC Penney

Ron Johnson, ex-CEO JC Penney

JCPenney has replaced Ron Johnson as CEO just more than one year after he joined, coming from Apple, the company revealed in a statement late Monday, April 8, 2013.

In January of 2012, Ron Johnson, the new C.E.O. of J. C. Penney, gave a speech unveiling his ambitious strategy for reinventing the old retailer. It was a much anticipated event. Penney was directionless and barely profitable, and Johnson was a retail superstar. He had helped make Target hip, pioneering partnerships with big-name designers like Michael Graves, and had then moved to Apple, where he orchestrated the creation of the Apple Store. Johnson’s presentation did not disappoint. He made it clear that he wasn’t going to just stabilize Penney; he was going to revolutionize it.

Johnson helped spearhead the strategy for Apple’s massively successful retail operation and tried to apply some of that magic to JCPenney. He attempted to refresh the JCPenney shopping experience by getting rid of the retailer’s coupon program, but ended up frustrating customers instead.

Fourteen months later, J. C. Penney is America’s favorite cautionary tale. Customers have abandoned the store en masse: over the past year, revenues have fallen by twenty-five per cent, and Penney lost almost a billion dollars, half a billion of it in the final quarter alone. The company’s stock price, which jumped twenty-four per cent after Johnson announced his plans, has since fallen almost sixty per cent. Twenty-one thousand employees have lost their jobs. And Johnson has become the target of unrelenting criticism. “There is nothing good to say about what he’s done,” Mark Cohen, a former C.E.O. of Sears Canada, who is now a professor at Columbia, told me. “Penney had been run into a ditch when he took it over. But, rather than getting it back on the road, he’s essentially set it on fire.”

Read more: http://www.newyorker.com/talk/financial/2013/03/25/130325ta_talk_surowiecki#ixzz2PzLrcVgg

To be sure, being a change-agent is risky and tough emotionally for both the leader and the organization. JCPenney needed to be refreshed and Johnson appeared to be enough of an “out of the box” thinker to make it happen.

Maybe they didn’t get it wrong. What if the board, in rationalizing the hiring of Johnson had said in January 2012, “We are in a bad situation, if we don’t take big risks we’re dead, if we take big risks and fail we’re dead. So what the hell, let’s take the risk and go for it.” or maybe “The jury will be out for several years. Ron Johnson will set the stage for JCPenney’s total reinvention. It will be successful in the end.“?

The More Likely Scenario. The board wanted a fresh new direction.  Certain individual board members were aggressively (maybe a better word is “arrogantly”) demanding a change that included major innovation to the brand, the product and the customer (yes, they wanted a different customer). The board saw internal managers as too slow to change, too slow to adopt new thinking, too dedicated to the current customer demographic, too satisfied with the status quo and incremental change. The board wanted an executive at the top who not only had previous success in creating an innovative retail success story but one who had enough ego to put a blanket on the internal nay-sayers (one who denies, refuses, opposes, or is skeptical or cynical about something). In other words, the egos on the board wanted someone like themselves. Someone with a bigger than life ego.

Regarding Johnson’s acceptance of the top role at JCPenney, Herb Greenberg, a senior stocks commentator for CNBC, states “We’re talking about somebody who, for whatever reason, had walked away from one of the most successful built-from-scratch retailers of our time. Turns out I hadn’t counted on the one most obvious stumbling block: ego. Ego can fool even the smartest CEOs into thinking they’re smarter than they really are, and Ron Johnson will go down as a classic example of that.”

“This became evident on January 26, 2012, when Johnson led his new management team through an analyst event in New York where he laid out his plans for the new JCP.”

“If you go back and re-read the presentations, they’re impressive and gutsy and slick. Never mind that Johnson invoked “Apple” too many times. So much of what he said, on the surface, made so much sense. And he said the transformation of the old J.C. Penney to the new JCP would take years. As a natural naysayer and skeptic, I’ve learned there are some things you just don’t know — the success of turnarounds, among them” stated Greenberg.

Johnson went so far as to say, “Will we become America’s favorite store?” he said. “Only time will tell…”

Yet after his COO laid out the guidance, Johnson not only supported but harkened back to his days at Apple (yet again) and said: “I come from a company that hasn’t missed guidance 25, 30, 40 quarters. Right? Sometimes the street guides ahead and we miss the street guidance. But I really believe in credibility, and there is absolutely no way [in] that guidance for 2012 that we didn’t have extraordinary confidence we could meet or exceed.”

Greenberg then states, “At that point, so early in the game, it became clear: Johnson was in over his head.”

Moral of the story: Like so many before him, Ron Johnson learned the hard way: Hubris can be extremely humbling.

An Alternative Ending starts with the Hiring Process.  Lets’ say that back in 2011 the board participated in defining what the CEO role was accountable for delivering to the board in the first 12 – 24 months. They then participated in completing a simple job benchmarking survey based on those agreed upon key accountabilities. The composite of all board member results were compiled into a final job benchmark (55 factor talent target). Once candidates were identified, the board employed a state-of-the-art talent assessment (55 factors) to fully understand who they were considering. All candidate assessments were compared to the job benchmark (referred to as a Gap Analysis). Of course, the board engaged an independent consultant (may I recommend The Nielson Group?) to walk them through this process and enable them to select the right candidate.

The “alternative process” described above has been something used with great success to hire people at all levels of an organization across all industries. An interesting phenomena that seems common at the highest levels (attitude common among board members – remember those egos) is that “a top talent isn’t going to be willing to complete an assessment.” Another common phenomena is the CEO’s fear of not staying in control of the decision, consequently, we see CEOs using the process and the assessments for all other positions except for hiring their direct reports. For those assumptions by the board and the CEOs, both are false. If a candidate refuses to complete an assessment, one of three things have happened: 1) They aren’t really interested in the job 2) They are pretty sure the assessment will reveal a role-related weakness and significantly reduce their chances of getting the job or 3) The request to the candidate was not handled properly and the assessment was not explained. For CEOs or corporate boards that fear they will lose control of the decision-making process, the assessments we use do not replace other crucial considerations such as industry experience, key relationships, success track, compensation requirements, interviews, etc. Instead, our assessments offer a detailed view into “how” the future will unfold. Our clients actually tell us we “predict the future”.  What if a board had to hire someone without knowing anything about the candidate’s experience? Why would any board or CEO not want a full talent profile on their top candidates? And what if a second tier candidate turns out to be the ideal talent for the position? What if a 2nd tier candidate looks very sexy with the Target and Apple experience (wrong situational success stories for JCP situation) and that candidate did not have the proper talent profile for what the board was wanting. Maybe then, the board members who sat back and let a billion dollar mistake happen would have sat up and spoken.

The Nielson Group is in the business of coaching organizations for breakthrough performance. We offer executive coaching, team development (including boards, leadership teams and cross-functional multinational teams) and hiring and selection strategies. To discuss your organization’s biggest challenge, contact Carl Nielson at (972) 346.2892.

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One Comment leave one →
  1. Carol Boring permalink
    April 15, 2013 1:17 am

    I had been a J.C. Penney cardholder and shopper for many years. I always looked forward to their little catalogs, and I purchased many things for my home from their catalog. I also purchased clothing, etc. in their stores. However, they lost me as a customer last year. Their stores are quite empty now, and in trying to appeal to young and “hip” customers, they have lost their customer base. Also, there was no reason for them to enter the “culture war” and promote homosexuality with their catalogs. The new catalogs are quite boring, and they constantly cut off the tops of people’s heads. The first “new” catalog didn’t even have product numbers on the products.

    Like

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