Kohl's CEO Fired! Ethics in Business

Kohl's CEO, Ashley Buchanan, was fired for allegedly being involved in steering business to someone he had a personal relationship with. After only 6 months in his new position, the board of directors terminated with cause.

How does this impact you? It's a sign of why ethics matters in business. In this episode, Dan and Rich break down what happened and share their thoughts on how companies gain get ahead when they hold themselves to a high moral standard.

[00:00:10.15] - Alice

Hello. Welcome to Books in the Biz, a podcast that looks at both the financial and operational sides of success. Please welcome our hosts, Dan Paulson and Richard Veltre. Dan is the CEO of Envision Development International, and he works with leaders to increase sales and profits through great cultures with solid operations. Rich is CEO of the Veltre Group and a financial strategist working with companies to manage their money more effectively. Now on to the Podcast.

[00:00:44.13] - Dan Paulson

Welcome to Books and the Biz. We are back for another exciting rendition of Retail Therapy Hour, I think. Rich, how are you today?

[00:00:54.16] - Rich Veltre

I'm good, Dan. How are you?

[00:00:56.07] - Dan Paulson

Excellent. Excellent. Yeah, so our Our podcast today takes a turn for some recent news events. And in discussing this, I learned that you are an avid coal shopper. Is that correct?

[00:01:09.27] - Rich Veltre

Have been for years. For years. Yeah, my kids grew up on Getting Coles, going to Coles to get their school clothes. And I think both of them, for the most part, yeah, Coles was a go-to.

[00:01:27.00] - Dan Paulson

There you go. Well, ironically enough, Coles is a Wisconsin company. Started in Monomony, Wisconsin, I believe it was, or at least that's where they're headquartered now. Little known fact to probably you, Rich, that Coles actually used to be a grocery store as well. Oh, wow, really? It was a grocery chain up until, I think, the late '80s, early '90s, they had a very unique style of store. So if you ever want to look that up and see some nice vintage '60s, '70s, I don't know if I call it modernist styling, but they had this unique dome-shaped store that you could buy your groceries at, so you should check that out. Herb Cole was also a senator of ours for a number of years, and he was the primary owner of the Cole's franchise before he passed away. But yeah, so some interesting stuff here. Let me, for those watching, I will pull up a NBC article on this. So yeah, they recently got a new CEO, and the gentleman's his name is Ashley Buchana. He is a man, not a woman. And we actually pulled up an article and had a picture of a very nice looking blonde woman that had nothing looking like this gentleman right here for those watching.

[00:02:44.27] - Dan Paulson

But anyway, he's only been in place about six months, and I don't know how much you read up on him, Rich, but apparently he's got friends in low places that he was forwarding some business on to, and that's a little naughty, and he got his hand slapped. And more importantly, the board of directors said, well, you can't do that because that affects a lot of compliance issues. And maybe because you've dealt with corporate America as well, you can elaborate on some of the issues of why this went down the way it did. But he was like, oh, six months into his term.

[00:03:24.10] - Rich Veltre

Yeah, I think there's a number of issues, I think, that come along with that. Number one, you are If you are a public company, you have SEC rules that you have to go by, and you have corporate structure, corporate governance that has to be adhered to. And the minute you don't do that, then everybody starts to question, well, wait a second. What else don't we know? And I think that causes a lot of friction. And especially if you're playing favors, there are an awful lot of investors that you have to answer to. And the investors want to know that everything that you do is in their best interest. It's not your best interest or your buddy's best interest, or your girlfriend's best interest, or all these other stories that you can hear of. That's why this becomes news. If he gave a contract or a deal to someone that was a friend of his, but the pricing was excellent for the investors, he had other reasons to talk about why he gave the deal, then that's where you have to follow, because that's what you have to answer to. It's less about the first one if you have the second one.

[00:04:45.19] - Rich Veltre

But the minute you don't have the second one, everybody questions that first one, if that makes sense.

