Stephen F. Cooper





Chief Executive Officer of Krispy Kreme Doughnuts

Born October 23, 1946, in Gary, IN; married Nancie; children: two daughters. Education: Occidental College, Los Angeles, CA, B.S., 1968; Wharton School of Business, University of Pennsylvania, M.B.A., 1970.

Addresses: Office —Kroll Zolfo Cooper, 900 Third Ave., 6th Flr., New York, NY 10022.

Career

Began career at Touche Ross & Co., New York City, 1968; helped establish its reorganization advisory group; left c. 1987 to form bankruptcy advisory firm with Frank Zolfo called Zolfo Cooper; firm became Kroll Zolfo Cooper, 2002; also heads Catalyst Equity Partners, a venture fund; has held various executive positions at major corporations, including vice chair and chief restructuring officer of Laidlaw, Inc., 2000, interim chief executive officer of Enron, 2002-04, and chief executive officer of Krispy Kreme Doughnuts, 2005—.

Sidelights

Corporate-turnaround specialist Stephen F. Cooper became chief executive officer at the troubled Enron Corporation in 2002. Taking over at a crisis-point for the reeling Houston, Texas, energy firm, Cooper created a workable restructuring plan for Enron's bankruptcy process. In early 2005, he moved on to rescue Krispy Kreme Doughnuts. Yet no other mission would ever compare to the complex task he undertook at Enron, whose very name became synonymous with corporate fraud. "Somebody told me that, when they added up the congressional committees and the number of senators or representatives involved in looking at Enron, it's gone well beyond either Watergate or Iran-Contra," Cooper said in a 2003 interview with Financial Times writer Alison Maitland, after a year on the job. "This is off the charts."

Cooper was born in 1946 in Gary, Indiana, and earned an undergraduate degree in economics at Occidental College in Los Angeles. He went on to the prestigious Wharton School of Business at the University of Pennsylvania, which granted him his M.B.A. in 1970, but Cooper was already working in finance by then. He had joined the accounting firm Touche Ross & Co. in New York City in the late 1960s, and would spend the next 18 years with it. An emerging bank specialist, he was instrumental in the creation of a reorganization advisory group at Touche Ross, which at the time was one of the world's largest accounting firms.

Cooper's employer belonged to an unofficial group of large United States firms, known as the "Big Eight," that handled the bulk of corporate auditing, the process by which a publicly traded company's books and balance sheets are verified to avert any attempts on the part of corporate officers to defraud investors about the financial health of the company. For decades, Touche Ross, Arthur Andersen, and other Big Eight accounting firms built their business on such contracts, and the independent-auditing process seemed to work as a reliable system to prevent fraud. In 1989, Touche Ross merged with another Big Eight firm, Deloitte Haskins & Sells, to become Deloitte & Touche.

Cooper left Touche Ross in the mid-1980s to start his own corporate-turnaround firm with Frank Zolfo. Over the next several years, Zolfo Cooper emerged as a top bankruptcy consultancy firm, taking on such high-profile clients as Federated Department Stores, the parent company of the Bloomingdale's and Macy's retail chains, in the early 1990s, as well as Trans World Airlines (TWA) and Colt Manufacturing, the vintage Connecticut gun manufacturer. Cooper's team of experts were also involved with the troubled Boston Chicken, and Morrison Knudsen, an Idaho-based engineering and construction firm. Polaroid was another high-profile client for Zolfo Cooper, though the final sale price of $24 million after the camera-maker's bankruptcy earned some criticism for being vastly undervalued.

In most cases, Cooper served merely as a consultant and the frontperson in negotiations with creditors, and not all of the companies headed for bankruptcy court; some could be salvaged by belt-tightening and asset sell-offs before that point. Just before taking over at Enron, Cooper was working with Laidlaw, Inc., and had become its chief restructuring officer and vice chair. Though he had signed on in 2000 to help save Laidlaw—the largest ground transportation company in North America and owner of Greyhound Lines—from bankruptcy, its unwise venture into the healthcare industry via ambulance services a few years before he came aboard had taken the company into a deep financial hole, and Laidlaw was forced to file for bankruptcy anyway in 2001.

