Royal Ahold Company

A Dutch-listed company, Royal Ahold NV, was first established by Albert Heijn as a small grocery store in 1887 in Zandaam, the Netherlands. By 2005, it was one of the world's leading food providers with more than 240,000 employees, a customer base of more than 300,000 independent and chain businesses, and sales of more than 44 billion euros in 2005. In 2003, however, Royal Ahold was rocked by a financial scandal resulting in the firm restating its earnings by $1 billion for 3 years ending 2002 and paying $1 billion in December 2005 to settle a class-action lawsuit with shareholders. The former CFO who was fired in 2003, Michiel Meurs, was singled out by a Dutch enterprise court in 2006 as bearing most of the blame for the accounting scandal. The former CEO, Cees van der Hoeven, who resigned when the fraud was uncovered, was also found complicit. The accounting scandal involved overlooking weak internal controls because Royal Ahold emphasized achieving double-digit growth within its recently acquired subsidiary, U.S. Foodservice.

Starting in 1995, Royal Ahold achieved rapid growth by purchasing subsidiaries around the globe. It spent approximately $19 billion in acquisitions over a 6-year period. The Dutch enterprise court in 2006 stated that Royal Ahold knew about the weak internal controls within the U.S. Foodservice subsidiary before it was acquired in 2000 and accused Royal Ahold of failing to act even after warnings of continued accounting weaknesses.

The February 2003 discovery of accounting fraud due to overstatements of income nearly bankrupted the entire firm. Characterized as “Europe's Enron,” Royal Ahold has made significant changes in its financial and operating controls as well as increasing transparency with investors. Financial statements for the fiscal years 2000, 2001, and 2002 were restated with significantly lower net earnings and earnings per share.

The U.S. Securities and Exchange Commission (SEC) also investigated Royal Ahold and its various operating companies, including its U.S. Foodservice subsidiary. A final settlement with the SEC was reached in October 2004. Under the agreement, Royal Ahold was not required to pay any fines or admit to any wrongdoing for its actions, which caused it to restate earnings by $1.2 billion over 3 years.

The SEC didn't fine the company because Royal Ahold cooperated with investigators. Royal Ahold reported the misconduct itself and conducted an extensive internal investigation that went beyond U.S. Foodservice. According to the SEC, Royal Ahold also gave up attorney-client privilege, made personnel available for interviews, and fired employees responsible for the irregularities.

After the fraud crisis in 2003, stronger financial controls, direct oversight, better governance mechanisms, and tighter controls on vendor contracts provided additional accountability and transparency of the firm to many government agencies in the Netherlands and the United States, investors, and employees. As part of Royal Ahold's “road to recovery,” numerous steps were undertaken to increase trust. Among the steps was the appointment of a chief corporate governance counsel who is a member of the executive board.

One in a continuing line of accounting fraud discoveries, Royal Ahold joined the ranks of Enron, WorldCom/MCI, Tyco, and Adelphia Communications as lightening rods depicting managerial exuberance and accounting fraud. Unlike Enron, WorldCom, and Adelphia Communications, however, Royal Ahold did not declare bankruptcy and emerged 2 years later in stronger financial shape with better operational controls. Today, Royal Ahold continues to operate through subsidiaries and joint ventures of food retail and food service activities predominantly in the European Union (EU) (e.g., operating supermarkets, hypermarkets, and convenience stores, including Albert Heijn, Gall & Gall, Etos, and Albert Zakelijk) and the United States (e.g., owning food service stores, including Stop & Shop, Giant, and Tops and its e-commerce grocery retail delivery service, Peapod).

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