May 16, 2004

Hard Times for the Kreme

by PG

If you bought shares in Krispy Kreme from Aug. 21, 2003, through May 7, 2004, you could get in on this: After the blow of the low-carb diet trend to their wonderful doughnuts, the company now faces a lawsuit by shareholders who claim that ''the company ineptly accounted for how their bottom line would be affected by the popular low-carbohydrate diets; first by claiming that the trend would have no influence, and then by over-exaggerating the effect of the diet fad."

The shareholders are also complaining that the senior executives named as defendants in the suit disregarded signs that the firm had expanded too quickly, that its wholesale business undermined sales at its retail stores, and that it faced stiff competition from doughnut chain Dunkin' Donuts.

I confess that I'm puzzled by this. At what point do poor business management and overly optimistic predictions become bases for litigation? I understood that the corporate scandals of the last several years mostly centered on dubious behavior like setting up shell corporations and misleading accounting. But no one is accusing Krispy Kreme of these actions; instead, the guilt of the executives appears to be grounded in their having done a less-than-optimal job. This rates litigation?

May 16, 2004 01:33 AM | TrackBack

Yeah, it's called the business judgment rule, and based on my Business Associations grade someone else should explain further. But -- as I understand it -- this is exactly the sort of lawsuit the rule would stop dead in its tracks.

Posted by: Chris Geidner at May 16, 2004 01:56 AM

I concur with Chris. My money's on a summary judgment on grounds of the business judgment rule.

Posted by: UCL at May 16, 2004 03:16 AM

I did pretty well in Corporations and actually took a short course taught by Justice Holland of the Deleware Supreme Court.

As has been said, the law suit is bound to be dismissed. If there's anything easier than Con Law it's Corporate litigation -- there's less than a dozen key cases that pretty much govern anything... the rest if just plugging in the facts.

Posted by: Brian at May 16, 2004 06:34 AM
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