In November 2011, hedge fund manager Bill Ackman brought Ron Johnson from Apple to J.C. Penney. Johnson was considered a retail genius…
…the man behind the success of the Apple Stores. It was the “rock-star CEO who can walk on water” problem all over again.
Johnson received 52.7 million dollars on joining and invested 50 million of his own money in the company.
He immediately fired a string of existing executives and brought in his former Apple colleagues. The message was clear: the old team is no good.
His biggest mistake: instead of living near the headquarters in Plano, Texas, he commuted from California by company jet. J.C. Penney’s staff read that as: he thinks he’s too good for us.
Asked whether he wanted to test his radical pricing strategy first, Johnson replied: “We didn’t test at Apple.”
The problem: J.C. Penney’s customers loved discount coupons and bargain hunting. Johnson scrapped both and introduced “fair and square” everyday pricing.
Customers stayed away. Johnson said they needed to be “educated”, and compared the coupons to a drug customers had to be weaned off.
The result:
in the fourth quarter of 2012, comparable sales fell by 32 per cent, “the worst quarter in retail history”. After just 17 months, Johnson was fired.
The share price had lost more than half its value, and revenue had fallen from 17.5 to 13 billion dollars.
The bitter part: Johnson had staked his entire fortune, moved his family and genuinely believed in his vision.
The cost of the “executive transition”, the severance payments for him and his Apple colleagues, came to 170 million dollars. Thousands of J.C. Penney employees lost their jobs.
Where the process really went wrong:
the board had been dazzled by Johnson’s success at Apple without checking whether his experience fitted J.C. Penney.
Cultural fit was ignored; they believed a star CEO could transform any culture.
The systematic errors behind wrong appointments like this:
Desperation hiring
In 55 % of searches, too little time was planned. The result: a superficial search and interviews that don’t uncover the risks.
No success criteria
The five best predictors of long-term success are self-motivation, leadership ability, comparable past performance, job-specific problem-solving and adaptability.
The “we know someone” mistake (in my experience one of the worst of all, made even by the most intelligent people I’ve worked with)
A board member favours a well-known name.
A CEO or investor relies on shared history instead of fit.
Have you ever witnessed a misstep like this in an appointment?
