Kohl’s Corp. has dismissed its Chief Executive Officer Ashley Buchanan just months after his appointment, following revelations that he directed company business worth millions of dollars to a vendor with whom he had a personal and undisclosed relationship. This sudden move has not only shocked employees but also raised serious concerns about leadership due diligence and corporate governance at the American retail chain.

The Relationship at the Heart of the Scandal

The individual involved in this case is Chandra Holt, a former colleague of Buchanan from their time at Walmart’s Sam’s Club division. She later served as the CEO of Bed Bath & Beyond and Conn’s Inc., and is currently known as the founder of Incredibrew, a vitamin supplement company. Holt confirmed that she has known Buchanan for a decade but denied receiving compensation from Kohl’s for Incredibrew.

However, what triggered the CEO’s termination was not just this long-standing relationship but the business benefits Holt allegedly received through her connections with Buchanan. A board-led audit investigation discovered that Buchanan influenced the company to engage in business dealings with a vendor tied to Holt on terms unusually favourable to the vendor. Moreover, he allegedly pushed Kohl’s into a multimillion-dollar consulting agreement with Boston Consulting Group (BCG), where Holt served as a senior adviser.

Audit Findings and Immediate Consequences

The audit committee’s investigation concluded that Buchanan had committed two major violations:

• He did not disclose a personal relationship with Holt while recommending business partnerships with entities linked to her.

• He facilitated deals that favoured Holt’s affiliations, breaching Kohl’s code of ethics.

Following these revelations, BCG swiftly terminated Holt’s advisory contract, stating they were unaware of her personal connection with Buchanan and citing their strict conflict-of-interest guidelines.

Buchanan’s termination was deemed “for cause”, which means he will forfeit benefits and must return $2.5 million from his signing bonus to the company.

Internal Fallout and Employee Reaction

The announcement was made during an impromptu town-hall meeting at Kohl’s headquarters in Menomonee Falls, Wisconsin, led by Chairman Michael Bender and CFO Jill Timm. The meeting, also broadcast to remote employees, provided little more than what was stated publicly. Still, employees were reportedly shocked and disappointed, as Buchanan was seen as a charismatic and well-liked leader during his short stint.

Bender urged employees to remain focused on the company’s strategic turnaround plan and reassured them that this leadership shake-up would not derail ongoing operations. Importantly, the company confirmed that no other personnel were involved in the violation.

A History of Leadership Instability

This marks Kohl’s fourth CEO change since 2018, deepening the perception that the company is in a state of instability. According to GlobalData’s Neil Saunders, while the firing is unrelated to the company’s performance, it still damages Kohl’s already fragile corporate image and raises questions about how thoroughly Buchanan was vetted before hiring.

The termination is part of a rare category of CEO exits. As per data from exechange, only 43 CEOs out of 2,500+ in the Russell 3000 Index have been terminated for cause since 2017.

Stock Market Reaction and Financial Update

Despite the scandal, Kohl’s stock surged 9.9% in Thursday’s trading, driven largely by better-than-expected preliminary earnings results. The company posted a Q1 comparable sales decline of 4% to 4.3%, which was less severe than analysts’ forecasts. Additionally, the net loss was narrower than anticipated, offering a ray of optimism for investors.

Morningstar analyst David Swartz commended the board for acting decisively, and Bloomberg Intelligence’s Mary Ross Gilbert noted that Kohl’s still holds substantial real estate value despite facing challenges with its product mix and store count.

However, year-to-date stock performance has been dismal, with a 50% decline, far worse than major US benchmarks.

A Turnaround Plan Still in Motion

Following Buchanan’s appointment in January, Kohl’s announced job cuts impacting 10% of corporate roles, as part of its effort to streamline operations and control costs. The retailer also closed underperforming stores and is focusing on areas like fine jewelry, partnerships with brands like Sephora, and new initiatives like Babies “R” Us pop-ins.

Bender, now interim CEO, reiterated the company’s commitment to executing its existing strategy and stated the board would soon begin the search for a permanent CEO.

Public and Industry Reaction

The corporate world has taken note of the incident as a significant ethical lapse at the highest level of retail leadership. The Wall Street Journal was among the first to report on the personal relationship between Buchanan and Holt, and the news has since sparked wide discussion on executive accountability and corporate ethics.

Conclusion: A Moment of Reckoning for Kohl’s

The firing of Ashley Buchanan is a pivotal moment for Kohl’s, as it balances the fallout from an ethical scandal while simultaneously working to regain investor trust, revitalize its operations, and attract customers in a competitive retail environment.

While the board’s swift action is commendable, the damage to internal morale, brand reputation, and questions around hiring due diligence may take longer to heal. With an interim CEO in place and a leadership vacuum once again, Kohl’s now faces the twin challenges of stabilising operations and finding the right leader to navigate the future.

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