On June 16, New York State Supreme Court Justice Jeffrey Oing issued a 63-page decision in which he found that retailer J.C. Penney (JCP) had committed tortious interference in its attempt to develop a Martha Stewart store inside JC Penney stores. The deal, announced in 2011 as Ron Johnson took Penney’s helm, violated the terms of a preexisting deal that Martha Stewart Living Omnimedia (MSO) had with Macy’s (M), the judge ruled. Damages will be determined by a special master or referee.
The decision surprised no one. Oing had previously issued a preliminary injunction barring Penney from building the stores and selling most of the products. The ill-fated deal was just one of the many choices that contributed to Johnson’s ultimate failure.
The decision also sheds light on how closely Johnson’s own approach to management hewed to the “reality distortion field” made famous by his prior boss and mentor, Steve Jobs—and, more important—how infrequently such an approach can succeed outside of Apple.
When Johnson took the helm at J.C. Penney, he brought with him a strong belief that his Apple experience—he built the company’s stores, now the most profitable retail group in the country—would be a huge plus. So did Penney’s board of directors; indeed, it was the main reason he was selected. Johnson held a coming out party eerily reminiscent of Jobs’ MacWorld events; he added a clean, white aesthetic to the company’s branding and logo; he hired several Apple veterans; and he talked constantly about his closeness to Jobs and the Apple way of doing things.
Jobs was rightfully lionized as a creative genius, but he was also a fiercely competitive leader who simply could not bear to lose. That ferocity—plus a force of will that could convince just about anyone of anything—was referred to by people around him as his “reality distortion” field. And it is this trait that we see Johnson emulating in his attempt to convince the world that Penney was not, in fact, infringing upon Macy’s earlier agreement with Martha Stewart’s company.
The emails presented as evidence in the case show a leader who had already convinced himself that he had won—regardless of the fact that even his own counsel worried about the deal’s legality. As Johnson wrote in an email to Daniel Walker, an Apple retail veteran he had hired at Penney: “I’m feeling awesome about grand strategy. I need to pull off Martha. I need to propose a deal so she can go to Terry [Lundgren] at Macy’s and break their agreement. That is the only issue in way of success at this point.” Johnson suggested, with some glee, that Lundgren would probably “have a headache,” when he heard about the JCP deal, one that would soon develop into a “full on migraine.”
The judge was clearly astonished by Johnson’s reaction after Martha Stewart announced to Lundgren that she had signed on with Penney. “Incredibly,” the judge wrote, “ignoring the seriousness of what had just transpired, Mr. Johnson wrote to [board member] William Ackman: ‘Media good as well. We put Terry in a corner. Normally when that happens and you get someone on the defensive they make bad decisions. This is good.’ And to board member Steven Roth, he wrote ‘…the more this is seen as brilliant for JCP and Martha the more he won’t want to interfere…’”
In fact, the opposite became true as a result of the company’s cavalier attitude, Oing observed. “Unbeknownst to Mr. Lundgren and Macy’s, Mr. Johnson’s attitude towards them with respect to JCP’s budding relationship with MSLO was take it or leave it. Mr. Johnson aptly described the scene as making JCP’s ‘offensive so strong’ that Macy’s would ‘simply pick up their toys and go home.’ JCP and Mr. Johnson could not have been more wrong.”
It is axiomatic that leaders must believe that they have made the right decisions. But as this case shows, believing that they are right does not make it so—no matter what Steve Jobs would have said.
