Wal-Mart CEO's expensive tastes
Lee Scott's jewelry purchases have become a hot issue in a former marketing executive's lawsuit against the retailer
NEW YORK (Fortune) -- Has Wal-Mart CEO Lee Scott been bloodied by former marketing executive Julie Roehm's charges that he cut sweetheart deals for himself with one of the retailer's suppliers? It certainly seems that way.
Roehm's charges are the latest twist in corporate America's most salacious legal battle. It all started in December when Wal-Mart fired its former senior vice president for marketing communications for allegedly accepting gifts - including a case of vodka - from Draftfcb, an ad agency that won the retailer's $580 million account last year. Roehm didn't just publicly deny the charges. She sued Wal-Mart for $325,000 in severance pay.
Wal-Mart clearly wanted to make an example out of its unrepentant former executive. It unleashed top-notch lawyers and an in-house investigative team led by Kenneth Sensor, a former CIA official, to unearth incriminating evidence.
In March, the retailer filed a scathing 28-page counterclaim. The document opened with a lofty statement about how Wal-Mart's ethical policies forbid employees from accepting "personal gratuities" from vendors because that might increase its business costs and lead to higher prices for customers: "The policies are intended to avoid even the appearance of improper influence upon the company's decision making in the selection and supervisor of vendors."
Then Wal-Mart proceeded to detail Roehm's alleged misdeeds in prose that was sometimes more akin to a bestselling novel than a court filing. The most sensational allegation was that Roehm had stepped over yet another ethical line by conducting an "inappropriate romantic relationship" with Sean Womack, a former marketing VP at Wal-Mart.
Wal-Mart included this now-famous excerpt from a email that Roehm sent to her purported paramour: "I think about us together all of the time. Little moments like watching your face when you kiss me." (Roehm's lawyers say Roehm and Womack were never romantically involved.)
But Roehm struck back in June with her own lengthy response, in which she argued that ethical violations were rampant at the retailer's executive office.
Among other things, she accused Scott himself of purchasing more than one yacht and a large pink diamond ring for his wife at "preferential" prices from Irwin Jacobs, whose business, Jacobs Trading Company, has the "exclusive rights to purchase unsold Wal-Mart merchandise." Roehm also names two Wal-Mart executives who, she claims, had an affair, but weren't fired by the company.
Wal-Mart dismissed Roehm's charges as an attempt by its former employee to divert attention from her own misdeeds. Jacobs also fumed that Roehm should retract them. But the Wall Street Journal reported on May 30 that Scott bought a diamond ring for his wife from the Aaron Group, another Wal-Mart supplier. The Aaron Group said it wasn't a sweetheart deal, but it didn't reveal the price paid by Wal-Mart's CEO.
It's not clear if Roehm's allegations will stand up in court. But that may not matter. This is a public-relations battle. And right now, it looks like Roehm has the upper hand. Scott has plenty of things to worry about.
Wal-Mart's stock is an underperformer. It's not clear if the retailer has a viable long-term strategy. Meanwhile, Wal-Mart's hardball tactics are drawing fire. It recently had to apologize to the New York Times after it revealed that one of the former members of its Threat Research and Analysis Group had eavesdropped on a reporter's cell phone calls.
The last thing Scott needs is more questions about his jewelry purchases.
If nothing else, Wal-Mart's CEO should have paid more attention to the part in the company's ethics policy about avoiding appearances of impropriety.
Wal-Mart's lawyers may still find a way to avoid paying Roehm her severance.