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Restoration Hardware COO Under Scrutiny

From Reuters

Restoration Hardware Inc., the home furnishings retailer, is drawing unwanted scrutiny after one of its senior executives was blamed for poor accounting controls while he had top jobs at Krispy Kreme Doughnuts Inc.

The findings by a special committee of the Krispy Kreme board have raised questions about whether John Tate, who was Krispy Kreme’s chief financial officer and later its chief operating officer, should be serving in a key role at another public company, corporate governance watchdogs said.

“It is very troubling,” said Ric Marshall, chief analyst at Corporate Library, a governance research group.

Tate, now Restoration Hardware’s chief operating officer, was singled out last week by a special committee of Krispy Kreme’s board probing accounting missteps.

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Tate did not respond to messages requesting comment.

In a statement, Restoration spokesman Bill McBride said “our board, working with counsel, is closely monitoring developments at Krispy Kreme.”

The Krispy Kreme committee said Tate, who has not been charged with any wrongdoing, “appears to have been directly involved in inappropriate efforts” to boost the recognition of revenue.

Although Tate “pushed hard to close deals and meet growth goals,” he paid scant attention to details and did not do a good enough job passing on important information to other company managers, the report said.

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The committee said Tate and former Krispy Kreme Chief Executive Scott Livengood failed in their management duties.

The committee’s conclusions “should be sufficient to prevent any company management from putting one of these individuals in a senior role,” analyst Marshall said.

In a summary of the special committee report, Krispy Kreme said Tate and Livengood bear much of the blame for not setting up adequate financial controls.

Krispy Kreme, once a Wall Street darling, has said it is under investigation by federal prosecutors and the Securities and Exchange Commission.

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Tate joined Krispy Kreme in October 2000, soon after the company went public. He left last year to join Restoration Hardware, where he receives a $450,000 annual salary, not including bonuses and stock options, according to its most recent proxy statement. Before becoming COO, he was a company director.

Restoration spokesman McBride said Tate oversaw “key operational functions” and was not in charge of finance or accounting at the company.

Governance expert Joseph Carcello of the University of Tennessee said the Krispy Kreme report put the board of Corte Madera, Calif.-based Restoration “in a bit of an awkward position.”

Does the board “have more information now than they had then, and would that additional information have changed their decision if they had known a year ago?” Carcello said, regarding Tate’s hiring. “There’s no way of knowing.”

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Charles Elson, director of the University of Delaware’s Corporate Governance Center, said a company executive’s conduct in a previous job must always be considered when assessing his or her performance, but the company’s board then must consider whether that past performance is relevant.

The scrutiny of Restoration’s chief operating officer does not appear to be weighing on its stock, which has shot up about 34% year to date. Shares rose 6 cents to $7.76 on Wednesday.


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