Blame ex-CEO Scott Livengood, says Krispy Kreme's independent board committee in a report released today detailing the committee's investigation into the doughnut maker's alleged accounting improprieties. The report pins responsibility on Livengood and former CFO and COO John Tate for failing to create the appropriate controls environment and for managing earnings at the fast-growing business.
"Livengood as CEO and Tate as COO failed to establish a management tone and environment that demanded accurate accounting and financial reporting or to put in place controls, procedures and resources adequate for a business experiencing explosive growth," says the report. "These failures led or contributed to accounting errors— substantially all of which had the effect of increasing EPS—at the same time that Livengood, Tate and others were profiting greatly from stock options, cash bonuses tied to EPS growth, and generous perquisites."
Tate is currently employed as the COO of the NASDAQ-listed homegoods retailer Restoration Hardware.
The report also looks specifically at CFO turnover at Krispy Kreme (three times in four years), and reveals that Randy Casstevens, who succeeded Tate as CFO, felt that he was not qualified for the job. The first CFO retired shortly after the IPO, and was followed by Tate, who served from October 2000 to January 2002 before becoming COO. Casstevens was promoted from treasurer to fill Tate's CFO slot.
"By all accounts, including his own, Casstevens was a poor choice for that position," says the report. "He made it known during his first year as CFO that he was uncomfortable in the role and that he felt he was better suited to a controller-type position."
Nonetheless, the report notes, Casstevens remained CFO until the end of 2003. "During fiscal 2003 and 2004, when the accounting errors discussed below occurred, neither Tate nor Casstevens provided the leadership and supervision over the finance and accounting functions that one would expect from a COO and CFO, respectively."
For more on how fast growth, inexperienced management, poor controls, and a hot glaze of greed were a recipe for disaster, see our story. |
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