Wal-Mart: Ex-Exec Roehm Fires Back

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Confession: I have a weakness for certain types of trash, and one category I enjoy is tacky corporate litigation.

What constitutes “tacky” is very much in the eye of the beholder, but I particularly enjoy seeing the aggressor hoist on his own petard. And it’s even more fun when the party that overplayed its hand is a perennial black hat like Wal-Mart.

The plot so far: To bring a fresh approach to its marketing and advertising, Wal-Mart hired Julie Roehm as its communications director in 2006. She reviewed Wal-Mart’s ad agency relationships and awarded the account to Draft/FCB. A mere 9 months into her job, Wal-Mart fired her. She sued, charging breach of contract and unfair dismissal. The Bentonville behemoth countersued, claiming she had had an affair with another executive and had violated the company’s ethics rules by seeking employment with the company that won the review and accepting gifts from vendors (a case of vodka and meals).

We said earlier that Wal-Mart was showing its true colors in choosing to litigate. This isn’t the sort of case that should wind up in court. Even if the company prevails on all counts, it isn’t worth the true costs in management time (the story gets front page Wall Street Journal treatment) and potential for embarrassment.

And Wal-Mart has miscalculated its downside. Roehm’s attorneys counterpunched on Friday, as reported on page one of the weekend Wall Street Journal, “Roehm Accuses Wal-Mart Brass Of Ethics Lapses“:

Claiming in a court filing that Wal-Mart applies its conduct rules arbitrarily, Julie Roehm accuses Mr. Scott of, among other things, accepting “preferential prices” on boats and jewelry from financier Irwin Jacobs, whose companies do everything from sell boats to Wal-Mart to buy unsold goods from the retailer. She contends that Mr. Scott’s relationship with Mr. Jacobs goes “beyond a business relationship” and violates the corporation’s conflicts-of-interest guidelines….

The filing is the latest sally in a nasty battle that began after Wal-Mart fired Ms. Roehm in December. In its own court filing in March, Wal-Mart accused Ms. Roehm of having an improper romantic relationship with a subordinate, accepting gifts from suppliers and misusing her company expense account. Now, Ms. Roehm is turning the tables.

It isn’t clear how Wal-Mart’s ethics rules might apply to the activities alleged by Ms. Roehm. Its policy says its employees “must avoid conflicts of interest in supplier selection, such as directing business to a supplier owned or managed by a relative or a friend.” It also warns executives aren’t allowed to “have social or other relationships with suppliers, if such relationship would create the appearance of impropriety or give the perception that business influence is being exerted.” The policy also bars employees from soliciting jobs for relatives or friends.

In a telephone interview, Mr. Jacobs called the accusations of preferential treatment “totally outrageous” and without any substance. He acknowledged a long friendship with Mr. Scott. The two are close enough that their families have vacationed together, and Mr. Jacobs attended the wedding of Mr. Scott’s daughter. But he said there is no favoritism….

Ms. Roehm’s salvo includes a fierce defense of her short tenure as senior vice president of marketing communications and challenges the company’s portrayals of her in its counter-suit. She denied accepting gifts, insisted suppliers were told to bill the company for any meals and, while insisting she acted appropriately, neither admitted nor denied some of the most salacious descriptions of her relationship with Mr. Womack [the executive with whom she allegedly had an affair]….

Ms. Roehm’s filing alleges that Mr. Scott personally benefited from his relationship with Mr. Jacobs, the chairman of boat supplier Genmar Holdings Inc. and owner of Jacobs Trading and FLW Tour, two private companies with Wal-Mart business relationships. The two men’s relationship began years before Mr. Scott became CEO.

Without identifying any specific instances, Ms. Roehm alleged the CEO obtained travel, “a number of yachts” and “a large pink diamond” at preferential prices due to the relationship. The Wal-Mart spokesman declined to comment on specifics of the allegations.

Mr. Jacobs said he has never sold Mr. Scott a diamond or provided air travel. He said he has suggested boat dealers to Mr. Scott but was never involved in any sales.

