In 2016 Sears Canada announced its new marketing campaign “WTS” for “What the Sears is going on?” It was their idea of being trendy and speaking in the new language of alphabetic and numeric characters, like LOL. I am sure that investors, employees and retirees have come up with new wording for WTS.
The Sears Board has demonstrated a failure in governance – in strategy, having appropriate talent to manage the company, overseeing operational and financial health of the organization.
Where was the Board when it came to strategy? In 2016 there was hoopla about Sears Canada’s new bold and confident logo with the maple leaf clipped on. And there was the fanfare around the unveiling of a new store format in 2016. What was the reaction to the new strategy? Uncertainty and confusion.
In 2015 I spoke at a conference on strategy and another speaker was a member of the Sears Board. This Director stated that the most important strategic decision for Sears was that Target had pulled out of Canada – huh? Not very inspiring and had the audience wondering if that represented the level of strategic thinking at Sears.
The Sears Board has watched the share price free fall from $19.18 in November 2013 to $3.82 in June 2016 to $0.62 in June 2017. It has watched the financial results spiral from an income of $490 million in 2013 to a loss of $360 million just a year later in 2014, continuing with a loss of $62 million in 2015 and a loss of $318 million in 2016. Revenues shrunk from $4 billion in 2013 to $2.6 billion in 2016.
According to the company filings, the Board is comprised of eight directors, four are independent and four are non-independent. Not a great ratio of independent thinking. Of the eight directors, one is female. Sears is a retailer whose dominant customers are women – how does it make sense to have one token female on the Board?
Were the company’s filings filled with rhetoric? The filing states: “The Board believes that strong corporate governance practices are essential to the success of the Company, effective corporate performance and the best interests of Shareholders.” Since Sears is not successful is the Board willing to admit that it was not effective? Could they not see that from 2013 to 2016? Yet the Directors continue to sit in their positions today and collect their pay.
And we have disappointment with respect to pension governance yet again. Yes Boards must keep the long term sustainability of the company in the forefront when making decisions. However once the Board makes a promise it is their responsibility to ensure the promise will be kept. This speaks to the Board’s integrity.
The Company-Employee relationship is two way. The employees’ part is to put forward effort to serve customers, create products, and manage the organization to meet the company’s business objectives. The company’s part of the relationship is to fairly compensate the staff with wages and benefits.
In 2002 we heard about the loss of pensions to current and retired employees of Enron. An Enron pensioner tells the tragic story of watching his pension vanish from its worth of $1 million to pennies in a matter of days. In 2010, there were reports of major underfunding of pension plans – Stelco plan short $1.4 billion, GM pension deficit $7 billion, Chrysler pension under funded by $9.3 billion, Air Canada pension deficit more than $2.9 billion, Nortel pension plan shortfall of $1.8 billion, Vale pension plan short $729 million.
And now Sears. According to the latest press the defined benefit plan for employees has a deficit of approximately $267 million. While Sears did take action in 2008 to cap the defined benefit plan and move to defined contribution such action was not a green light to renege on commitments made to current and past employees.
And of course now we hear about the $9.2 million in retention bonuses that have been approved to keep some managers in positions while the company is in bankruptcy protection. The retention bonus for the most senior executive is $50,000 for two months in addition to his regular salary of hundreds of thousands. Tough news to take if you are a laid off Sears employee with no severance and now facing uncertainty with respect to pension payments and other post retirement benefits that had been promised.
Sears is right – the Board is essential to the success of the Company – so if Sears was aware of this why did it not have a Board that could do the right job right?
Fay Booker is principal of Booker & Associates, a firm offering consulting and coaching in good governance, strategy, enterprise risk management and operational effectiveness – www.bookerandassociates.com.