Krispy Kreme turns to Reynolds executives

May learn from tobacco's problem

Nearly two years after its stock collapsed amid an accounting fiasco, Krispy Kreme Doughnuts faces a host of lawsuits, a criminal investigation and declining sales.

Meanwhile, efforts are under way in New York and Chicago to ban a key ingredient of its famous doughnuts, one that helps make the trademark treats so darn addictive.

Sounds a lot like the challenges faced by executives at big tobacco, and that's just where Krispy Kreme has turned to for help.

Last month, Winston-Salem-based Krispy Kreme named Charles A. Blixt, a former executive vice president and general counsel at Reynolds American, as its new general counsel. A week later, the company appointed Andrew J. Schindler, the retired chairman of Reynolds American, to its board of directors.

"They have long and distinguished careers at ... [Reynolds] and they left in pretty good shape. It's not a huge transition for them," said Mike Lord, a professor of corporate strategy at Wake Forest University. "Importantly, what's key is that they do have a great wealth of experience to manage under adversity."

Adversity is what Krispy Kreme still faces, and not only on the balance sheet.

Amid hoopla that included lines around the block whenever Krispy Kreme opened a new store, the company expanded too quickly. Shares that once traded above $50 crashed, dropping below $4 late last year. The company has spent nearly two years trying to straighten out its accounting while it works with prosecutors and regulators investigating an apparent attempt by former executives to hide losses.

The doughnut maker is six quarterly reports behind in stating its financial reports, but is in the process of filing its fiscal year 2006 numbers, due at the end of the month.

Krispy Kreme stock rose 28 cents to $8.80 Friday and is up 74 percent in the past year.

The latest threat is less imminent, but potentially more devastating. In New York and Chicago, public health officials want to ban the use of artificial trans fatty acids, found in some shortenings, margarine and frying oils -- ingredients in everything from pie crusts to french fries to, yes, Krispy Kreme's famous glazed doughnuts.

"It's a pretty sensible thing to get a general counsel and someone on your board with marketing experience when there's a significant movement out there from health interest groups and health advocates to ban the main product you sell," said John Owens, an equity analyst at Morningstar in Chicago.

The company isn't willing to say whether there's a direct connection between the push to ban artificial trans fatty acids and Krispy Kreme's decision to hire a pair of former tobacco executives. Blixt was retained to help address critical legal issues, and Schindler was added for his international insights and strong operational and turnaround know-how, the company said in a statement.

"As we progress with the turnaround of the company, Krispy Kreme is dedicated to the attraction and retention of skilled and talented executives," a company spokesman wrote in e-mail to The Associated Press.

Requests to interview Blixt and Schindler, as well as CEO Daryl Brewster, a food industry veteran from Kraft who took over Krispy Kreme in March, were denied.

Reynolds American was created in 2004 by the merger of R.J. Reynolds Tobacco Holdings and the U.S. operations of Brown & Williamson Tobacco. Blixt, 55, has more than 25 years of experience in corporate law, and the 62-year-old Schindler spent 30-plus years with Reynolds in senior management positions, including vice president of personnel, executive vice president of operations and chief operating officer, before retiring in early 2005.