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J.C. Penney’s Ron Johnson shows the perils of a star CEO

Ron Johnson, then chief executive officer of J.C. Penney, on Friday, March 1, 2013. (Jin lee/JIN LEE/BLOOMBERG)

CEOs should probably have the same warning label on them as investments: Past performance does not guarantee future results.

That might have helped the board of J.C. Penney, which ousted Ron Johnson, the former head of retail for Apple, after just 16 months on the job. Johnson went from corporate savior to corporate punching bag as the department store’s stock plummeted and sales declined amid his attempts to radically overhaul the tired brand. Johnson’s strategy, which included trading steep sales for everyday low prices and adding hip designer brands, backfired as shoppers left the store in droves. Sales dropped 25 percent in his first year at the helm.

Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section. View Archive

It was not supposed to work out this way. Johnson was recruited, one has to assume, to sprinkle some of that Apple pixie dust on Penney’s stagnant stores. He invented Apple’s “Genius Bar” and ran the company’s profitable outposts. Before Apple, he had also been a vice president of merchandising at Target, where he made the deal with designer Michael Graves that helped to turn the big box giant into a design powerhouse. This guy was retail gold.

So why didn’t he strike rich as CEO of Penney? The reasons are plenty. Of course, he started with an incredibly challenging job: Fixing a struggling retailer in the midst of a stalled economy. His strategic blunders were well chronicled-after doing away with the coupons and sales on which Penney’s customers had long relied, he reversed course and brought them back. And he rolled out radical changes to Penney’s stores, marketing and pricing without testing them first on a smaller scale.

But one of the key reasons he failed at J.C. Penney may have simply been the board’s belief in importing a corporate messiah from the outside. Bringing in leaders from different cultures or different industries, especially at a troubled company where it seems like an outside jolt would help recharge its fortunes, may sound like a good idea. But it often doesn’t go well, causing unhappy customers or employees to rebel and impatient boards to switch skippers before the CEO’s changes even have a chance to work.

Take General Electric, the Apple of the 1990s, at least when it comes to corporate performance. GE’s management was heralded as the second coming, and after Jack Welch named Jeffrey Immelt his successor, other top contenders got big jobs elsewhere. Jim McNerney was hired at 3M, where his process-driven approach to running the company was ultimately rejected by 3M’s innovative culture. Meanwhile, Bob Nardelli was hired at Home Depot, where he alienated the company’s entrepreneurial employees and angered shareholders with his imperious style.

This is a well-studied trend. In Harvard Business School professor Rakesh Khurana’s excellent book “Searching for a Corporate Savior,” he examines the causes for the increase in hiring outside CEOs, writing about how “boards wish to find a new CEO with as much star power as possible because a high-profile, high-status appointment is almost certain to inspire public confidence in the company and immediately boost share prices.”

Meanwhile, Boris Groysberg’s “Chasing Stars: The Myth of Talent and the Portability of Performance” does not focus on CEOs, but examines how the performance of star analysts declines when they move to other firms. The reasons for their success turn out to be dependent on the resources, environment and colleagues they had at the prior firm. The same goes for CEOs: They are at least somewhat dependent on the teams they have in place, the culture they will have to transform, the industry trends working against them and the needs of customers. Their past performance cannot be attributed to their individual brilliance alone.

Johnson’s Target background and store experience at Apple surely gave him more in common with a retailer than, say, Bob Nardelli had with Home Depot. But it was still short-sighted for the board to think Johnson could work his magic at Penney simply because he’d scored wins at Target or Apple, where customers are either delighted by surprises amid everyday errands (no one goes to the mall with that frequency) or are cult fans of truly beautiful electronics.

As one commenter wrote in response to news of Johnson’s exit, “hiring the brilliant manager of a chain of glorified toy stores to run a diversified retail operation is like hiring a great pitcher to be your next quarterback.” The game is very different, indeed.

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