The Ackman Smackdown

Give billionaire hedge fund manager Bill Ackman credit for nerve.

As a director of J.C. Penney and the retailer’s biggest shareholder, Ackman played an instrumental role in installing former Apple executive Ron Johnson as the head of the company. When Johnson’s tenure proved disastrous (a topic we’ve explored before) and resulted in the return of former Penney CEO Mike Ullman as interim head, Ackman publicly released two letters asking the board to speed up the search for a new chief executive and seeking the ouster of Chairman Tom Engibous. This week, having lost that fight, Ackman resigned from the board.

As Abram Brown of Forbes put it: “The idea that Ackman would make such strong demands seemed surprising. After all, the last time he picked the chief, it ended poorly.”

In one sense, Ackman was doing what Peter Drucker hoped of board members. “What the boards are, and must be, is the organ that makes sure that the company is being managed,” Drucker wrote in The Changing World of the Executive. “The first requirement, therefore, is that the board makes sure that the company has a top management competent to run the business.”

Ackman was also known for looking closely over Ullman’s shoulder with regard to his senior staffing decisions. This, too, would have been OK in Drucker’s view. Board members should make sure that “top management itself is properly structured and properly staffed,” he wrote. “It is the duty of the board not to tolerate mediocrity in high places. Today most boards will act only if there is gross malfunction in top management—and this is not enough.”

Still, for all of that, Drucker would not have been too keen on Ackman’s tactics, which degenerated from disagreement and dissent into outright hostility. “Dissent . . . is essential for effective decision making,” Drucker wrote. “Feuding and bickering are not. In fact, they must not be tolerated. They destroy the spirit of an organization.”

And, while he didn’t write about it directly, Drucker seemed to take it for granted that in times of disagreement you don’t air all your dirty laundry. Or, as he noted (in a somewhat different context) in Management: Tasks, Responsibilities, Practices, “In a beleaguered fortress, all disputes and disagreements stop at the wall.”

What do you think? Did Bill Ackman do more harm than good at J.C. Penney?