Bill Ackman did what is best for JC Penney by stepping down from the board

In the spotlight.
In the spotlight.
Image: Reuters/Eduardo Munoz
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For once, activist investor Bill Ackman backed down. Today, retailer JC Penney announced that Ackman has resigned from the board. As a compromise, the company is naming two new directors to the board, including Ronald Tysoe, a retail industry veteran who was vice chairman of Federated Department Stores, which is now Macy’s.

The JC Penney board also reaffirmed its support for CEO Mike Ullman and board chairman Thomas Engibous, the two people Ackman had sought to oust. A second director will be named in the future. The moves end a battle between Ackman and the company that had heated up last week in public letters and statements, and Ackman even threatened to sell his shares if the board didn’t agree with his moves.

The fight with its largest shareholder—Ackman owns about 18% of JC Penney (paywall)—was a major distraction for a company that was already in turmoil. Ullman was brought on earlier this year to replace Ron Johnson, the Apple retail executive who was recruited by Ackman to help boost JC Penney sales. But after he eliminated JC Penney’s popular discounts, sales fell dramatically. Ullman brought back the discounts, but Ackman accused him of hiring and firing people without the board’s consent, and not spending enough time finding a permanent replacement since Ullman is an interim CEO.

Ackman was facing some pressure as the board was considering actions against him for taking their fight public, while other investors, like George Soros’s fund, were taking the board’s side. But it would have been difficult to get enough directors to agree to remove Ackman, which would be a rare move in any corporation. And there were other shareholders who also agreed with Ackman, like Perry Capital.

The sides were working on a settlement (paywall) yesterday, and Ackman’s resignation came as a surprise, especially because it’s rare for him to back down from a fight. But after taking the board fight public, Ackman’s stepping down is a mature move that is the best outcome for JC Penney. By leaving, he could help repair the company. Although it’s good to have an outspoken critic on the board of a troubled company, his presence had become the main story. And it made finding a replacement for Ullman more difficult since few people would want to join a company that has a feuding board.

“During my time on the J. C. Penney Board of Directors, I have always advocated for what I believe to be in the best interests of the Company —its stockholders, employees and others,” Ackman said in a statement. “At this time, I believe that the addition of two new directors and my stepping down from the Board is the most constructive way forward for J. C. Penney and all other parties involved.”