Job opening: Captain of a sinking ship
A recent Wall Street Journal article highlighted the challenge J. C. Penney, Target and American Eagle are having in recruiting new CEOs. They are all large, well-paying, prestigious jobs. Why is this a problem?
All three are experiencing significant declines. J. C. Penney recently fired its CEO, who had previously built the Apple stores into a powerhouse. Target’s CEO resigned with profits down $1 billion year over year and a security breach that affected millions of customers. American Eagle’s CEO left after two years with sales declining.
All of these companies are in for a tough future. The certainty of their business model is in question. In other words, they all need to dramatically shift their strategy.
Of course, there will likely be cost-cutting moves, product changes and management shake-ups. The business model changes will probably be “in the margin” and my guess is unsuccessful over the long run. Perhaps they’ll pare down the business to the point where long-term profitability is more certain.
Having served on numerous boards (but none as large as these companies), I’m quite certain that a prospective new CEO who proposes something radical such as shutting down many stores or running the business like a cash cow, sending the profits to the shareholders until there are none, would likely get thrown out of the interview.
So you have a sinking ship with no apparent way to plug the leak. How would you like that job?
There are a few examples of large public companies that consciously took a hard body blow and took a strategic hard right to fight another round. Netflix recently pulled this off and, famously, Gerstner did it at IBM, though they are now struggling for growth. But most of this occurs, although infrequently, in the private sector. It takes patient money and a management team with vision and tolerance to make the tough decisions for long-term survival while assuming short-term pain.
At this point, I’d like to tell you exactly what popular and painless action that J.C. Penney, Target and American Eagle should take – but there isn’t any. It is not about executing better. They must plan for significant change, and it’s more likely that they’ll disintegrate until they’re in tremendous pain and someone has a good idea and a supportive board to get through it.
When you’re driving toward a known hurricane, you have numerous options when you’re 10 miles out. A 15-degree turn might keep you safe. However, if you wait until it is bearing down upon you only divine intervention or luck will help. Prayer is recommended, but luck is not a strategy.