Royal Ahold: A Failure of Corporate Governance

55 Pages Posted: 7 Feb 2005  

Abe de Jong

Erasmus University - Rotterdam School of Management

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Douglas V. DeJong

University of Iowa - Tippie College of Business

Gerard Mertens

Erasmus University Rotterdam (EUR) - Department of Financial Management

Date Written: February 2005

Abstract

Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures in corporate governance, suffering a complete meltdown in 2003. This clinical study analyzes Ahold's growth strategy through acquisitions and isolates the cause of the failed strategy, i.e. the absence of internal as well as external oversight of management's strategy. This study details the consequences of the strategy: bad acquisitions, an accounting scandal and the loss of investor confidence. It illustrates how initially a family and later professional management exploited the intent of the law and existing regulatory structures to maintain absolute control of the company. It analyzes in detail the applicable governance mechanisms of Ahold that were designed to hold the self-interest of the parties in check. It asks the reader to consider whether these governance mechanisms, properly implemented, might have helped prevent Ahold or a situation similar to Ahold.

Keywords: international economics, financial economics, law and economics, corporate governance, regulation

JEL Classification: F36, G38, K22

Suggested Citation

de Jong, Abe and Roosenboom, Peter and DeJong, Douglas V. and Mertens, Gerard, Royal Ahold: A Failure of Corporate Governance (February 2005). ECGI - Finance Working Paper No. 67/2005. Available at SSRN: https://ssrn.com/abstract=663504 or http://dx.doi.org/10.2139/ssrn.663504

Abe De Jong (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/ajong

Peter Roosenboom

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Douglas V. DeJong

University of Iowa - Tippie College of Business ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0919 (Phone)

Gerard Mertens

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2556 (Phone)
+31 10 408 9017 (Fax)

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