Category: Corporate Governance

10 Turn-Around Lessons from Zale Corp.’s Theo Killion

Published by

Jill Griffin

When former Zale Corp. CEO Theo Killion shared his leadership lessons of turning around Zales at a recent NACD TriCities Chapter program in Austin, Texas, it jogged some childhood retail memories for me.

Growing up in the 1960’s, my small hometown of Marshville, North Carolina, boasted a thriving town square of mom-and-pop stores. Because my family’s home was a hop, skip and a jump from these businesses, they became my playground. I was their frequent visitor, and with those visits came benefits. For example:

  • Remember when white go-go boots were all the rage? Mr. Gaddy, who owned the shoe store, made sure my sister and I scored pairs from his first shipment.
  • As a child, I received a personal call from Mr. Creech, the toy store owner, when his long-awaited skateboards arrived.
  • One spring, I stood with other locals as the Chrysler dealer eagerly removed the drop cloths revealing that year’s beautiful new big-fended models. (The fact the dealership offered up lots of free doughnuts, coffee, and soft drinks didn’t hurt either.)

I was rapt throughout the program as Melissa Fruge interviewed Killion, a modern-day version of my favorite childhood shop-owners, but on a grander scale.

Zales was on the brink of bankruptcy in 2004. Something had to be done. The bold and unvarnished self-assessment undertaken by the company’s senior leadership uncovered the business’s truths. These revelations, combined with sheer perseverance not to fail, brought the national jeweler back from the edge.

Here are some of my top take-aways from Killion about what executives and boards should do to turn around a struggling business:

1. Stay humble. Killion prefaced his remarks by stating that they were his opinion, and that many of the tenets he spoke about originated from great thought leaders. A mark of a strong leader is his or her ability to acknowledge with humility the admired ideas of others.

2. Interim in any title keeps you focused. By the time Killion took the reigns, Zale Corp. had had six CEOs in 10 years. When Killion’s best friend was fired as CEO, the board needed a quick fill. Killion was named interim CEO—leaving him keenly aware that he was considered temporary. He entered the role ready to make the most of the time he had.

3. Follow the money. Zales had six short months before its cash ran out. The company was in desperate need of an equity infusion. From day one, Killion and his finance team were reaching out to possible providers.

4. Dig deep for insight. Over a three-month period, Killion and his two-member strategy team worked 12- and 14-hour days, including weekends, to put a decade of operational decisions under a microscope. They carefully ferreted out what worked, what didn’t work, and why. They then presented these findings to the board.  Killion observed and reported that management’s bad decisions were made on the board’s watch. He wanted the board to feel the same deep discomfort that the executive leadership team was feeling.

5. Detail the new strategy. Zales’ new strategy document totaled 150 pages and spelled out in clear, concise details what the company would do going forward—and why. For example, severe cost cutting had reduced the customers’ experience of buying an engagement ring into a commodity. Consider, for instance, that the customer left the store with the ring—which often times is one of the most meaningful, expensive jewelry purchases a person will make—in a plastic bag.

The new strategy brought customer emotion and meaning back to a purchase at Zales. The purchase process was no longer treated as a transaction, and store training ensued to make it a well-crafted, loving, and memorable customer experience.

6. Flip the pyramid. Before Killion stepped in, the leadership philosophy of the company placed management at the top of the pyramid. The pyramid was inverted and a customer-focused culture was born. It looked like this:

  • Top tier: customers of Zales’ 1,100 stores;
  • Middle tier: 12,000 employees; and
  • Bottom tier: corporate management.

7. Think like Jeff Bezos. Bezos has built to be customer-obsessed, keen on technology and analytics, and is always testing new concepts. Killion sees this as a road-map for any retailer succeeding today.

8. The nominating and governance committee is key to matching strategy to board composition. Killion pointed out that Zales needed board directors with skill sets that matched the company’s five-year plan. Retail expertise was a must, and the nominating and governance committee needed to ensure its goals matched those needs. This committee must ask itself what skill sets the business needs. In retail today, Killion advises, a board member with deep literacy in e-commerce is essential.