[00:04:50.24] - Dan Paulson

Oh, yeah, that makes perfect sense. And my guess is that wasn't the way the deal worked anyway, because they had an outside law firm actually come in to do a review. So once you're bringing in somebody to do an independent review of an individual or of your systems or whatever, that tells me there's probably a little bit of funny stuff going on. At least that's been my experience is somebody got a good deal, but I'm guessing it wasn't a good deal that fell in favor of the shareholders. It was probably a company that had a certain product. And yeah, maybe the product fit the colds line, but maybe there was 10 % more in the cost structure that went to the supplier and not to calls. It's hard to say. I don't think they get into a lot of the details of what exactly happened other than he obviously had a relationship with somebody, and he leveraged that relationship to benefit the individual he knew. And that individual, it isn't really clear if it was a significant other or if it was a friend or colleague, but he used his power to gain favor for somebody else.

[00:06:05.12] - Rich Veltre

Yeah. And the thing is, too, there's this one mantra that we always keep in our heads from the financial side. And it's always, when in doubt, disclosed. So what I'm guessing here is that a lot of this is on the hush hush, because people must not have known about it. They must not have had some... There was no disclosure that it got done. It just all of a sudden, Hey, we have these products, or we have this service going on or happening in the stores. And then they say, Well, who authorizes that? It wasn't disclosed. It was hidden. It was under the table. It was just a deal that was not transparent. And that becomes an even bigger problem, because it doesn't matter if it was good or not. It was hidden. Nobody. So when in doubt, disclose what you're doing. When in doubt, actually make sure other people know what you're doing and why you're doing it. You don't have to elaborate on everything. But on something big like this that's a fireable offense, show what it is.

[00:07:29.00] - Dan Paulson

Yeah, exactly. And I think we're some people, because I'm going to guess most of the people who listen to us or follow us, aren't looking at... They're not part of publicly traded companies. As you pointed out in the beginning of this, there's a different standard that is held for a publicly traded company where there are shareholders that are expecting a return. And to a certain degree, government regulates companies to make sure that all things are fair and above board. But both you and I know that relationship Relationships drive business. It drives business in a company of multi-billions. It drives business in a company that might be making tens of thousands. So the standards are a little bit different once you move from publicly traded companies, aren't they?

[00:08:16.05] - Rich Veltre

I think they are. But the more I think about it, the more I think that even the small guy has to understand, there seems to be a difference when you're the only one in control, right? If you're running a company, if if you set something up, if you build it and it's all been you, then the rules are yours. Then you set it up. The minute you take on a partner, your rules change. And I hadn't really thought about that one until we started talking. When you're taking on a partner, you now run into some of those same rules of disclosure, of transparency, of It's not all my store anymore. It's not all my business anymore. I have what they call a fiduciary responsibility that shows up because in the past, the fiduciary responsibility was only to me. Once I take on a partner, I have a fiduciary responsibility to that partner as well as to the partnership. So once you see that happen or once you are involved involved in a transaction that brings out another person, your rules change. And they start to look a lot more like the SEC. See, the SEC is really just trying to make sure that no investor gets harmed.

[00:09:43.05] - Rich Veltre

Right. Trying to protect the investors. If you take on a partner, you have an investor.

[00:09:48.11] - Dan Paulson

Yeah. Well, I mean, your investors, your stockholders are like silent partners, right? You might have a million of them, and they don't have a lot to say in the business, but they do expect to return on that money they gave you to buy that share of stock or multiple shares of stock.

[00:10:06.07] - Rich Veltre

Right. And if you had a side deal with somebody and gave the money away, they're going to look at it and go, why did you give my money away?

[00:10:12.18] - Dan Paulson

Yes.

[00:10:14.01] - Rich Veltre

I mean, you're supposed to be buying product or doing whatever. Why did you give her money away? So not yours to give.

[00:10:22.20] - Dan Paulson

Exactly. And this to me is a good lesson, I think, for any business owner is that ethics matters. I've got stories, and I'm sure you have stories, and maybe I'll share one here, of companies that weren't always above board, and how it impacted their growth, their sales, their survivability, what other problems it caused. I can think of a company I was working with that ran into trouble where somebody was embezzling from them. And a colleague brought me in to to help correct a lot of problems and try and put systems in place. And what I discovered is the owner wasn't above board on anything or everything for that matter. She had high turnover. She treated her employees very poorly. She treated her customers very poorly. She thought everything was owed or due to her. And it just became a nightmare to try and fix because in her mind, everyone else was at fault. It was never her problem. And And she was in a situation, it was a retail situation where she was selling products and services, and she wasn't even above board about what she was selling people. And she got in numerous bouts of trouble.

