Sears GC Defends Company’s Shake-Up

This April, Sears Holdings Corporation announced it would raise more than $2.5 billion by selling off 254 stores — to a real estate investment trust where CEO Eddie Lampert is a prominent shareholder.

Not all shareholders were happy, and in June, shareholder Shiva Stein filed a derivative suit accusing Lampert — a billionaire hedge fund manager who owns 49 percent of the company’s stock and has been its CEO since 2013 — of breaching his fiduciary duty. The suit alleged Lampert was hurting other shareholders by selling Sears’ most valuable asset, its real estate, to himself while the iconic U.S. retail giant is headed for a future as a struggling tenant on its own property.

Stein’s complaint also alleged Lampert’s plan is for Sears Holdings, which closed 234 stores last year, to continue to shrink its brick and mortar presence so the REIT can lease the properties to new and better paying tenants.

According to General Counsel Kristin Coleman , reducing Sears Holdings’ retail “footprint” wouldn’t be such a bad thing.

The unique structure of the REIT “allow us to look at our store portfolio, potentially reduce footprint, and take greater advantage of that footprint from a revenue and profitability prospective,” Coleman said.

In a recent interview with Big Law Business, Coleman, who’s been at the helm of the legal department since July of last year, talked about the shareholder suit, the future of Sears, and the need for lawyers to learn customer service.

Sears Holdings Corporation was founded in 2005, with the merger of retailers Sears and Kmart. The company is headquartered in Hoffman Estates, Illinois.

Below is an edited transcript of the second installment of the interview.

[caption id="attachment_4285" align="alignleft” width="236"][Image “Kristin Coleman (Courtesy of Sears)” (src=https://bol.bna.com/wp-content/uploads/2015/09/ColemanKristin.jpg)]Kristin Coleman (Courtesy of Sears)[/caption]

Big Law Business: The basic contention underlying the shareholder suit is that the sale of Sears’ property to the REIT will be bad for shareholders. I assume you disagree.

Coleman: We do disagree with that. I guess the short answer is we believe the REIT provides substantial value to the corporation from the perspective of appropriately valuing both the real estate that we sold and leased back as well as the benefits to the unique structure of the REIT, which allow us to look at our store portfolio, potentially reduce footprint, and take greater advantage of that footprint from a revenue and profitability prospective.

It’s a very creative solution that we think benefits the company and its shareholders.

Big Law Business: Last month, Sears posted its first profits since 2012. Why is the future bright at Sears?

Coleman: I used the word transformation before. I think the retail industry as a whole is in period of substantial change, and we’re right in the middle of that. It’s hard to see that story when you’re focusing on our financial results, which I admit are not terrific.

I don’t know what inning we’re in, but we’re not yet to the 7th inning stretch.

What I would say is we have a real vision coming from our leadership. Our CEO has some very creative thoughts about where the business should go. We have some incredibly talented senior leadership moving us in that direction.

We have new leaders for Sears, for Kmart, and for some of our stronger and more substantial business lines. There is a lot of change going on here. If you think about it in terms of a baseball game, I don’t know what inning we’re in, but we’re not yet to the 7th inning stretch.

I think it’s hard for people to see past the iconic brand, what they grew up with as Sears, to where we might be headed.

I want to hear that people have scooped ice cream or delivered newspapers. A lot of that mentality is missing in law firm land.

Big Law Business: What do you value in an outside law firm?

Coleman: Pragmatism, customer service, partnership, speed, and of course low fees. But I cannot emphasize enough the customer service piece. One of my interview questions [when hiring in-house lawyers] is, “Tell me your first job in a service industry.”

I want to hear that people have scooped ice cream or delivered newspapers or something. A lot of that mentality is missing in law firm land. When they get it right, it’s a joy.

Big Law Business: When you’re not at work or hanging out with family, what are you most likely doing?

Coleman: I love to read, I like to ski and I practice yoga.

Big Law Business: Best book you’ve read recently? Favorite ski slope? What kind of yoga?

Coleman: Tony Hsieh’s Delivering Happiness . Telluride, Colorado. Vinyasa yoga.

Read Part I of the interview with Coleman here .

(UPDATED: The headline on this post has been modified from its original version. It has also been corrected to note Lampert’s role as a shareholder in the REIT.)