By Savyata Mishra and Aishwarya Venugopal
(Reuters) -U.S. grocer Kroger (NYSE:KR) said on Monday CEO Rodney McMullen has resigned after a board investigation found that his personal conduct was "inconsistent" with certain company policies.
The conduct is not related to financial performance, operations or reporting, and it did not involve any Kroger associates, the company said.
The surprise ouster of the 64-year-old executive comes after the company in December terminated a two-year effort to buy rival Albertsons (NYSE:ACI) in a $25 billion deal, an attempt McMullen had staunchly defended as a way to fight higher prices and better compete with Walmart (NYSE:WMT) and Costco (NASDAQ:COST).
Meanwhile, Albertsons has sued Kroger for an alleged breach of contract that led to the demise of the deal.
Kroger, when contacted, declined to provide more details on the exit of McMullen — who was its CEO for more than a decade and has been at the company since 1978 — and the nature of the conduct that led to his ouster. McMullen did not respond to a request via LinkedIn for comment.
"McMullen stepping down certainly puts Kroger in a vulnerable position. The company is already dealing with the aftermath of its abandoned Albertsons merger, and a leadership change at this stage can complicate things," said Riley Beam, managing attorney at Douglas R. Beam, a personal injury law firm based in Melbourne, Florida.
"For investors, the risk is obvious — uncertainty."
The Cincinnati, Ohio-based company’s shares were down about 1.4% in early trading on Monday. The stock has more than tripled in value since McMullen took the helm in 2014.
Following the failed merger plan in December, some United Food and Commercial Workers local unions urged Kroger’s board to replace McMullen after the company announced a $7.5 billion stock buyback plan.
McMullen was trying to "distract attention from his multiple failures as CEO by announcing a massive one-time giveaway to shareholders," the group had said.
Kroger said on Monday the board was made aware of certain personal conduct by McMullen on February 21 and immediately retained an outside independent counsel to conduct an investigation, which was overseen by a special board committee.
The board has appointed lead director Ronald Sargent as interim CEO. A long-time director at Kroger, Sargent was previously the CEO at office supplies chain Staples for more than a decade. He also serves on the board of Wells Fargo, where he is the chair of the human resources committee.
Kroger said the board has formed a search committee and appointed a firm to conduct a search for its next CEO.
The company said McMullen would not be eligible to receive a bonus for 2024. He received a total compensation of $15.71 million for fiscal year 2023, according to the company’s proxy statement.
Kroger, scheduled to report its fourth-quarter results on Thursday, expects full-year adjusted earnings per share to be slightly above the high end of its forecast range.
Several prominent CEOs have also been ousted for violating company policy, including McDonald’s (NYSE:MCD) CEO Steve Easterbrook in 2019 and Hewlett-Packard’s Co-CEO Mark Hurd in 2010.
"If past is any guidance, there is usually no impact (on a company’s performance)," said Xu Jiang, associate professor at Duke University’s Fuqua School of Business.
"The interim CEO will likely follow the previous CEO’s strategies so there is minimal disruption of Kroger’s business."