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US Foodservice CEO James Miller resigned from the company this morning, under pressure from a supervisory board that is grappling with a corporate accounting scandal. US Foodservice has admitted accounting "irregularities" that resulted in an $880 million overstatement of profits over a two-year period.

US Foodservice's accounting practices are being probed by both American and Dutch authorities.

Miller's resignation appears to signal a sharp turn by Ahold. Such a move would represent a sharp turn by Ahold. Just last week, reports were that the company was laying all the blame for the accounting scandal at the feet of two now-fired executives, Mark P. Kaiser, chief marketing officer, and Timothy Lee, executive vice president for purchasing. Miller reportedly had been cleared of any wrongdoing or knowledge of other people's wrongdoing, and had consistently maintained that the problems were not his fault.

Yesterday, however, there were published reports that Ahold was saying that its internal forensic investigation was not complete, and that other executives at US Foodservice could be implicated.

In addition, Kaiser's attorney said yesterday that Ahold was conducting a "smear campaign" against his innocent client, and that its strategy "is apt to backfire when all the facts are known."

He released a statement saying that "when aired fully, the facts will speak volumes as to the objectivity and fairness of the investigative process and Ahold's interest in protecting others."

Probably complicating the argument that only Kaiser and Lee were responsible was the statement last week by Robert Gillison, the treasurer at US Foodservice, that when Ahold bought the company three years ago it knew accounting problems were going to be an issue.

"We had identified that we had inadequate controls and we needed to work on them," Gillison, told Reuters in an interview. "Generally speaking, the openness and visibility of this stuff in this company is going to be much higher."

While Miller kept his job when the accounting scandal was revealed last February, it resulted in the forced resignations of Royal Ahold CEO Cees van der Hoeven, as well as the company's CFO. Van der Hoeven subsequently was replaced by Anders Moberg, the former CEO of Ikea and chief of international affairs for Home Depot, who has been named the company's new president and CEO. Until now, Moberg has been acting CEO; he is expected to be confirmed in the job at today's annual meeting.

Ahold has been working to sell off some of its global properties, such as its Tops division in Malaysia, in order to retire some of the debt that has been overwhelming the company. And, it has been making some changes in its second-tier management structure in order to try and improve public perception of the company.

And, ironically, US Foodservice announced yesterday that it has signed a three-year, $150 million deal with Beverly Enterprises to provide distribution services to skilled nursing facilities and assisted living centers. The deal expands on a previously existing $17 million distribution arrangement…meaning that whatever the company's problems, at least one of its customers appears to be happy.
KC's View:
Remarkably, the only part of the company that seems to have been untouched by the scandal and controversies has been Ahold USA, which operates supermarket chains up and down the east coast. While we don’t think the Ahold story has played itself out by any means, we have to admit that we hope that the folks at Ahold USA have by and large kept their noses clean.

That said, we believe that all the various accounting issues that have plagued companies like Ahold, Fleming, and Nash Finch are going to back up on the industry as a whole. They have created the image of an industry in which accounting is more performance art than science, and in which a spotlight has been trained on the practice of retailers making money on the buy, not on the sell.

That is both the tragedy and the silver lining of all these cases. While the industry is taking a black eye in the short term, perhaps all this attention will
Drive some real and significant change in the economics of the food industry.

We can only hope.