Former Kmart chairman/CEO Charles Conaway has been cleared by arbitrators of charges made by former shareholders that he was guilty of negligence, mismanagement and essentially looting the company for his own benefit.
The charges were made by the Kmart Creditors Trust, representing in part the shareholders who lost $4.5 billion when the company became the largest retailer ever to file for bankruptcy in January 2002. In addition to clearing Conaway, the ruling also makes it possible for him to recover his legal expenses from the trust.
The arbitrators’ report was made public by the Detroit News, which said it had received an advance copy.
"This is not a case of fraud, deliberate mismanagement or corporate looting," wrote the panel. "The evidence shows that Conaway acted at all times in good faith and in what he believed to be the best interests of Kmart. He made a determined, albeit unsuccessful, attempt to accomplish what he was hired to do -- stop Kmart's long decline ... turn the company around ... and restore it to its former position as one of the nation's preemiminent retailers."
According to the Detroit News, the arbitrators’ ruling makes it less likely that federal prosecutors will move to file criminal charges against Conaway.
The News writes that “the arbitration panel rejected suggestions that $23.9 million in retention loans paid in December 2001 to two dozen Kmart executives were improper. And it rejected an unusual argument from the trust that suggested Kmart could have saved money by declaring bankruptcy earlier and should have filed in August or September 2001, rather than waiting until January 2002.”
During the arbitration hearings, it was revealed that Conaway almost managed to arrange bridge funding that would have prevented the company from filing for bankruptcy. The essence of the decision seems to be that while Conaway made a lot of mistakes and was unable to turn the company around, his actions were hardly criminal in nature.
Five other Kmart executives also have been sued by the trust, but those arbitration decisions reportedly are being made separately.
The charges were made by the Kmart Creditors Trust, representing in part the shareholders who lost $4.5 billion when the company became the largest retailer ever to file for bankruptcy in January 2002. In addition to clearing Conaway, the ruling also makes it possible for him to recover his legal expenses from the trust.
The arbitrators’ report was made public by the Detroit News, which said it had received an advance copy.
"This is not a case of fraud, deliberate mismanagement or corporate looting," wrote the panel. "The evidence shows that Conaway acted at all times in good faith and in what he believed to be the best interests of Kmart. He made a determined, albeit unsuccessful, attempt to accomplish what he was hired to do -- stop Kmart's long decline ... turn the company around ... and restore it to its former position as one of the nation's preemiminent retailers."
According to the Detroit News, the arbitrators’ ruling makes it less likely that federal prosecutors will move to file criminal charges against Conaway.
The News writes that “the arbitration panel rejected suggestions that $23.9 million in retention loans paid in December 2001 to two dozen Kmart executives were improper. And it rejected an unusual argument from the trust that suggested Kmart could have saved money by declaring bankruptcy earlier and should have filed in August or September 2001, rather than waiting until January 2002.”
During the arbitration hearings, it was revealed that Conaway almost managed to arrange bridge funding that would have prevented the company from filing for bankruptcy. The essence of the decision seems to be that while Conaway made a lot of mistakes and was unable to turn the company around, his actions were hardly criminal in nature.
Five other Kmart executives also have been sued by the trust, but those arbitration decisions reportedly are being made separately.
- KC's View:
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Maybe not criminal. But we think that you certainly can make the argument that Conaway’s actions were less than ethical.
Perhaps he didn’t loot the company for his own benefit, and perhaps his actions were not criminal. But you’ll never convince us that during the mere 20 months that Conaway ran Kmart, one of his central concerns was the benefits accruing to the company’s senior executives – not the people working in the stores, and not the shareholders invested in the company.
But here are the questions that really answer how people of conscience feel about Conaway’s culpability.
Y’think Conaway gets hired anytime soon to run a major public company?
Would you hire him to run yours?
