Mohit MalhotraMohit WadhwaMohit sanjay JainMoon AgarwalMudita RajgariaMd. Abdul SyedMythili A

CORPORATE GOVERNANCE AT AHOLD

BACKGROUND

1887

• Ahold was originated in Zaandam, Holland• Albert Heijn

1897

• Store Count reached to 23• Presence in different parts of Holland.

1911

• Albert Heijn Branded products were launched.

1948

• Albert Heijn was listed on Amsterdam stock Exchange

1955

• Opened first self service supermarket chain

1973

• Heijn Family established Ahold with Albert Heijn as its subsidiary.• Entered into specialty retailing with Alberto and Etos

INTRODUCTION

AHOLD

Feb 24, 2003 announced overstated profits by 1 bn euros b/w Jan 2000 and Sep 2002

Nov 2005 - Compensation to shareholders worth $1.1 bn. Dutch Investor’s Association(VEB) were convinced.In 2003 rescued by banks in liquidity crunch.In 2004 new mgt. embarked revival program “Road to Recovery”.

AHOLD’s ACQUISITIONS

AHOLD

1951 to 1980- Holland based Van Amerongen Store Chain, BI-LO Supermarket Chain in US, Giant Food Stores(Carlisle, Pennsylvania).

1982 to 1992- Finast based in Ohio, Mana (wholly owned supermarket chain) renamed Albert, Acquired Tops market, JV with Jeronimo Martins to form JMR.

1994 to 1998- 55 Red food Stores, Mayfair and Stop & Shop, Entered Other countries, JV with Velox Retail Holdings, Major stake in Disco Supermarket (Argentina) and Santa Isabel (Chile, Peru and Paraguay)

Cont….

AHOLD

1999 & Onwards- Partnered with La Frugua, JV with ICA Group. Acquired US Foodservices and 150 Supermarkets in Spain.

US FOODSERVICE

Before the acquisition of USF, Ahold was mainly involved in retail activities in the US

U.S. Foodservice is the second-largest food distributor in the United States.

Ahold bought U.S. Foodservice in April 2000 for $3.6 billion. It accounts for 47 percent of Ahold's U.S. operations and 34 percent of its total sales.

U.S. Foodservice markets and distributes a wide range of national and private label items to over 143,000 foodservice customers, including restaurants, hotels, healthcare facilities, cafeterias and schools.

Issues

US Foodservice Executives Colluding With Employees At Sara Lee Corporation.

US Foodservice Was Given Rebates By Sara Lee For Selling Their Products

Accused Employees Overstated The Rebates And Took Bonus From The Company.

Executives At Sara Lee And Other Companies Who Are Involved In The Scandal Misled The Auditors Regarding The Value Of Rebate

US Foodservice Included The Overstated Rebates In Its Annual Accounts Which Inflated Their Earnings

Its Auditors (D&T) Warned AHOLD About The Inappropriateness Of The Accounting Practice, But Continued To Approve Its Accounts

In 2003 Ahold Announced That Its Earnings For 2002 Was Overstated And Financial Statement For The Year 2000 And 2001 Did Not Reflect The True Accounts

Ahold Shareholders Filed A Suit Against The Company For Compensation

The News Of Overstatement Of Accounts, News Of Fraud At Some Of AHOLDS Other Operating Companies Also Came To Light

AFTERMATH Market Standings Went Down Long Term Debts Were Down Graded From Standard

To Poor CEO And CFO Of The Company Resigned Investors Filed Securities Fraud Lawsuit Share Value Decreased Drastically Accused Employees Were Sacked Various Investigations Were Probed On The Company In October 2003 The Company Released The 2002

Financial Report Which Showed Loss Worth 1.2 Billion Euros

Moberg Was Appointed As New CEO, He Launched A Recovery Program Called “Road To Recovery”

In November 2005 Ahold Reached World Wide Settlement Of US$ 1.1 Billion With Its Shareholders

Reason for Ahold to fall

There was no proper INTERNAL CONTROL There was no proper FINANCIAL

STRATEGIES The Management Control System failed Drastic Expansion No Future Planning and forecasting of

market Huge Investment

Getting Ahold of Things

The fraud was simplicity itself. Food manufacturers frequently pay a fee to supermarket operators to encourage them to buy in bulk and then to promote the products to the ultimate consumers. These promotional allowances typically are a function of the volume purchased. The company then aggressively accounted for these promotional allowances, but did not have the volume to justify their recognition. Prematurely and incorrectly recognizing these promotional allowances of course increased their profits for some 500 million euros.

