Will teen retailer Pacific Sunwear (NASDAQ:PSUN) "flatten the corporate structure" or flatten its flagging results even more?
That's something investors will need to watch in the quarters ahead, as CEO Sally Kasaks eliminated the chief operating officer position last week and doled out the responsibilities to other personnel, including herself.
Kasaks seems determined to put her stamp on PacSun to turn things around. There's been a cloud hanging over the Motley Fool Stock Advisor recommendation, and that has meant having to close underperforming stores, clearing out inventory to give the racks a less cluttered look, and trying on new styles. A very unscientific analysis of a local shop did seem to suggest it had a cleaner, neater look to it, but is piling on greater responsibilities a smart move?
The former chief operating officer had several decades' worth of retail experience, including time with Limited Brands' (NYSE:LTD) Victoria's Secret and PepsiCo (NYSE:PEP). With the COO off to "pursue other interests," Kasaks will add information services, real estate, and construction to her purview; the division president will get store operations; and the chief financial officer will begin overseeing the distribution center, global logistics, and trade compliance.
Greater accountability may be the goal, but greater distraction may be the result.
Hands-on management can be a good thing at times, and Kasaks says the goal is to create greater accountability at PacSun's senior management level, but very often it results in stagnation because the top person has to have a hand in every decision and the corporation becomes paralyzed.
Management is supposed to be able to delegate responsibilities to qualified employees while maintaining an environment that gets things done and reviewing how progress is being made. It's an overseer of the broad picture. Perhaps the PacSun culture needed some reining in, but gathering all the loose strands into a very limited set of hands can end up in micromanagement. Particularly for a chief financial officer, focusing on the finances should be of highest priority. Now, making sure stock is coming in and out of the warehouse may be a bit of a distraction.
To be fair, last year there seemed to be a wave of chief operating officer eliminations, and while the same concerns could have been made there, a number of those companies have performed quite well without that extra management. Embarq (NYSE:EQ) got rid of its chief operating officer as of the first of the year, as did SPX (NYSE:SPW), and both have not been hurt. So far this year, their stocks have risen 45% and 20%, respectively.
There's always a fine line between improving operations and containing expenses. Let's just hope that hands-on management doesn't lead to a stranglehold on PacSun's performance.
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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
