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The rise and fall of Krispy Kreme is a cautionary tale of ambition, greed, and inexperience.

As it turns out, a lot of people. From 2000 to 2004, Krispy Kreme employed three different CFOs. John Tate joined just after the company went public, in October 2000, after 18 months at kitchenware retailer Williams-Sonoma Inc. Tate was promoted to chief operating officer in 2002, and Randy Casstevens, the company’s longtime controller, took the top finance spot. Casstevens, who had spent most of his career at Krispy Kreme, had never been CFO of a public company before. After adding the chief governance officer role to his duties, Casstevens left in December 2003 in a move he then called “purely voluntary,” just five months before the company announced its first earnings miss. (Now working as a career counselor at Wake Forest University in Winston-Salem, Casstevens declined to be interviewed for this story.)

To replace Casstevens, Krispy Kreme brought in current finance chief Michael Phalen, who had worked with Krispy Kreme as an investment banker for CIBC World Markets and Deutsche Banc Alex. Brown, but had never held a CFO post before. The company declined to make Phalen available for an interview. John Tate, meanwhile, departed in August 2004, and is now the operations head at Restoration Hardware, working once again with his former boss from Williams-Sonoma. Tate did not return phone calls for comment.

Company watchers come to different conclusions about the meaning of the CFO churn. Ric Marshall, chief analyst at governance watchdog The Corporate Library, says the turnover may mean the CFOs were trying to raise red flags about the company’s financial state. “To me, this says the real numbers the CFOs were coming up with were numbers that the rest of management didn’t want to hear. They were looking for a CFO who was going to tell them good news.” Adds Goodwin Procter’s Metzger, “It may be that a particular CFO is the one who brought these issues to the company’s attention. You just don’t know.” But the fact that Tate and Casstevens were both promoted before leaving indicates that they were on good terms with the board and their fellow managers. All three CFOs answered to Livengood, whose 27 years at the company gave him far greater tenure than any of the finance chiefs.

Stephen Mader, vice chairman of executive recruiter Christian & Timbers, says the CFOs simply may not have been up to the task of guiding a high-growth franchise through the public markets. “This happens a lot with companies that enter the public arena that had done well under earlier conditions, but don’t have the experience in the public markets,” he says. “You could simply have nothing more here than a lot of marginal competence for running a company of that magnitude.”

Current finance chief Phalen “is a capable guy,” comments Waite. “If you look at his compensation structure, it’s mainly stock options. He has incentive to get the ship righted.” But Mader is less optimistic about the CFO’s chances. “It’s very rare to take a company into bankruptcy or a turnaround phase and hold on to the existing CFO to do it,” he says. “You need someone with no baggage, no sacred cows, who can look at things with objectivity.”


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