The fortunes of Cooper's own firm, which had mid-town Manhattan offices, were in far more stable shape. In September of 2002, Zolfo Cooper was sold to Kroll, Inc., a London-based international risk-management firm, in a deal that reportedly netted Cooper some $50 million in cash, and another $50 million to be paid later. He became head of Kroll Zolfo Cooper, a subsidiary of Kroll. By then, Cooper was well-entrenched in the Enron debacle. The company had filed for bankruptcy in early December of 2001, and the widespread nature of its fraudulent business practices dominated news headlines for weeks. Prior to that, it had been the seventh largest company in the United States, and employed some 21,000 workers. It had been formed in the mid-1980s from two other Texas companies, Houston Natural Gas and InterNorth, and gained prominence as one of the first major energy traders. Some of its divisions built power plants and natural-gas and oil pipelines, but it was its impressive trading of commodities on the energy market that secured Enron's reputation in the business press and on Wall Street. Fortune magazine even named it the most innovative company in the United States for five years straight between 1996 and 2000.

But Enron's much-ballyhooed vitality was a sham. A lengthy investigation revealed that its corporate officers hid debt, inflated earnings, and moved money around to fool shareholders. Its auditor, Arthur Andersen, was also drawn into the scandal and implicated as well. After rumors that either former New York City Mayor Rudolph Giuliani or onetime General Electric chair Jack Welch would step in to head Enron, Cooper was named the interim chief executive officer (CEO) instead in late January of 2002. He replaced Kenneth L. Lay, who would later be indicted by a federal grand jury on several counts of securities and wire fraud.

Enron's hiring of Zolfo Cooper and the installation of Cooper at the helm was viewed as a good sign for the company's future. Had the U.S. Bankruptcy Court judge appointed a mere bankruptcy trustee instead, it was likely that anything left of Enron would have been sold outright; the appearance of Cooper was considered a portent that the company might be able to right itself. Cooper dismissed any talk that Enron was just a sham company with no real assets. "Our focus is on the future of Enron," a statement issued by his office that first day read, according to a New York Times report from Shaila K. Dewan. "Enron has real businesses with real value."

Once he was named the interim CEO, Cooper wasted little time in taking part in the blame game. "The good news is not only do I not know what went wrong, it is literally of no interest to me," he said told reporters in his first hours on the job, according to Houston Chronicle journalists Tom Fowler and Eric Berger. "I'm not going to spend my time looking in the rearview mirror, because there are a lot of people here who deserve our best shot of preserving this company." His main challenge was to find ways to repay a mounting debtload that neared $40 billion. His initial task was to devise a reorganization that the bankruptcy-court judge would approve.

Cooper oversaw what went on to be not only the largest bankruptcy case in United States business history, but also the most complex one. Some two-thirds of Enron's staff had been let go, and several investigations were underway: not only was the Securities and Exchange Commission—the federal regulatory agency whose task it is to monitor publicly traded companies to protect investors—investigating the company's fraudulent practices, but there was also a Department of Justice inquiry and even Congressional hearings on the fall of Enron. Even the limousine driver who took Cooper to Enron's lavish high-rise on that first day from the airport demanded that he be paid in cash for the ride.

As interim CEO, Cooper was also there to take some heat. Morale among the remaining employees at the Houston headquarters was abysmal, but the fired employees were even angrier. Many of the thousands who worked or had worked at Enron had 401K savings and retirement plans, in which they were allowed to buy stock in the company, with Enron donating matching shares; when the scope of the financial trickery was revealed in late 2001, the stock price plummeted, and Enron investors suffered heavy losses. Former CEO Lay, however, had dumped a large amount of his Enron stock just before the scandal became public.

