business news in context, analysis with attitude

Los Angeles Times” business writer Michael Hiltzik uses his column this morning to eviscerate Kroger and its Ralphs division for “unparalleled sleaziness” and a “full-bore criminal conspiracy” in the activities that led to its indictment this week by a federal grand jury.

Ralphs was indicted for rehiring striking employees during the four-month labor strike that ended early last year and then forcing them to use false names and Social Security numbers, falsifying thousands of employment records, withholding allowance certificates, income-tax statements and other legal documents. The 53-count indictment – which includes money laundering - says that Ralphs and Kroger senior management knew about the ploy, that the practice gave the company an unfair advantage in dealing with the labor unions.

While Ralphs has conceded that some “limited improper hiring” took place, it has maintained that nobody in senior management knew about it.

Hiltzik writes, “For the most part, the company is shoving blame for the affair onto low-level management — store and zone managers in Southern California. (This ‘rogue employee’ defense is beloved of corporate bigwigs in the dock — think WorldCom's Bernie Ebbers and Enron's Ken Lay.) My sources say that as many as nine zone managers — who typically oversee 18 to 20 stores — have been fired or forced into retirement, and two others have been transferred out of state.”

And, he notes, “Plainly, if the government can prove its charges, Ralphs will be in a world of hurt. Its liability exceeds the more than $100 million in fines carried by the 53 counts of the indictment. The 19,000 workers it locked out could be due back pay. Senior executives may still face indictment — as may individuals who worked under fake names and shouldn't be regarded as entirely innocent. The employee benefit trust funds and Kroger shareholders could sue for redress. The union could seek to nullify its contract.

“The grocery strike/lockout of 2003-04 benefited nobody. The union accepted a contract that marginalizes its members. The three companies lost $1.5 billion in sales during the job action, and their profit margins have never returned to pre-strike levels…The companies' mutual-aid pact is the target of a state antitrust suit.”
KC's View:
World of hurt, indeed.

Yes, the company is innocent until proven guilty. Yes, it is impossible to know how this case will turn out.

But the court of public opinion has no such restrictions. We don’t think that Kroger and Ralphs can allow this image of its operations to fester for very long.

Though what they can do to change people’s opinions in the short term is beyond us.

Merry Christmas.