9. Apply lessons from Vanguard’s 2017 Open Letter. Killion admires Vanguard CEO F. William McNabb’s open letter to public company boards of directors. Vanguard has 20 million investors, and currently is the second largest fund manager in the world. McNabb is keenly aware of the responsibility boards play in the success of the companies that the fund invests in. Here are the highlights of McNabb’s message to directors that especially resounded with Killion:

  • Sell quality things.
  • Practice good governance.
  • Pay close attention to the compensation program crafted for senior management.
  • Understand the company’s risks, and especially the role of climate risks.
  • Inclusion of women and other directors from diverse backgrounds on boards is important.

10. Brick-and-mortar retail is not dying. Instead, Killion believes retail is entering its golden age partly because of the many ways today’s retailer can reach a customer and make a sale.

The program is available to view via NACD Texas TriCities Chapter’s YouTube channel. It’s a meaty discussion and well worth your viewing time.

By the way, to this day I’m a recreational bargain shopper.  Simply walking into a favorite store lifts my spirits, and I’m glad that Killion and the directors of companies are working to help the retail industry thrive in the twenty-first century marketplace.

Governance at 30,000 Feet

Published by

American Airlines Group director Alberto Ibargüen recently led a fireside chat with the company’s CEO and Chair Doug Parker during the NACD Florida Chapter’s season kick-off event at Miami International Airport. With more than 100 in attendance, the program featured insights into the highly competitive airline industry along with some key considerations for directors.

A New Day for the Airline Industry

From left to right: Sherrill Hudson, NACD Florida Chapter Chairman; Lauren Smith, NACD Florida Chapter President: Doug Parker, American Airlines Group Inc. and American Airlines CEO and Chairman, and American Airlines director Alberto Ibargüen

From 1978 until deregulation of the airlines, the airline industry yielded no return on capital; however, since the merger of American Airlines and US Airways less than four years ago, American has generated $20 billion in profits. Three airlines—American, Delta, and United—are now leading the pack in rationalizing and leveraging the hub model to offer passenger service across the globe while generating positive returns. Parker insists this is the industry’s “new normal” and spends a great deal of time convincing constituents that the industry is not simply experiencing a temporary “up” in a long-term cycle.

Parker explained that the company must now invest in its people and its products, taking a long-term view of the business. For example, American invested in new aircraft and now has the youngest fleet of any U.S. airline. With regard to employees, many of whom are unionized, Parker raised wages in the middle of a contract term in order to fulfill his promises to them during the merger. He explained, “I use the ‘look them in the eye’ test when it comes to the 120,000 people on the American payroll,” emphasizing the importance of transparent communication with employees. Another area of investment is data protection, and the board routinely raises the issue of cyber risk.

Merger Advice

“Never undertake a merger when there’s not a clear strategy,” cautioned Parker, when talking about the successful US Airways and American merger. Recognizing the herculean amount of work required to meld systems and go-to-market philosophies, he added, “You shouldn’t put your team through one unless two plus two will equal five, not 4.2.”

In terms of building a post-merger board, the merged company board consisted of two American board members, three US Airways board members, including Parker, and five members from the creditors’ committee. With this blended group, directors did not focus on the “this is how we did things” historical perspective, but rather the group was able to move forward as a relatively cohesive unit from the beginning.

Communication and tone at the top became priorities for the board and management after the merger as well. Parker began holding town hall-style meetings, taking questions from employees. These sessions are recorded and offered to American’s employees worldwide.

A Strategic-Asset Board Focused on the Customer Experience

Parker emphasized that by asking the right questions, the board has had an enormous impact on management, “ensuring that the team has a strategic focus.” Given the day-to-day demands of running an airline, pulling the team from those responsibilities can be challenging. Still, the board insisted on an offsite focused on strategic planning, which proved to be very valuable. “I put off the retreat for two years because we were so busy with the integration,” said Parker. “But the offsite was valuable because we were forced to articulate our strategy in a way that could be understood by others, like the teams and investors.”

American Airlines director Susan Kronick, who was in the audience, added that the board works well because it is diverse. “Our board is diverse in terms of gender, ethnicity, and, most importantly, points of view,” she said. “We have rich discussions, and everyone is moving forward together.” She added that a keen focus on the customer experience is a unifying factor. “We take the proactive perspective that the culture of the company is a competitive advantage for us with customers.”

Parker added that the board members aren’t afraid to speak up, and his job is to ensure his team is communicating well to the board. He also echoed the board’s focus on the customer.

