Kmart chief: bankruptcy was a surprise

By

Posted 10:13AM on Tuesday, July 2, 2002

TROY, Mich. - The Kmart Corp. board member who took over as chief executive in January says the retail chain's financial crisis caught him by surprise. James Adamson said Monday that he is busy working on a survival strategy for Kmart. The company filed for federal bankruptcy protection Jan. 22., five days after Adamson replaced Chuck Conaway as chief executive. Adamson joined Kmart's board in 1996 but said he was unaware of the severity of the retailer's developing problems until the need for bankruptcy protection became clear. "I was totally surprised," he told the Detroit Free Press. He said as late as early January he had no indication Kmart was headed for bankruptcy. "As I look back over my six years as a (Kmart) director, you say to yourself: `You're on this board. What happened?"' he told The Detroit News. "The hardest part for me is that I believe we let the stakeholders and our employees down by filing for Chapter 11," he said. "No one wins in Chapter 11." Adamson said one of his primary goals is regaining the trust of the company's work force, which has fallen to 225,000. The company has closed 283 stores so far and laid off 22,000 employees. "There is no silver bullet to fix Kmart. It's going to be one store at a time," he said. "If this company doesn't succeed, it's on my watch. I'll take the hit." Adamson said he is determined to uncover what went wrong in the leadership of the retail chain and prompted federal investigations into Kmart's accounting practices, management excesses and board of directors oversight. That review includes the propriety of $28.8 million in so-called "retention loan" bonuses for 25 of Kmart's top executives. Adamson said the review of the previous leadership is the first step toward healing the wounds that bankruptcy created. "I felt that we owed it to everybody involved -- all stakeholders -- to take a look at at exactly what happened," he said. "And we also want to find out what did we know, when did we know it and did we know it at the proper time," he said. Adamson said the board takes responsibility for approving a program that led to the retention loans to Kmart's top 25 executives last December. Today, six of them remain at the company. "There was a recommendation from management to have (a retention program) put in place when the stock price wasn't moving," Adamson said. "The compensation committee approved it and the board approved it. "This is a case where I really wish we as a board had had forward-looking mirrors in terms of what was going to potentially happen with the company." Adamson said his management team, which includes veteran Kmart executives called out of retirement and turnaround consultants, has the skills necessary to fix Kmart. More importantly, he said they will "walk the talk" and prove to Kmart's employees that they care about the company and its future. "This is an American icon," he said. "People want Kmart to succeed."