J.C. Penney board comes under fire for CEO switch

Tue Apr 9, 2013 3:37am EDT
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By Ben Berkowitz

(Reuters) - The board of J.C. Penney Co Inc is facing scathing criticism from retail investors and corporate governance experts after ousting Chief Executive Ron Johnson and replacing him with his own embattled predecessor, Myron Ullman.

Hours after the switch was announced on Monday, there was at least one call for the entire board to resign, while others suggested shareholders might vote out current board members at the company's next annual meeting.

"It was the wrong thing for the board to do to get rid of Johnson here. With the board firing Johnson now, at this stage in the game, they should tender their own resignation as well," said Brian McGough, managing director and head of the retail group at Hedgeye Risk Management.

Though the board may not face serious legal challenges to the decision, shareholders may question whether its move to replace Johnson with Ullman, who Johnson himself replaced in late 2011, is good for them.

J.C. Penney shares lost half their value during Johnson's tenure after having shed 15 percent during Ullman's time as CEO from 2004 to 2011. The stock price plunged further Monday night on the news of Ullman's return, as analysts blamed him for creating the problems that Johnson was supposed to fix.

Whether Ullman is the right man for the job or not, some said ultimate responsibility for the company's future now lies with the remaining 10 members of the board of directors, four of whom joined in the last five years.

The board said in a statement it picked Ullman because he was well-positioned to move quickly and improve sales, but Ullman himself conceded in an interview that the change was so new he did not yet have a plan.

Governance experts said it was unlikely the board would face legal repercussions for the change.   Continued...

J.C. Penney Chief Executive Ron Johnson testifies in New York state Supreme Court in Manhattan March 1, 2013. REUTERS/Thomas Iannaccone/Pool