“We are transporting people at 525 miles per hour, so we are constrained by the laws of physics,” said Parker. “But we can make sure the rest of the experience is as efficient and comfortable as possible.”

The NACD Florida Chapter would like to thank American Airlines and Miami International Airport for supporting this event and the behind-the-scenes airport tour that preceded the program.

Kimberly Simpson is an NACD regional director, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, North Texas and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.

Why You Should Care About Climate-Competent Boards

Published by

Vanguard Group CEO William F. McNabb III just tipped the list. The world’s top three asset managers—Blackrock, Vanguard, and State Street Corp.—are now calling the companies that they invest in to adopt climate risk disclosure.

Veena Ramani

In a recent open letter to corporate directors across the globe, McNabb explained that Vanguard, the $4.5 trillion mutual-fund management firm, expects businesses to embrace materiality-driven disclosures to shine more light on sustainability risks.

Summing up the challenge of climate risk, McNabb wrote that it’s the kind of risk that tests the strength of a board’s oversight and risk governance. That’s the crux of the challenge for directors. As investors ratchet up the pressure on companies to analyze their exposure to the impacts of a warming planet, they’re calling on boards to be knowledgeable about material climate risk and capable of preparing for its impacts and capitalizing on its opportunities.

As we heard in Karen Horn’s opening keynote of NACD’s 2017 Global Board Leaders’ Summit, directors can no longer ignore the inherent impact of these issues on the long-term value creation of the corporate world —ranging from climate risk, natural resource capital, and implications of the Paris Climate Agreement.

This growing scrutiny has directors’ attention—especially after a high-profile vote in May by nearly two-thirds of Exxon Mobil Corp.’s shareholders demanding an analysis of climate risks. The number of directors who think that disclosure of sustainability risk is important to understanding a company’s business jumped to 54 percent  in 2017 from 24 percent last year, according to a survey of 130 board members by the accounting firm BDO USA.

Board-level competence around climate change and other sustainability risks is the way forward. Through an understanding of what climate change means, why it matters to their business, and what their organizations are capable of changing, directors can successfully make climate risk part of their governance systems.

In a new report by Ceres called Lead from the Top, we outline ways that companies and boards can build up that competence.

But rather than settling with bringing on a director who is competent in sustainability, our report explains why companies must work to build an entire board that is competent to oversee these risks. By engaging thoughtfully on material sustainability risks as one cohesive body, this kind of board is able to ask the right questions of its management, support or challenge senior management as needed, and ultimately make informed and thoughtful decisions affecting corporate strategy and risk.

We identified three key principles that companies and boards can use as they work to build a sustainability-competent board:

1. Sustainability needs to be integrated into the director nomination process. Finding directors who can apply their knowledge about climate and other sustainability risk to relevant board deliberations is a good first step. Companies can get the right people on board by approaching this systematically as a part of the board nominations process, specifically identifying experience in material environmental, social, and governance (ESG) risks in the board skills matrix and by casting a wide net to consider candidates with diverse backgrounds and skills.

2. The whole board needs to be educated on sustainability issues that impact their company. For sustainability to become part of the fabric of board oversight and integrated into decision-making on strategy, risk, and compensation, all directors on the corporate board need to be well informed on material sustainability issues so they can lead thoughtful deliberations and make strategic decisions. Companies can do this through focused, ongoing training programs that bring in experts from outside the company and by educating the board on the connections between climate change and material impacts and the connections to risk and strategy. Embedding ESG into the existing board materials so it does not become one additional issue topic to vie for directors’ attention is essential. Sustainability managers embedded within companies can play a key role in driving this integration.

3. Boards should directly engage a diverse array of stakeholders, including investors, on sustainability issues impacting their company. With more investors paying attention to climate change and other sustainability issues, shareholders increasingly expect boards to engage directly with them on critical issues. One of the goals of McNabb’s letter was to nudge directors to engage directly with shareholders. Given this growing focus, material environmental and social factors should be made a part of any dialogue between directors and investors.

It all comes down to the bottom line. Risk and opportunity define business. Corporate boards will have a difficult time performing their fiduciary duty to the companies they lead and the shareholders that they represent without understanding the risks and opportunities created by climate change. Our report lays out practical steps directors can take as they consider how to make their board competent in addressing climate change and other environmental, social, and governance issues.


Veena Ramani is the program director of Capital Market Systems at Ceres. Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy.