JC Penney Fires its Industry Outsider COO after 5 months

Hiring from outside your industry has always carried large risks. Sometimes it can work out well, such as Robert Polet at Gucci. However, here's a case of JC Penney having to pay over $10MM to dump a newly hired COO coming from the credit card industry after only 5 months on the job. Making the wrong senior executive hire can be extremely costly.

To find out some strategies to avoid this problem, visit this link.

Here's the full text of the article from today's WSJ:

J.C. Penney FiresOperating ChiefAfter Five Months

By JOANN S. LUBLIN and CHERYL LU-LIEN TAN
December 29, 2006; Page A3

J.C. Penney Co. abruptly terminated its chief operating officer after just five months on the job because the industry newcomer failed to quickly learn how to be an operational retail executive, according to one person familiar with the situation.

Penney announced the firing in a terse press release. The firing of Catherine West, the former president of the U.S. credit-card business for Capital One Financial Corp., highlights the hazards of recruiting executives from outside the retail industry.

Among the industry outsiders joining retailers in senior roles during the past decade, "more have failed than succeeded," said Kirk Palmer, chief executive of New York recruiter Kirk Palmer & Associates, which focuses on the industry. "I'm hard-pressed to come up with too many examples from outside who have registered success in the retail environment." Among the retailers that have brought in top executives from different industries in recent years are Gap Inc., Levi Strauss & Co. and Home Depot Inc.

Ms. West's severance package will total close to $10 million, including accelerated vesting of stock options and restricted-stock units that she was granted to compensate her for forfeiting benefits at Capital One, according to spokeswoman Darcie Brossart.

Ms. West oversaw store operations, property development and logistics, responsibilities that Chairman and Chief Executive Myron E. "Mike" Ullman III will assume. Mr. Ullman had overseen those areas before Ms. West's arrival in July.

Penney, of Plano, Texas, which is in the midst of a big store-expansion plan, had put Ms. West in "an operational role with a lot of detail and substance" because "retailing is about 1,000 different details a day," the person familiar with the situation said. But "the operating assignment was not her best fit," this individual said, adding that Ms. West's commute to her home in Maryland every weekend also was a factor.

Rather than try to find a new role for her inside Penney, top executives suggested that she quit, the person familiar with the situation said. But she refused to resign, partly because a voluntary resignation would have made her ineligible for the severance benefits, this person said. She also resisted resigning because she believed she "thought it was going to work [out]," this person said.

Ms. West, who is 47 years old, couldn't be reached for comment.

Penney officials believed that she would be a good fit because the credit-card business has such a strong customer focus and successful information systems, the person familiar with the situation said.

Penney, which has updated its fashions in recent years, has been gaining market share. Profits are up. So is the company's stock price, despite slipping 76 cents, or 1%, to $77.64 in 4 p.m. New York Stock Exchange composite trading.

The chain, which currently operates 1,037 department stores in the U.S. and Puerto Rico, opened 28 stores this year and plans to open 150 more over the next three years, including free-standing locations. It is also trying to win over midmarket customers who used to shop at the hundreds of stores operating under such names as Filene's, Hecht's and Foley's that Federated Department Stores Inc. recently converted to Macy's.

A.G. Edwards analyst Robert F. Buchanan said he had considered Ms. West "an unconventional choice" for the job, given Penney's expansion and her lack of retailing experience. "It's very hard for someone from a nonretailing background to transition to a retailing job," he said. "It's a highly peculiar, tough and fast-moving business that does not lend itself to quick, on-the-job training."

Penney isn't the only retailer to go outside the industry in recent years. In October, Liz Claiborne Inc. chose a top Johnson & Johnson official, William L. McComb, to succeed its retiring chief executive. In 2004, Gucci Group appointed Robert Polet, a 26-year veteran of Unilever, as CEO. Paul Pressler, a 15-year executive at Walt Disney Co., became CEO of Gap in 2002.

Write to Joann S. Lublin at joann.lublin@wsj.com and Cheryl Lu-Lien Tan at cheryl.tan@wsj.com

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