Will Anybody Ever Grab The Ring At Zale?

You would think that any ambitious CEO-wannabe would have jumped at the top slot at Zale Corp. After all, when the nation's largest jewelry retailer emerged from bankruptcy last July and dumped its chief executive, the fix-up effort didn't seem particularly taxing: Zale boasted a sparkling balance sheet and a streamlined store base. And despite its debt-laden past, the chain enjoyed a strong consumer franchise.

But six months later, the dream job is unfilled. And the lengthy search is raising questions about the judgment of Zale's board. One top-notch retail executive says he was wooed and unceremoniously dumped during the process (table). And a shareholder and former creditor, Barre & Co., has filed a motion in bankruptcy court to compel the Irving (Tex.) jeweler to name a CEO within 30 days. "Without proper management, we're headed into another mediocre year," says Barre CEO David Glatstein, whose company pushed Zale into Chapter 11 in January, 1992.

BREATHING ROOM. The company clearly needs a steady hand after a lackluster Christmas season, when rivals forced it into heavier-than-expected discounting. Since last July, Zale has twice warned that it would fall short of earnings projections for the fiscal year ending Mar. 31. Now, the number is likely to come in at some $60 million for earnings before interest, taxes, and depreciation, vs. the company's original forecast of about $94 million, says analyst Raz Kafri of Grantchester Securities in New York. "The results are really, really weak," says Kafri. "Something should be done there."

Zale's directors and managers insist that they're moving quickly to fix the retailer's problems and build on its still formidable strengths, even without a CEO. Larry I. Pollock, a well-regarded jewelry industry executive, joined Zale as president and chief operating officer on Jan. 10. That gives the company some "breathing room" in its CEO search, says Richard C. Marcus, a Zale director. And on Feb. 15, Zale named a new chief financial officer, John Belknap, who formerly served as CFO of retail operator Seligman & Latz.

Ironically, though, Zale's efforts to move ahead with its management team-building could make the CEO search more difficult. "That's the tail wagging the dog," says Melanie Kusin, a managing director of executive recruiter Russell Reynolds Associates, who notes that most chief executives like to pick their own lieutenants.

Marcus argues that meshing a CEO with Zale's new management team will not be a problem. In fact, he says, the company has already had "substantial conversations" with a retail executive about the top job. Marcus and other directors won't reveal names, but one industry source indicates that Brooks Brothers CEO William V. Roberti may be a candidate. Roberti declines to comment. He worked for Zale from 1984 to 1987, when he led upscale Zale unit Bailey Banks & Biddle Co.

But as Zale directors have learned, identifying candidates is the easy part, while nailing down contracts is something else. Indeed, in December the board appeared close to snaring Harold Kahn, president of Montgomery Ward & Co. Kahn was even looking for a home in Dallas and expected to be on board in early January. But as lawyers negotiated the details of the contract, the deal fell apart.

TIGHT LIPS. Kahn, who subsequently agreed to head the Abraham & Straus unit of Federated Department Stores Inc., says he was never told why the offer fell through. Marcus refuses to discuss the issue, but another source familiar with the search says directors grew disenchanted with Kahn when he failed to contact Pollock and interim chief operating efficer Andreas Ludwig to discuss the situation at Zale's.

Kahn isn't the only jilted contender. Dean G. Groussman, who joined Zale as its CEO in September, 1992, during the bankruptcy process, had hoped to stay on board when the company emerged from Chapter 11. Groussman, a former head of Canadian Tire Corp. and a one-time Zale executive, complains that the new Zale board spent little time getting to know him. "We just reached a mutual agreement that we wouldn't be able to work together," he says.

For now, Zale's biggest shareholders are backing the board, and few are taking Glatstein's court action seriously. The CEO candidate that Glatstein is pushing--former Zale Vice-Chairman Leo Fields--has no support from the board. Fields teamed with Glatstein during the bankruptcy to present a competing reorganization plan. But even the board knows that there's only one surefire way to make Glatstein go away: Fill the CEO's seat. So far, that's easier said than done.

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