[00:11:44.27] - Dan Paulson

It seemed like every week I tried to help her, there was some new outside challenge that was coming in and affecting that relationship. As far as I know, her company is still in business, but I'm guessing that it's probably not doing as much business or as good a business as it could be doing. And I don't know how actively she is involved anymore because she also got in trouble with the IRS. So there's that, too. And because she would try to hide stuff from the IRS, guess what they did? They took her to court. And I believe she had a nice one year stint in club fed environment, three meals a day and nice place to sleep. And that was about it. So there are situations where ethics plays a big part. Now, that's an extreme example. But I think we all have examples of where business and business politics might have negatively impacted a relationship, a role, you name it. I mean, do you have anything that you can relate to?

[00:12:51.12] - Rich Veltre

Yeah, I think that there's a few. One was a private equity-backed company that we found there was some embezelment that went on. And it was very odd how it came about because it was a split company. It was between the US and the UK. And the UK was technically the subsidiary, but everybody was trying to follow the CEO who was basically pushing for, We should run everything out of the UK. And nobody really understood why, because the UK was one-fourth of the size of the US. And he was basically trying to say that it was cheaper to run things out of the UK. And it turns out they had a CFO over there in the UK who turned out to not be so great of a guy. And he stole probably Probably in excess of a quarter of a million dollars. To this day, we don't know exactly what amount he stole. We're very much aware of at least 75. We're pretty aware of another 75 that gets them to the 150. The additional pieces would have been fraudulent expense reports and other things that we aren't 100 % sure are accurate. To prosecute would probably cost more than the 250,000.

[00:14:30.17] - Rich Veltre

So it wound up getting to the point where they said, Okay, we're not talking about this anymore. The interesting part was the person who got really blamed was the CEO. I'll be honest, I'm not 100% sure if the CEO knew. It's just that he was from the UK, and he wanted everything to be run from the UK. It was beneficial to him to run it from the UK. So when he got the opportunity to try to say, Well, this guy's going to run everything, and it's going to be over here in the UK, I don't think he realized that this guy was bad news. And they should have recognized that it was bad news, because here's the kicker. They had done a background check on him. The background check came back and said that he had been in prison for financial fraud. But they took the background check and they stuffed it in a folder. No actually read the background check. Had they read it, they would have known this, but they put it in the folder, and essentially, he was allowed to run carte blanche. And I think when he saw that he had gotten away with that part, he knew he could get away with whatever he wanted.

[00:15:44.05] - Dan Paulson

Yeah, because there weren't any checks of balance. There was no check.

[00:15:47.12] - Rich Veltre

Anybody who saw it, he would have never gotten the job. So how he got the job with that on his resume? I don't know.

[00:15:57.28] - Dan Paulson

Well, I think it just goes to show We can make assumptions that even though we move through the right steps, because it sounds like they did do a background check, it's just nobody read the damn background check. And I see this time and time again, where people will take steps. And there's a certain level of trust you have to put in other people, but then there's also verification that has to happen. And what I find with accountability in most organizations, especially when it comes to leadership, is there's a lot of trust, but there's little accountability. So they trust somebody will do something correctly. And then when they find out they didn't, that becomes a whole separate issue, because usually at that point, similar to the investment examples that you brought up in some of the other examples that I brought up, it's too late. Stuff already happened, where if you had those checks and balances in place at the right time, you could have avoided a number of issues. So that's where from a societal thing, I think we need to be less reactive, the more proactive to try and avoid a lot of issues if we can.

[00:17:05.07] - Rich Veltre

It's funny because out of that same deal, I had been working for them prior, and they actually brought me back in after this all happened. And I wound up doing work with them for several years after that. And one of the things I had to do was put internal controls in place over money. And I had to do a whole presentation, do all the research, and essentially put together, this is what you need to do. And the funny part is, the more research that you do on a small company, because if you ask about financial controls, most accountants are going to turn to you and say, Segregation of duties. If you're a company of one, you can't segregate the duties. The same guy is going to do it. So the smaller the company, the less likely that you have enough people to segregate financial duties. Because you want to build the operational staff. You want to build the people that are making money. You don't want to just immediately, I'm going to start a company today. Let me go hire five accountants. It doesn't make any sense. So the resulting companies that look at this and say, Segregation of duties works when you have people.

