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There were further developments in the accounting scandal that forced the resignations of Ahold CEO Cees van der Hoeven and CFO Michael Meurs. As reported yesterday on MNB and elsewhere, both executives had to resign when it was revealed that there were accounting irregularities at Ahold’s U.S. Foodservice unit, with a $500 million (US) overstatement of earnings, as well as an investigation into accounting problems in the company’s Argentine operations.

At the very least, Monday was a black day for Ahold, which was founded in 1887. Not only did it lose two of its top executives in a cloud of scandal and ethical questions, but its stock lost more than 60 percent its value (and, as we write this, continues to drop in morning trading). After a decade in which it spent more than $19 billion (US) acquiring companies, becoming a major force in US retailing, the company came face-to-face with what some observers were terming a scandal of Enron proportions, bringing into question the company’s future existence.

  • Analysts were saying that the U.S. Foodservice business might have to be sold because of mushrooming debt. Ahold bought the company in 2000 for $3.6 billion (US). However, Ahold board member and acting CEO Henny de Ruiter said that there were no plans to sell the division at this time.

  • Analysts are saying that while U.S. Foodservice might be worth $5 billion (US), a forced sale in the bear market because of accounting issues likely would mean that the division would fetch considerably less.

  • There are some estimates that Ahold’s debt could be more than $20 billion (US) once all the irregularities are factored in. Ahold had stated that its debt was about 13 billion euros.

  • There is even some speculation that the company may have to sell more of its “crown jewels” if it is to survive, with the likely candidates being Albert Heijn in the Netherlands, and Giant and Stop & Shop in the US. Ahold says this isn’t in the cards at the present time.

  • It appears as if it is likely that the US Securities and Exchange Commission (SEC) will investigate the Ahold accounting irregularities. A spokesman for the SEC said that a probe is standard procedure whenever a company restates earnings.

  • Ahold's auditors, Deloitte Touche Tohmatsu International, said yesterday that it was not responsible for the accounting problems at Ahold because “some information wasn’t available to us.”

  • However, there are those who believe this is much ado about little. Burt Flickinger III, of the Strategic Resource Group, told USAToday that “this is one of the grossest overreactions that I’ve ever seen. There is a lot of institutional integrity at Ahold.”

KC's View:
Even if “integrity” and “Ahold” are two words that most people wouldn’t put in the same sentence at the moment, we’ll accept Flickinger’s cautionary note at face value. He’s right, there are a lot of calls to judgment in the passion of the moment, and we all have to careful about overestimating the impact on the company and the industry.

We’ll certainly buy into the argument that there isn’t a lot of connection between Enron and Ahold. Enron, as it happens, was a kind of ghost business; there was no there there. You can’t say that about Ahold. It serves millions of customers every year, and has a real place at the table of global food retailing.

Nevertheless, at the very least these new revelations do seem to be a lesson in how hubris can lead to one’s downfall.

Several years ago, at the CIES annual summit, there was a presentation made by a consultant about the power of independent retailing. (We can’t remember the speaker’s name; it has faded now into the recesses of memory.) In that speech, one of the independent operators cited as being exceptional was Lees Supermarket in Massachusetts, which was quite successful despite the fact that it was competing with Ahold’s Stop & Shop and other chains. Owner Al Lees was quoted by the consultant as saying something along the lines of “Stop & Shop doesn’t even know where we are,” and that they were practicing a kind of guerilla marketing that kept them relevant to their shoppers.

As were leaving the hall that day, we happened to be just behind Cees van der Hoeven, who said to the man he was walking with that “they should tell Mr. Lees that we know where he is now.” We got a chill at that moment; it just seemed…well, inappropriate.

Well, we know where Al Lees is, too. Yesterday, he was prowling the halls of FMI’s MarkeTechnics conference, knowing that the lot of the independent retailer is hardly a happy one, and yet relentlessly looking for new ideas and concepts that will help keep his company thriving in the face of incredible competition.

And while Al Lees is looking for new ideas to stay competitive, Cees van der Hoeven is looking at the tattered reputation of a company in turmoil. He is losing his job amid questions about his personal integrity and character. And he no doubt wonders what awaits at the bottom of the black hole that seems to have opened up beneath him.