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J.C. Penney High-Flying Executives Seen Hampering Revamp
March 21, 2013
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  • By Sapna Maheshwari

    J.C. Penney Co. (JCP) Chief Executive Officer Ron Johnson, who is struggling to overhaul the department-store company, risks making his task harder by hiring at least nine key executives who live a plane ride away.

    Johnson, 54, and executive vice presidents Ben Fay and Laurie Miller commute from California to the retailer’s headquarters in Plano, Texas, said three people with direct knowledge of the situation. Chief Creative Officer Michael Fisher and senior design and trends executive Nick Wooster fly from New York, while construction executive Bob Laughrea commutes from Boston, said the people, who asked not to be identified, citing agreements with the company. The company pays for the commutes, they said.

    “For a company that’s in turmoil, you really do have to have the senior leaders of a company, if for no other reason than showing face time, show that they’re committed, accessible, aware of what’s going on there,” Howard Gross, managing director of the retail and fashion practice at executive search firm Boyden in New York, said in a telephone interview. “To have them not be there on a regular basis I think sends a very, very bad message.”

    Much hoopla accompanied Johnson’s appointment as J.C. Penney’s CEO in November 2011 because as Apple Inc. (AAPL)’s retail chief he helped make the iPad seller’s stores a hit. Many of the long-distance commuters are former colleagues from Cupertino, California-based Apple.

    Falling Sales

    Johnson’s first year at J.C. Penney hasn’t gone well, with sales falling 25 percent to $13 billion, the lowest since at least 1987. The shares declined 49 percent from Nov. 1, 2011, the day Johnson took over as CEO, through yesterday. The Standard & Poor’s 500 Index gained 27 percent in that time. J.C. Penney fell 0.7 percent to $16.17 yesterday in New York.

    J.C. Penney has three jets registered to it, two Gulfstream G450s and one Gulfstream G-IV, according to the Federal Aviation Administration’s website.

    “Regardless of where our executives are based, their work requires extensive travel visiting stores and distribution centers; meeting with current and potential business partners across the U.S., Europe and Asia; as well as exploring new developments for possible expansion,” Kristin Hays, a spokeswoman, said in an e-mail.

    While most of the company’s leadership is based in Plano, “it’s important that leaders devote their time and energy on transforming the company wherever their job responsibilities require them to be,” she said.

    ‘Permanent Residence’

    “Several of the people who currently travel to Plano from other cities are in the process of setting up permanent residence here and are moving to the Dallas area,” Hays said. “With all the travel retail leaders do, it doesn’t always make sense to uproot and relocate their families, move them away from friends and family to a new city — only to be gone traveling to visit vendors, stores or overseas.”

    The company declined to make the commuting executives available for comment.

    A typical round-trip flight on a Gulfstream GIV-SP between Dallas and San Jose, California, costs about $41,817, according to a quote from Starbase Jet, which says it’s the largest private-jet company in Texas. Quotes for that plane are nearly identical to those for a G450, according to Starbase, which has offices in Houston and Addison, Texas.

    The merits of telecommuting and office face time have been debated recently after Yahoo! Inc. CEO Marissa Mayer last month ordered staff to report to offices. Being side by side fosters collaboration and improves work “speed and quality,” Jackie Reses, Yahoo’s executive vice president of people and development, said in a memo to employees when the change was announced.

    California Fridays

    The J.C. Penney executives who live in California often spend Fridays working in an office there after departing Texas on Thursdays, the people said. J.C. Penney, with about 1,100 locations, has offices in Texas, California and New York, Hays said.

    Remaining in California was part of Johnson’s agreement to lead J.C. Penney. He and his wife have school-age children and they decided it didn’t make sense to “uproot the family given his travel schedule,” Hays said. Johnson was recruited to J.C. Penney in 2011 by billionaire investor Bill Ackman, whose Pershing Square Capital Management LP is the company’s biggest shareholder, with an 18 percent stake.

    Apple Alumni

    J.C. Penney human resources head Dan Walker also is based in California, along with Sissie Twiggs, vice president, and senior vice presidents of sourcing Amy Leonard and Donna Isralsky, the people said. Walker, Twiggs, Fay, Fisher, Laughrea and Miller have all worked at Apple, according to the people, company announcements, public records and profiles on LinkedIn.

    J.C. Penney didn’t dispute the names and locations from which the executives are commuting in a list e-mailed to spokeswomen.

    The commuting slows some decision-making and has contributed to an adversarial relationship between new executives and long-standing employees, the people said. Three people who worked in the headquarters said the acronym, DOPE — short for “dumb old Penney employees” — has been used in the office to refer to the company’s longer-standing workers.

    Hays said she has never heard of that term being used.

    “Their claim has no merit, and it misrepresents the level of respect and support we provide to one another,” she said.

    Workforce Reduction

    J.C. Penney and its units employed about 116,000 full- and part-time employees as of Feb. 2, compared with 159,000 about a year ago, according to an annual filing yesterday. That’s a 27 percent reduction in the workforce.

    “Our business has shifted towards a decentralized management structure that distributes significant control and decision-making powers among our senior management team and other key employees, some of whom are located in satellite offices,” J.C. Penney said in the filing.

    The retailer’s customers have been alienated by marketing missteps and a failed attempt to transition away from sales and coupons. J.C. Penney is now betting that Johnson’s plan to turn most stores into collections of boutiques will fuel a return to growth by resonating with core shoppers and new customers.

    Former CEO Allen Questrom, who retired from the retailer in 2004, said earlier this month that a turnaround won’t work under Johnson and that the longer the board waits to fire him, “the worse it’s going to get.” The company said on March 12 that Johnson has no plans to quit or resign.

    “If you’re in a turnaround, you want everyone in the trenches with you at the same time,” Gross said. “There’s no substitute for having boots on the ground.”