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Collective Brands Update Post CEO Resignation

|Includes: Collective Brands, Inc. (PSS)

If you read my latest article on Collective Brands, then you know that I fell in love with their management. The attention to detail they demonstrated, their success in reigniting old brands they purchased, their highly efficient global supply chain operations, and the CEO's expressed number one priority of "developing talent."  Then they did something that would seem to fly in the face of my opinion of management.  The CEO abruptly no reason for the resign...and with no succession plan in place.  

Obviously, the CEO does not resign for no reason.  It would appear that the Board was not happy with the speed of progress or the disappointing Q1 results and decided the company would be better served under a different CEO.  As outside investors, we rarely truly understand the inner dynamics between a CEO and the Board, so I cannot say with any accuracy all of the reasons the CEO resigned.  Regardless, I expected a company with this caliber of management to have a succession plan in place.  To be clear, I mean an internal succession plan, such as having the next CEO identified and groomed within the company.  Having a CEO leave without having the next one ready is like quitting your current job before getting a new job.  It is usually not very logical.  This is purely conjecture, but these circumstances lead me to believe that there was something else at play than pure performance, such as a strong personality clash. 

The General Counsel, who does appear to have a good bit of operational experience, is stepping in as interim CEO with the stated intention of not being the permanent CEO. The board is currently searching for a new permanent CEO and will likely hire someone outside of Collective Brands for the position.  Having read such incredible books as Built to Last and Good to Great by Jim Collins, I understand that the best companies routinely groom management internally and promote from within.    This policy allows the corporate culture to be nurtured and promulgated to the next generation, thereby preserving the core values that made the company successful to begin with.  It is for this reason that I was highly encouraged by the now former CEO’s statement that his primary job is developing talent.  

Clearly, external hires directly into the CEO position can and do work out well, so not promoting from within does not mean that the company will all of a sudden be a terrible investment.  Further, we do not believe that any success achieved by PSS was fully attributable to the former CEO.  One man does not a company make, after all.  There is still, in our view, plenty of capable managers at PSS.  In addition, we still really like PSS’s business model and prospects in both the near-term and especially in the long-term.  However, we understood the vision of the former CEO and felt confident enough in that vision to invest in the company.  The questions regarding who the next CEO will be and what his or her vision will be provides enough uncertainty for us to trim our position.  Therefore, we reduced our position in PSS by 1/3.