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J.C. Penney Question Too Obvious to Ask: What Can CEO Do?

Douglas A. McIntyre

As a fight between major J.C. Penney Co. Inc. (JCP) owner Bill Ackman and the balance of the firm's board rages, the question too obvious to ask is why a new CEO will matter, because he or she cannot. J.C. Penney has run out of time and nearly out of money.

Ackman made what other board members believe was an ill-advised decision when a letter he wrote about finding a new chief executive officer quickly leaked. No one believes the leak was an accident. J.C. Penney board chief Thomas Engibous called the action bad form. He even defended the CEO the board has decided to replace -- Myron "Mike" Ullman -- a delicious irony on its own.

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Ackman wants the process of finding a new CEO -- led by the board and a head-hunting firm -- to work more quickly. He pointed out that there are almost no candidates, which actually could make the work take longer. However, Ackman has hundreds of millions of dollars on the line, and his reputation as well. His decision to take on J.C. Penney in the first place looks remarkably stupid.

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Ackman, as a board member, must be aware that J.C. Penney's 20% or more drop in same-store sales and revenue has continued, or he would not have panicked. Last year, the retailer ran through more than $900 million. Goldman Sachs Group Inc. (GS) and some partners have loaned J.C. Penney $1.75 billion, most of which could be gone by the end of the year. A turnaround will take longer than that, even if a CEO is found quickly -- say, by the end of October. J.C. Penney will have lost so much altitude that no amount of pulling back on the yoke will get it back up this year or, as several analysts have pointed out, next.

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And there is the issue of the chances that a new CEO will pick the right course to make J.C. Penney a place people want to shop again. Even the best CEO has odds of one-in-two, one-in-three maybe, of making exactly the right decisions.

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J.C. Penney may as well hope that Ullman is a retail genius of the first order. The company has no alternative, obviously.

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