Ms. Roehm also alleged that Wal-Mart looked the other way when senior executives conducted affairs with subordinates and allowed executives who owned retail stores to negotiate with subordinates on leases for those properties.

“Many Wal-Mart executives do not abide by Wal-Mart’s alleged ‘firm’ policy forbidding conflicts of interest,” she said in the filing. Despite policies prohibiting conflicts of interest and the misuse of company assets, “actions apparently speak louder than words at Wal-Mart,” her court filing says.

She cited the role of Mr. Scott’s son Eric at Jacobs Trading, the Wal-Mart salvage supplier. Eric Scott has worked for various companies owned by Mr. Jacobs for several years. Several years ago, he worked full-time for a boat-manufacturing unit of Genmar and now works part-time for a salvage company owned by Mr. Jacobs. He shares an office with Jacobs Trading near Wal-Mart’s headquarters. Wal-Mart’s attorneys reviewed and approved the son’s business dealings with Jacobs Trading, Mr. Jacobs said. A Wal-Mart spokesman said he was unfamiliar with the decision….

From MarketWatch:

Julie Roehm, the advertising executive whom Wal-Mart Stores Inc. fired earlier this year, came out fighting in a court document Friday, accusing top executives, including Chief Executive Lee Scott, of company ethics breaches.

Among Roehm’s accusations is that Scott took discounts on yachts and a diamond ring for his wife. She also said Scott accepted travel on private planes from Irwin Jacobs, the Minnesota-based entrepreneur whose Jacobs Trading Co. has an exclusive contract with Wal-Mart.

Roehm also charged that Scott’s son, Eric, left a job at Wal-Mart to take one with another of Jacobs’ company. Jacobs owns about a dozen boat-manufacturing companies and was once a part-owner of the Minnesota Vikings football team and held a small interest in the Minnesota Twins `baseball team.

Spokesman John Simley said that the company will address Roehm’s issues in court. “Certainly we dispute the allegations involving our CEO and Irwin Jacobs,” he said.
Roehm also said in the document filed in federal court in Detroit that five marketing and merchandising executives, including its chief John Fleming, took $300 tickets plus back-stage passes and souvenirs to an Eagles concert in Barcelona, Spain, last summer. The Eagles are scheduled to perform next week during Wal-Mart’s annual meeting festivities.

By alleging that Roehm deserved to be fired for having an affair and taking gifts from vendors, Wal-Mart gave her counsel free rein to do discovery on whether the company had executives who were having affairs with fellow employees or were taking gifts. In a company as large as Wal-Mart, it’s almost guaranteed that she wasn’t alone. This was a predictable line of attack, and the company was foolish not to have recognized that it might be vulnerable. Roehm’s lawyers appear to have hit pay dirt with the relationship between CEO Scott and Irwin Jacobs. Even if the allegations about price breaks don’t pan out, there is no denying the employment of Scott’s son in various Irwin ventures. The damage control with the press and the internal disruption will be considerable, far more than the case is worth. But it’s now too late for Wal-Mart to back down.

Wal-Mart’s best hope is that they will find ways to impede the discovery process, making it so costly for her side that they will relent. But if her attorneys are motivated by the prospect of beating Wal-Mart and really believe she has a case, that approach may not succeed. And Wal-Mart may disprove some of her allegations. But a lot of people will probably not read further than the first few paragraphs of any news coverage, so Roehm’s charges are likely to stick in the minds of some, no matter what the outcome. And if her charges about Scott hold up, his days are numbered (he is already under pressure for lackluster sales).

At this point, one would expect Roehm to have the initiative, and the press coverage in the WSJ, the Financial Times, MarketWatch, and the New York Times on balance favors Roehm.

It will be telling to see what moves Wal-Mart takes in the next few weeks to counter this embarrassment. Jacobs has said he will sue Roehm if she doesn’t retract her accusations. If he follows through, he had better be confident of his facts, for he will be giving her attorneys license to comb through his affairs.

It’s amazing how a company that wants to improve its image can’t control its reflexes. Even if they win this one, they come out losers.

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