[00:18:18.25] - Rich Veltre

In the absence of the available people, oversight is your key.

[00:18:24.17] - Dan Paulson

Exactly.

[00:18:26.01] - Rich Veltre

So you have to be able to oversee everything that's happening. Someone has to be there as your stop gap. They have to be looking. And the minute they're not looking, you're exposed.

[00:18:38.14] - Dan Paulson

Yes. And random checks, again, go back to that accountability, trust but verify. If you have random checks in so nobody knows what to expect or when to expect it, but it is done regularly. It helps keep situations in line. And I think that leads to, we were talking before we started our stream today. And one of the things I think we're going to spend more time talking about in upcoming episodes is communication. And this is just a simple example of how communication can negatively impact an organization. Use the example from the Cole CEO or from some of the stories that we've been sharing here. There's always something missing, and that tends to be centered around communication. Somebody made an assumption, somebody didn't follow up, something happened And then all of a sudden, everyone's scrambling to fix the problem.

[00:19:35.23] - Rich Veltre

Yeah, I agree with you. The scrambling is ridiculous. The scrambling is just it's too much. And somewhere along the line, people have to realize the scrambling comes from the reaction. We're always talking about being proactive versus being reactive. Reactive costs you more money.

[00:19:51.25] - Dan Paulson

Yes, it does.

[00:19:53.06] - Rich Veltre

It costs you... You can look at it however you want to look at it, but it costs you more money. So the proactive might It costs you money up front, but it should never cost you more than the reactive side.

[00:20:06.24] - Dan Paulson

Well, here's the funny part about a lot of that, because I deal with a lot of operational stuff. 99 % of the time, it doesn't cost you more money. It costs you more effort. That, to me, is the struggle we all face, because there's the law of resistance. Everything follows the path of least resistance. If you look at physics, humanity, whatever it might be, everyone's going to try to do things the simplest and quickest way possible with the least amount of effort. That is just the law of nature. And when you start applying that to a business where certain things you have to do require effort, it requires you to push forward and maybe do things you're not comfortable with, or maybe take time doing stuff that you would rather be doing something else. And what I see is most people give into that urge. They're like, well, Bob's doing that. Go ahead, Bob. Take care of it. And then you trust that they're going to do it correctly. Sometimes you're right. Sometimes you have employees that you can just trust to do stuff. And I think we all know people we work with or had worked for us that you could hand them a project and they would take care of it.

[00:21:27.02] - Dan Paulson

And most of those people will do a relatively good job doing that. And there's always that one time, that one time where you didn't follow up, and maybe Bob forgot to do something, or maybe there's somebody who is close to Bob as far as skills and ability, but they didn't just have the same wherewithal, or maybe they weren't functioning above board, and you're not checking in, they're going, well, if he's not checking in, the embezelment thing to me is the easiest one, because that's a perfect example of where a little bit of effort prevents a very costly mistake, because most embezelers don't steal a million dollars out of the gate. They take $10. Actually, I have an example of that. I had a client, a small business, and he had an office manager, and she was in charge of handling the money. Well, the money would come in and it would be cash, credit or check. Well, it turns out that the cash was getting skimmed off the top. So there's $10 to $50 getting taken on a daily basis that you can't track. Well, then she got a little bit more bold and she started messing with the books, and then she started getting checks written a certain way.

[00:22:36.11] - Dan Paulson

Now she's taking hundreds, and then it turned into thousands. And where everything really broke down and the problem was caught is once that person started taking thousands of dollars, not a year, but a month. And all of a sudden you start seeing gaps in the books. This is where you come in. And then you start looking at the forensic side of it and say, well, where's this money going? Why doesn't this number equal that number? And that's That's essentially what led to that person's downfall, is they get greedy because they realize nobody's checking. If nobody's looking, eventually they get to a point where they take too much, and then it becomes unavoidable.

