THE BLOG
08/28/2013 01:00 pm ET Updated Oct 28, 2013

Why Bill Ackman's Failure with JC Penney Is a Lesson in Leadership

On August 13 of this year, high-profile investor Bill Ackman resigned from the Board of Directors of department store group J.C. Penney (Ticker: JCP) after a very public battle with other board members over the direction of the company and the search for a new CEO. A few weeks later, his fund, Pershing Square, announced that it would sell its 18 percent stake in JCP after losing an estimated $700 million.

Ackman, as the largest investor in JCP, had played an active role in defining the company's strategy for the past three years and handpicked both the previous CEO, Ron Johnson, and the current one, Mike Ullman, neither of whom were able to turn the company's declining fortunes around.

What distinguishes this episode is not the disconnect between an investor and a board but the focus by both parties on their personal agendas rather than on a real examination of company strategy. As a result, the spat between Ackman and JCP has highlighted (by its absence, ironically) one of the most important leadership qualities required for the successful governance of corporations today: Humility.

Humility in the context of executive leadership means two things:

Questioning Your Own Judgment
Not to be confused with a lack of self-confidence, the willingness to stress-test your own judgment and make sure that you are not missing something is vital to success in the business world. I firmly believe that had Ackman, who is generally a smart investor, been able to dissociate his ego from his business decisions, he would have likely recognized years ago that JC Penney's problems were due to the difficult economics of the bricks-and-mortar business model in today's market, and that the company needed to ramp up its online efforts instead of simply rebranding its stores in order to break its losing streak.

Yet Ackman missed the forest for the trees despite the fact that other retailers have been learning this lesson fast, and despite having historical precedents like Blockbuster to refer to. It was a belief in the infallibility of his own business acumen that led Ackman astray, but it could have been avoided had he stopped to consider that he might be wrong, or at least deputized CEOs who would have challenged his thinking rather than simply parroting it.

Keeping Your Eye on the Ball
Humility is also the ability to avoid personal skirmishes in favor of keeping a company's focus on business strategy. Ackman's long-standing acrimony with JCP's board has not only distracted the company from concentrating on its business, but also damaged the market's confidence in JCP.

The first rule of good corporate governance is to put the company's interests first, but neither Ackman nor JCP's board seem to have stuck to this maxim, opting instead for power plays and protecting their territory. Had either of the parties put aside their differences to figure out exactly why the company was losing market share and where the real profit center was in the retail business, they could have refocused the company in the right direction years ago.

Since time, energy. and resources are all finite, they need to be applied in an optimal manner to achieve results; therefore when executives, boards, and investors spend more of those things on serving their personal agendas than on running their businesses, companies are bound to suffer. Good business leaders do not measure their effectiveness in terms of the outcome of boardroom battles or the success of their personal ideas, but on the basis of one metric alone: results.

If JC Penney has faltered, it is at least partly because its leaders let their egos direct business decisions, and in doing so, failed to read their market objectively. It is telling that even a rudimentary analysis of JCP's results -- showing steadily declining sales and shrinking margins - should have revealed that the company's business model stopped being sustainable a while ago, and that even a cursory examination of consumer buying trends should have indicated that the company needed to focus on digital to improve profitability.

Humility as a necessary leadership trait is common knowledge, but it is not enough for our business leaders to simply know it. They need to consciously adhere to it, to test themselves regularly for this quality, and to hold themselves accountable for ignoring it. When even a well-heeled investor like Bill Ackman and the experienced board members of a multi-billion dollar corporation could let hubris hijack their business sense, then it is evident that our business leaders need reminding of this lesson.

SANJAY SANGHOEE is a political and business commentator. He has worked at leading investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at multi-billion dollar hedge fund Ramius, and has an MBA from Columbia Business School. He has appeared on CNBC's Closing Bell with Maria Bartiromo and HuffPost Live and is the author of two financial thrillers: "Merger" (St.Martin's Press) and "Killing Wall Street" (Argo Navis). For more information, please visit: www.sanghoee.com