Despite Johnson’s Removal, JCP Shareholders Are Still Enraged

JCPenneyIt seems J.C. Penney (NYSE:JCP) shareholders are a hard bunch to please.

The board of the struggling 111-year-old department-store chain has received scathing criticism from both retail investors and corporate governance experts after ousting its embattled Chief Executive Officer Ron Johnson and replacing him with his predecessor, Myron Ullman. Now, he will have decide whether to press forward with Johnson’s changes or roll them back.

But before the switch was announced Monday, Johnson had been under attack from all angles for what was beginning to be termed his botched turnaround plan — which was aimed at steering J.C. Penney away from its image as a discounter and boosting sales. Even hedge fund manager William Ackman had some harsh words for the executive at an investors meeting last week.

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Ackman — whose Pershing Square Capital Management is the largest shareholder of struggling retailer J.C. Penney — offered a rare critique of the company’s chief executive officer. Ackman sits on J.C. Penney’s board, invested $800 million in the retailer, publicly supported Johnson’s turnaround, and even hand picked the chief executive for the leadership role. But he expressed the belief that Johnson had made “big mistakes” and the impact of his turnaround plan had been “very close to a disaster,” so the “criticism [was] deserved.” It seems that the board of directors came to a similar decision and wanted to avoid that disaster…

Just hours after shareholders learned of the management change, they began voicing their complaints; at least one investor called for the entire board to resign, while others suggested that shareholders might vote out current board members at the next annual meeting, according to Reuters.

“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,” Brian McGough, managing director and head of the retail group at Hedgeye Risk Management, told the publication.

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The departure of Johnson is not even the primary concern. Shareholders question whether the board’s decision to replace the outgoing chief executive with his predecessor, who received his share of criticism during his tenure, was wise. The board said that Ullman was chosen because he was well-positioned to move quickly and improve sales, Reuters reported. But even Ullman conceded in an interview that he had not decided on a plan yet because the change was so new…

J.C. Penney shares gave up 15 percent of their value during Ullman’s time as chief executive officer from 2004 to 2011, and since Johnson replaced him in November of 2011, shares have lost half their value. The stock price plummeted even further Monday night, as analyst blame him for creating the problems that Johnson was charged with fixing.

While shareholder rage is mounting, governance experts say that it is unlikely the board will face legal repercussions for its management change. However, whether the board will be allowed to make the same mistakes again is up to shareholders, corporate governance analyst Paul Hodgson told Reuters. “When you get a board that keeps making errors like that, then you start to lose faith not just in the CEO, but in the board as well,” he said. “I think at the next annual meeting, the shareholders will be registering their dissatisfaction with the board.”

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Now all that is left up for speculation is how much blame will be heaped upon Ackman for his role in the executive debacle. The hedge fund manager has already racked losses of approximately $500 million in paper from his investment in the retailer.

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