[00:23:13.24] - Rich Veltre

If you ever want a fun day, Google all those embezelment stories. If you go and you read the big ones that made national news, you'd be shocked at what's out there. Like the woman who was known around town to be the well-to-do person, had these, I don't know, horses that... If I come up with the name, I think Friesian might be the name, but I don't remember what horses she had. She had this whole horse farm with these special horses Oh, I remember that. And she had this entire operation going, and everybody just assumed that she was making all this money from the horse farm. But she worked at the local town. She was an administrator or a controller or something, right? And the town itself was always complaining that they didn't have enough money, and they didn't understand it. They didn't have enough money, and they were going to run out of money. And they were getting to the point where they were contemplating the town actually going bankrupt. And one day this woman was on vacation, or she was taking a trip or something, and she was out of the office for a week, and they needed something done.

[00:24:25.07] - Rich Veltre

So one of the other people actually went in her office to get something done, and was looking at something that probably the administrator didn't want her to look at. And it started to unravel right then and there, because she went to the town manager and said, do you see this? I don't understand what this is. And it turned out she had set up this other vendor and the town was paying this other vendor. The other vendor was her. So she was writing numbers that were absolutely ridiculous. And the thing that was a kicker was that this town was audited. So the The person who probably got in the most trouble was the woman who stole the money. Person who got the second biggest fine was the accountant, because they went after them and said, why didn't you catch this? Years ago, she was doing it for Years. I mean, the numbers were staggering. So Google that one day. Google that, and you'll read it. And that's where you say, oversight was the key, and nobody was looking at it. And she got away with it for years.

[00:25:30.08] - Dan Paulson

Yeah. And what I think should be concerning to most business owners, especially those that deal with some form of cash, is this happens a lot. I don't just mean a lot, I mean a lot, a lot. There is numerous times, as you point out, you can Google it and you will get a list. You can probably Google it by state, and you'll get hundreds of situations just probably within the last five years. And it's anywhere from a couple of hundred dollars. In most cases, by the time it's newsworthy, it's several thousands, if not several hundreds of thousands of dollars. I can think of several cases just off the top of my head that were in the half a million to two million dollar range, locally. So this happens a lot. And what I don't think most small to medium sized businesses realize is, usually by the time you find out if you don't have that oversight, that becomes a bigger problem. It could lead to your bankruptcy. It could literally shut you down. We've gone way down the rabbit hole, because that's not what the CEO from Kohl's was accused of. But again, I think this is a good example of where if you don't have the right ethics in place, and you don't have the right oversight in place, it can negatively impact your business.

[00:26:46.03] - Dan Paulson

Now for Kohl's, they're already in retail. They're already struggling because they're typically not an online retailer, though they have that option. I know you can buy clothes online and have it shipped to you. Most people go to a cold store, though. And as we know, retail suffered a lot in the last couple of decades, and they're already behind the eight ball a little bit, trying to reinvent themselves. And now you have a situation like this. Now they're dealing with bad press here. Well, you're in a small town or a state, and you have a company that is well recognized, and you're doing stuff that's not above board, it will get out. And when people find out, it's going to negatively impact you. So you really do need to look at how you're doing things, and Maybe make sure that what you're doing is transparent. So if somebody were to find out, it's not going to negatively impact you.

[00:27:39.14] - Rich Veltre

Totally agree with that.

[00:27:41.01] - Dan Paulson

Great. Do you have any other words of wisdom that you would add to that as we wrap up this podcast?

[00:27:50.18] - Rich Veltre

I was trying to come up with something clever, but I don't have anything.

[00:27:53.11] - Dan Paulson

You have many clever things, Rich. I'm sure you do. But anyway, I think that's probably the lesson to take away, and you'll hear more from us regarding different communication issues in the future. So we will share stories there. Until then, Rich, how do they get a hold of you?

[00:28:13.15] - Rich Veltre

Send me an email, Rich, at xcxo.net.

[00:28:17.10] - Dan Paulson

And for me, you can reach me. Don't call me. Email me as well at dan@xcxo.net. And Bob, explain what XCXO is. Take it away.

[00:28:27.12] - Bob

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