Panel: Former Kmart CEO Not Up to the Job

Aug 15, 2005

By George Anderson

An arbitration panel has unanimously ruled that Charles Conaway, the former chairman and CEO of Kmart, was not guilty of “fraud, deliberate mismanagement or corporate looting,”
as accused in a suit brought by creditors of the company.

That Mr. Conaway failed brilliantly to turn Kmart around is without question but the arbitration panel ruled he “acted at all times in good faith and in what he believed to be
the best interests” of the company.

Wayne State University professor Peter Henning, a former federal prosecutor, told The Detroit News, “The claim was, in essence, (that) Conaway didn’t do as good a job
as he could have, but the business judgment rule protects you from 20-20 hindsight. Did he get too much compensation? Maybe. That might be business stupidity, but it’s not illegal.”

Moderator’s Comment: What is your reaction to the arbitration panel’s ruling in the suit brought by the Kmart Creditors Trust against Charles Conaway? What
did Mr. Conaway do right and wrong during his tenure at Kmart?

The arbitrations panel credited Mr. Conaway with making improvement to Kmart’s supply chain, increasing customer satisfaction, selling off obsolete merchandise,
reducing excess warehouse space and developing proprietary brands such as Martha Stewart and Joe Boxer.

“On the other hand,” the panel concluded, “some of Conaway’s decisions proved to be unsuccessful — initiating Blue Light Always, hiring (Mark) Schwartz
as president, and drastically cutting … advertising.”

The panel listed the “Blue Light Always” program as a major failure.
George Anderson – Moderator

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5 Comments on "Panel: Former Kmart CEO Not Up to the Job"

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Bernice Hurst
16 years 9 months ago

Bitter pill though it may be, it doesn’t seem as if there was anything illegal in his actions. Unlike bigger and better executive payoffs that have gone unpunished. More importantly, there are far too many loopholes for greedy execs to wriggle through. Therein lies the problem. It’s about time someone read the label and put the expression corporate governance into real time practice.

Warren Thayer
16 years 9 months ago

I’m confident that the panel would have acted differently if it actually felt there was criminal behavior of any sort. What this brings to the fore, yet again, is the “buddy program” between boards and senior executives, when it comes to compensation and evaluating business decisions with an unbiased eye.

Mark Lilien
16 years 9 months ago

There’s a big difference between “looting” and uneven performance. Did the creditors file the suit really believing that there was looting, or was the suit filed in the hopes that the insurance company would settle out of court?

Don Van Zandt
Don Van Zandt
16 years 9 months ago
We pay a CEO $23MM to make poor business and hiring decisions. There are no checks in place to prevent the overbuying problems that occurred while liquidity is one of the major concerns, and people are surprised when the bottom falls out? There are not that many people who can hit a 98 mph fastball and a curve (and those people are grossly overpaid). The “successful” turnaround specialists are often just very lucky when the stars align and they don’t go under. How many sound businessmen and women in middle and upper management could run a major company? Thousands who never get the chance and would do it for 10% of what the “imperial” CEO gets paid today. The cult of personality around the “senior executives” in many companies today is ridiculous. One man does not make a company successful. That happens because there is a team of people who can get the job done. The real question is who is sitting on the boards of these companies and how did they miss the problems?… Read more »
Mark Burr
16 years 9 months ago

Buddy system; incompetence; greed; poor governance — all true, but not illegal. There was enough here to go around. In fact, wasn’t this guy actually a member of the board prior?

Suppliers may have gotten a bad deal, that’s for sure. However, aren’t they just as guilty for continuing to pour fuel into the fire? Many of them were having payment and receipt difficulty long before the ship actually failed. Is that not true?

There were many lessons to be learned by so many in this case and others. Trying not to be cynical about it is the most difficult task of the whole issue. It’s hard to not believe that the greatest way to achieve success as an executive in today’s world is to rack up a series of massive failures while collecting your severance moving from place to place. Somehow, that seems like the badge of honor required to earn millions while leaving a wake of disaster behind.


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