Competitive Fact Sheet

Wal-Mart Ahold

Mission/Vision

To give ordinary folk the chance to buy the same thing as rich people.

Serve the needs of our customers by integrating a close-knit family of world-class food retail and foodservice operations that make the whole of our company worth more than the sum of its parts

Strategy

1. Respect for the individual2. High standards of service3. Constant strive for excellence

Low prices, In-stock positions, Customer service

1. Re-engineer food retail2. Recover U.S. Foodservice3. Reinforce accountability, controls

and corporate governance4. Restoring Ahold’s financial help

Activities

1. Food retail2. Non-Food retail3. On-line food retailer

1. Food retail2. Food distribution (U.S. Food

service)3. Liquor, beauty care stores4. On-line food retailer

Ahold Subsidiaries in EU

Netherlands2,333 stores

Albert Heijn, Etos, De Tuinen, Jasmin,

Gall&Gall, C1000, Ter Huurne

Norway1,104 stores

Rimi, ICA, Maxi

Denmark12 stores

ISO

Sweden1,846 stores

Rimi, ICA, Maxi

Estonia3 stores

Rimi

Latvia26 stores

Rimi, Maxi

Lithuania

38 storesRimi, Eko

Poland165 stores

Albert, Mega,

Hypernova

Czech Republic203 stores

Albert, Hypernova

Slovakia2 stores

HypernovaSpain

623 storesSupersol, HiperDino, Netto, HiperSol, Cash

Diplc

Portugal198 storesPingo Doce, Feira Nova

Ahold: SWOT Analysis

Strengths International experience Non-food, discount format,

wholesale, e-commerce Strong domestic presence Ability to integrate acquisitions

Weaknesses No global brand Not in EU key markets (FR, GB,

D) Loss of investors confidance Scale vs Wal-Mart

Opportunities Diversification of format Diversification of products Acquisition of major EU retailers Presence increase in Asia

Threats Risk of joint-venture failure Strengthening Euro, weakening

dollar Too complicated to manage Wal-Mart position in the US

Internal control

Internal control is defined as a process effected by an organization’s structure, work and authority flows, people and management information system designed to help the organization accomplish specific goals or objectives. it mean by which an organization’s resources are directed, monitored and measured. It plays an important role in preventing and detecting fraud and protecting the organization’s resources.

Objectives

coordinate methods adopted within a business

safeguard its assets check the accuracy and reliability of

its accounting data promote operational efficiency

FAILURE AND SUCCESS OF THE EXTERNAL CONTROL

Deloitte & Touche were the auditors of AHOLD which was the external control

The control was a failure at USFood service. The executives at USFood service and their suppliers were able to corrupt the audit process

The control was a success at various operating companies in Europe and Latin America. They successfully detected accounting irregularities in those companies.

A LIGHT ON CORPORATE GOVERNANCE

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled

The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, and the community at large

Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization

After the scams of WorldCom, Enron and recently Satyam Corporate governance became an important part of every organization

Flawed fundamentals

Absence of any mechanism for centralization or decentralization of operations and management

Failure of reward system Failure of strategic planning process Inefficient internal controls Correcting responsibility structure

Conclusion Loss of credibility & trust tarnishes an image

of the company Ahold though managed to pull itself from the

brink of bankruptcy We don’t see any difference between political

scandals and their counterparts in private offices

For us maintaining ethical standards is critical for development of any society and that is the ultimate profit which any society can cherish

Thank you