business news in context, analysis with attitude

Dutch retailer Ahold announced this morning that its longtime CEO, Cees van der Hoeven, and its CFO. Michael Meurs, will resign from their positions after accounting irregularities were found at the company’s U.S. Foodservice unit.

The company also said that its 2003 net profit is expected to be "significantly lower" than expected -- possibly by as much as $500 million (US) -- because the company had overstated recent earnings in the U.S. Foodservice business, which is the second-largest food distributor to restaurants, hotels, healthcare institutions and sports facilities in the United States after Sysco Corp.

Ahold reported its first net loss in almost 30 years in the second quarter. The company now says that it will have to restate earnings for 2000 and 2001, as well as 2002’s interim results. Van der Hoeven reportedly tendered his resignation last spring after the profit warning, but it was refused by the board.

The company said it would delay the scheduled March 5 announcement of last year’s results until after its internal investigations by “forensic accountants” are completed.

Supervisory Board Chairman Henny de Ruite has been named Ahold’s acting CEO. He said that the company also is investigating the legality of “certain transactions” made at its Disco subsidiary in Argentina.

All of these issues, de Ruite said, were discovered in the course of the 2002 audit. He declined to say whether other board members will be forced out as a result, but did say that some U.S. Foodservice executives have been suspended.

"My priority will be to stabilize the business and get to the bottom of the problems,” de Ruiters said. “I am not in the least bit pessimistic about where we will be in a year from now.” He said that the company recent secured $3.4 billion (US) in new financing, leaving it fully funded and liquid.
KC's View:
The local Dutch media jumped on the story, with headlines like, “Is ‘Ahold’ Dutch For ‘Enron’?”

For the moment, it is hard to say whether this was avarice or just corner-cutting that created problems for Ahold and its top executives. That’ll be up to the forensic accountants to decide, and perhaps legal authorities; these days, the public sentiment against corporations and their “accounting irregularities” pretty much guarantees that there will be governmental probes into the Ahold situation.

Two heads have rolled. It isn’t hard to imagine that there will be more.

It also was ironic that this took place less than 24 hours after there was a presentation at the Food Marketing Institute MarkeTechnics conference about ethics in business, in which one of the recommendations (made in a different context) was that companies need to have a Chief Integrity Officer, who guarantees that they develop the language of ethics internally, maintain ongoing ethical fitness, and articulate those ethics externally.

Sadly, Ahold seems to have a lot of work to do. It is a profound disappointment when a company admired in so many quarters is found to be wanting in the ethical arena.

Certain Ahold executives may be guilty of avarice, or may be guilty of lousy judgment.

History, we suspect, will prove that at the very least, they were guilty of hubris.