Celebration of Fools



Book Authors: Bill Hare

Book Review by : S.S.George
Director, ICMR (IBS Center for Management Research)


JC Penney, mining, The Body of Doctrine, HCSC, Jim Oesterreicher, Allen Questrom, turnaround, H-Honor, C-Confidence, S-Service, C-Cooperation

"Celebration of fools" is the history of JC Penney, one of the largest departmental store chains in the United States. The chain, in its nearly hundred year history, has had a number of ups and downs, and is currently struggling to rid itself of a somewhat unwise acquisition - that of the Eckerd Corporation with its chain of drugstores.

The company was founded by James Cash Penney, and somewhat appropriately, one of its cardinal principles was that its stores would never sell on credit. Penney had owned a butcher shop, but when that failed (in part because he refused to bribe the buyers from restaurants and hotels) he took up a job at a Golden Rule store, owned by Guy Johnson and Tom Callahan. He was an extremely hard working individual, and his diligence paid dividends when Johnson and Callahan offered him a partnership in a new store to be opened in Ogden, Utah. Penney however preferred to open a store at Kemmerer, a small mining town in Wyoming.

Due to Penney's skill as a merchant and the purchasing skills of his partners, the shop turned a profit in its very first year of operations. With the profits from this store, Penney opened new stores, initially in partnership with Callahan and Johnson. By 1914, he had bought out his partners' stakes in his stores. However, he continued to follow the model developed by Callahan and Johnson - that of recruiting hardworking men and testing their skills and dedication as employees in an existing store.

Once an employee have proven himself, he would then be offered a partnership in a new store, with the responsibility for running the store and ensuring that it turned a profit. Capable people were thus made partners in the growth of the chain. The model was enormously successful. In 1913, at a convention of store managers in Salt Lake City, Penney introduced a document that today would be called a mission statement - "The Body of Doctrine," or the precepts which were to guide the actions of the company and its managers. To this, he also added another expression of the company's values - H C S C, where H stood for Honor, C for Confidence, S for Service, and C for Cooperation. These were to be the watchwords for all company employees. The letters would appear on a lapel pin that would be presented to every manager on the occasion of their being vested in the profit-sharing plan.

An interesting aspect of Penney's early career was his utter lack of self confidence and his fear of failure, and the role his wife Berta played in supporting him. Her death in 1910 had a profound effect on Penney. In 1914, when the company had 36 stores, the headquarters of the company was moved to New York.

By then, Earl Sams, an early recruit, was effectively running the chain, and Penney was no longer involved in daily operations. Sams, who became the President of the company in 1917, would remain in the position for 40 years, guiding in it its early years of spectacular growth and expansion.

Penney had begun to spend most of his time and money on other activities, including taking up several charitable causes. He also became something of a celebrity. However, the stock market crash of 1929 wiped out his wealth. Having borrowed to finance his charitable donations and other investments, he was left with almost nothing when the banks called in the loans. His stock in his company, which had been pledged as collateral, was taken over by the banks.

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