'Angry Guy' Ackman Pushes for New Chairman at Penney

William Bill Ackman activist investor jc penney pershing square capital
Norm Betts/Bloomberg via Getty ImagesWilliam "Bill" Ackman, founder and CEO of Pershing Square Capital Management.
By Matthew J. Belvedere
and Scott Wapner

Activist investor and J.C. Penney independent director Bill Ackman is "an angry guy" responsible for tanking the company's stock, management expert Jeffrey Sonnenfeld said Friday, a day after all hell broke loose in the retailer's boardroom.

In a letter to Penney's board on Thursday, Ackman -- whose Pershing Square Capital Management is also one of the retailer's biggest investors -- voiced frustration that the process to fill the CEO job permanently hasn't advanced quickly enough.

In a subsequent letter Friday, Ackman demanded the company's board meet as soon as possible and that Chairman Tom Engibous be replaced. The company had no immediate comment on that latest demand.

"What you have is an angry guy going through his temper tantrums," Sonnenfeld said in a "Squawk Box" interview.
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"We've seen how [Ackman] can inspire the ire of Carl Icahn and get into a mud throwing spat ... akin to Rosie O'Donnell and The Donald. He's capable of the same kinds of things when he's on a board of directors. It's sort of a frat boy affect."

Back in April, Mike Ullman was brought back as chief executive to stem the sales plunge blamed on his predecessor Ron Johnson, who was plucked from Apple's retail side by Ackman in 2011 to turn the 111-year-old Penney into a trendier department store.

Sonnenfeld, a senior associate dean at the Yale School of Management, said that anybody behind the scenes at Apple (AAPL) would say it was Steve Jobs, not Johnson, who created and ran Apple's innovative stores. "[Penney] wrongly brought in Ron Johnson and ... Bill Ackman is the guy responsible for tanking this stock."

J.C. Penney (JCP) shares fell 4.4 percent to $13.05 early Friday, nearing lows last seen more than 10 years ago.

One analyst said the whole spat could keep the company from finding a new leader, provided it actually wants one.

"Sounds like a great working environment that will surely tempt a quality CEO," Stacey Widlitz, president of SW Retail Advisors, told CNBC.

In first his letter, Ackman advocated another management move -- claiming former Penney CEO Allen Questrom has conditionally agreed to return as chairman -- an assertion that Questrom told CNBC is not a done deal. He said he won't come back under hostile circumstances.

"[Questrom] is not the right guy for this job," Sonnenfeld said. "Allen Questrom served for three-and-a-half years, almost four years. What did he do as CEO? ... Almost the same thing as Ron Johnson, miss the customer base of J.C. Penney."

Meanwhile, Penney's current chairman Thomas Engibous said Thursday evening the board "strongly disagrees" with Ackman, and was "extremely disappointed" that his letter was made public. He also called Ackman's latest move "disruptive and counterproductive."

The fundamental rule of corporate governance, Sonnenfeld argued, is that all directors represent the full interests of the company. "You don't represent separate interest blocks. This is not a municipal city council meeting."

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'Angry Guy' Ackman Pushes for New Chairman at Penney

It was repeated so often that it became dogma: Ron Johnson's greatest sin was ditching the sales and coupons. Johnson himself called it a "mistake," and one of his last acts as CEO was to abandon his pricing strategy and bring back the coupons.

While many commenters cheered the coupon comeback, a few were more skeptical of the return to the old regime. In fact, many noted that the retailer was obviously just jacking up prices just so they could lower them again with discounts.

Obviously J.C. Penney needs to bring back the sales and coupons if it wants to attract its wayward customers, but it should probably find a more subtle way to do it. Johnson was criticized for abruptly abolishing coupons without first testing the strategy; if the new management just slaps on higher price tags and then hands out coupons, it risks making the same error in the opposite direction.

One commenter identified herself as a sales associate for J.C. Penney, and said she hated the "dog and pony show" of the old coupon regime. Her comment got more than 300 'likes,' as well as comments from other sales associates who expressed how difficult it was to deal with price adjustments, extreme couponers and confusing sales.

"As an associate, I had Nightmares in Nov & Dec of 2011 when the coupons were out in Groves [sic]," said another commenter, who went on to suggest that the retailer should place limits on how many coupons shoppers can use.

The lesson for management? If you're going to bring back coupons, don't make a complete return to the "death by coupon" era -- it can be a huge pain for your employees.
In overhauling the retailer's apparel offerings, Johnson evidently wanted to transform its customer base into something more closely resembling Abercrombie's young and skinny crowd. Unfortunately, that meant that J.C. Penney's larger customers were left out in the cold.

Various commenters complained that plus-size offerings have dwindled significantly, and that they'd like to see all styles of clothing available in larger sizes. If the new management (which is mainly the old management) wants to win back customers, it will need to make sure customers of all sizes are accommodated.
Several commenters said that they missed being able to shop and order through a catalog.

Sure, most people who can't make it into the store will be inclined to shop online, which is more cost-effective for retailers than shipping out heavy catalogs and taking orders by phone. But members of J.C. Penney's older customer base may not be as technologically inclined, so it's likely missing out on sales by not providing it as an option.

The retailer has already made concession to its older shoppers by bringing back St. John's Bay and other "basic" clothing. Making it easier for them to shop from home would also be a good move.
One innovation that Johnson brought over from the Apple Store was the mobile checkout: Instead of waiting in line, customers could get checked out by a roving cashier toting a smartphone or tablet.
But much like the pricing strategy, mobile checkouts apparently don't play as well in a big department store as they do in the Apple Store (AAPL). We've heard from J.C. Penney employees complaining about the switch, and it looks like customers aren't thrilled either; a few commenters noted, for instance, that the process makes getting a receipt a hassle.

Maybe the system has been implemented poorly, or maybe it's just a case of an older customer base being confounded by innovation. Either way, this looks to be another change that J.C. Penney should scale back or reconsider.
Ron Johnson had a vision of a department store as a marketplace -- instead of just organizing clothes by department, he would have a collection of boutiques, each dedicated to one brand.

But the stores-within-a-store concept might be confusing some customers. One commenter pointed out that the layout makes comparison shopping difficult, forcing customers to visit multiple boutiques just to find a pair of jeans. Other commenters echoed that complaint, noting that they found the layout so frustrating that they left the store empty-handed.

The retailer has burned through a whole lot of cash remaking its stores, so we imagine management isn't thrilled at the prospect of undoing those changes. But if they want to get sales figures back up, they'll need to arrange their stores in a way that makes comparison shopping among its brands easier.
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