In Cooper's first month on the job, he agreed to meet with former employees, many of them irate that their agreed-upon severance payments had been held up by the bankruptcy proceedings; meanwhile, some of the top executives had to be paid bonuses in order to convince them to stay with what appeared to be a sinking ship. At that raucous meeting, one former employee held up a can of shaving cream, and told Cooper that he could no longer afford to buy such luxuries. Cooper did manage, later in 2002, to secure funds from the bankruptcy court in order to help out the fired employees.

In early 2005, several months after Enron finally emerged from bankruptcy, Cooper stepped in to help Krispy Kreme Doughnuts. The North Carolina company dated back to 1937, and for a time was a hot new franchise, especially after a well-received initial public offering of stock in 2000. For a few years thereafter, Krispy Kreme remained a solid performer, according to its quarterly earnings statements, but in May of 2004 it posted its first quarterly loss. Executives blamed the Atkins diet and "no-carb" craze for cutting into donut sales, but then questions were raised about the company's accounting practices. It was revealed that sales had actually been steadily falling since early 2003, but Krispy Kreme executives managed to conceal these by padding figures elsewhere. Once the company admitted that it was under investigation by the SEC, Krispy Kreme's share price plummeted in trading.

Cooper stepped in Krispy Kreme the day after its CEO, chair, and president Scott A. Livengood resigned. Again, he became the interim CEO, but assured employees and investors that the company was not headed for bankruptcy court. "Keeping in mind that I have only been here for eight hours," he said, according to the New York Times 's Floyd Norris, "it looks to me that the company has a reasonable level of free cash flow, so I see no reason why this should be a bankruptcy candidate." Three months later, the company was struggling along with a refinancing agreement, and though its stock price had improved little since Cooper took over, the company had not entered bankruptcy.

Despite his talents in helping bring companies out of dire financial straits, Cooper has his share of critics. Many of them are lawyers for shareholders and creditors, and even bankruptcy judges have questioned the fees that he and Kroll Zolfo Cooper receive for their services. At Enron, he earned about $110,000 a month, and his rate at Krispy Kreme was in the neighborhood of $760 an hour. All told, Kroll Zolfo Cooper earned about $20 million annually from Enron. Furthermore, he oversees Catalyst Equity Partners, which is affiliated with Kroll Zolfo Cooper. This is a venture fund that invests in floundering companies, and its clients include some of the biggest names on Wall Street, such as Citibank, J. P. Morgan Chase, and FleetBoston. In some cases, these companies are also creditors of firms in bankruptcy or nearing bankruptcy that have contracted with Kroll Zolfo Cooper for help. Such charges are to be expected in his line of work, he told U.S. News & World Report writer Megan Barnett. "Criticism is bound to turn up somewhere," he asserted. "Our focus is always on the task at hand: maximizing value and returning that to economic stakeholders."

Cooper is married and has two daughters. At his New York office inside Kroll Zolfo Cooper, he keeps a pet lizard in an aquarium on his desk. He is known for his casual dress and sharp sense of humor. He also avoids the word "bankruptcy," preferring "distressed situation" instead. The author of several papers for banking-industry publications that analyze why companies fail, he likes to warn the lay reader that a company's eagerness to please shareholders and institutional investors is a dangerous game. "A lot of the companies we've worked with have gyrated their businesses to meet quarterly or semi-annual or annual expectations about revenues, earnings, balance sheet positioning," he explained in a Financial Times interview with Maitland. "They sacrifice the long-term health of their businesses by jamming steroids into their corporate body every 90 days."

Sources

Periodicals

Directors & Boards, Fall 2002, p. 14.

Financial Times, January 30, 2003, p. 12.

Houston Chronicle, January 30, 2002, p. 1; January 31, 2002, p. 1; January 19, 2005.

New York Times, January 30, 2002, p. C7; February 28, 2002, p. C6; January 19, 2005, p. C1.

U.S. News & World Report, May 5, 2003, pp. 26-28.

Online

"Adventurous Executive Navigates a Tough Job," CareerJournal.com, http://www.careerjournal.com/myc/survive/20030103-pacelle.html (April 13, 2005).

—Carol Brennan



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