J.C. Penney Board Member Resigns After Criticizing Management
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There's been a shake-up at the board of directors at J.C. Penney. Hedge fund manager Bill Ackman is resigning. Ackman had been unusually outspoken. He publicly criticized J.C. Penney's management. And as NPR's Jim Zarroli reports, his departure could mean the end of a bitter power struggle at the company.
JIM ZARROLI, BYLINE: Bill Ackman of Pershing Square Capital Management is known as an activist investor. That's someone who buys into troubled companies and then tries to transform them. Ackman has sometimes engaged in very public fights over the direction a company should take, says Jeffrey Sonnenfeld, associate dean at the Yale School of Management.
JEFFREY SONNENFELD: I think he tends to go for a lot of fireworks and a lot of noise, and that is just not an effective way to produce change.
ZARROLI: Over the past few years, Ackman set his sights on the iconic retailer J.C. Penney. The company had been hard-hit by the recession and was having big trouble competing with newer retailers like Kohl's and Target. Ackman gradually acquired nearly 18 percent of its stock and took a seat on its board. In an interview with Reuters this year, he talked about the company's promise.
WILLIAM ACKMAN: J.C. Penney has huge structural competitive advantages by virtue of its asset base, by virtue of its brand. It's a good place to start, but it doesn't guarantee success.
ZARROLI: One of the changes that Ackman pushed through was the ouster of Penney's CEO Myron Ullman. He was replaced by Ron Johnson, a former Apple executive. With Ackman's backing, Johnson pushed through a dramatic overhaul of Penney's retail strategy, says Sonnenfeld.
SONNENFELD: Bill Ackman came on board to J.C. Penney seeing an opportunity, with a misguided premise that he could, quote, unquote, "make things happen fast."
ZARROLI: But the new strategy was widely seen as something of a disaster. Among other things, the company did away with discounts, and sales dropped 25 percent. Earlier this year, Johnson was fired, and Ullman was brought back as interim CEO. In the months since then, Ackman has pressed the board to name a replacement for Ullman, and when it didn't do so, he made public a letter criticizing the direction that the company was taking.
Robin Lewis is CEO of a retail industry newsletter called The Robin Report. Lewis says the unusually public nature of the dispute probably undermined confidence among Penney's vendors.
ROBIN LEWIS: So when they see this kind of instability, it is counterproductive. It's disruptive. It shakes people up, and vendors don't - you know, they begin to feel uncomfortable.
ZARROLI: Now, Ackman has apparently cried uncle. The company said this morning that he had decided to resign from the board. Ackman issued a statement saying his departure is the most constructive way forward for J.C. Penney and all other parties involved. Lewis says that with the end of this dispute, the company can resume the difficult task of becoming more competitive.
LEWIS: I think the intended purpose here is to calm everybody down, to step back and let Ullman do the job they ask him to do.
ZARROLI: But Ackman is not completely gone. His firm remains Penney's single biggest shareholder, and for now, he can't sell his shares without taking enormous losses. So Ackman and his firm will continue to have a huge interest in what takes place at the company. If the past is any guide, he will make his feelings about J.C. Penney known publicly. He just won't do it as a board member. Jim Zarroli, NPR News, New York.