David Jones Chief Quits After ‘Unbecoming’ Behavior

Mark McInnes resigned as chief executive officer of David Jones Ltd. (DJS), Australia’s second-largest department store chain, apologizing for “unbecoming” behavior toward a female colleague.

McInnes, 45, quit after the worker complained about his behavior at two company events. Paul Zahra, general manager of the retailer’s 37 stores, will succeed him, David Jones said in a statement. The company’s shares fell 0.44 percent in Sydney trading today after earlier dropping the most in four months.

Since assuming the top job in 2003, McInnes entered into agreements with companies including Polo Ralph Lauren Corp. (RL) and French Connection Group Plc (FCCN) to attract affluent shoppers. He shut the unprofitable gourmet food business and cut costs for getting goods into the stores. The stock surged fourfold, making it the best performing retailer in the benchmark S&P/ASX 200. (AS51)

“He was rated as one of the top business leaders in the country and was seen as having done a really great job with David Jones,” said Cameron Peacock, markets analyst at IG Markets in Melbourne. “He was popular and he did a good job but it’s more than one man that makes a company.”

David Jones declined 2 Australian cents to close at A$4.49 in Sydney trading, after earlier sliding as much as 4.7 percent, the biggest intraday drop since Feb. 5. Larger rival Myer Holdings Ltd. rose 0.6 percent to A$3.19.

The female employee’s complaint stems from McInnes’s behavior at two company events since late May, said Chairman Robert Savage, describing the incidents as “regrettable.”

Brand Will Suffer

“Clearly, our brand suffers as a result of this,” Savage told reporters in Sydney.” From the beginning, Mark said to me how extremely sorry he was about this happening. From very early in the process he offered his resignation.”

Savage said he learned of the complaint last week, and told McInnes to take leave from Monday. There were no previous complaints about his behavior, Savage said.

McInnes, who emulated the success overseas chains such as Bloomingdale’s and Nordstrom (JWN) had with international designer brands, said he “committed serious errors of judgment.”

“At two recent company functions I behaved in a manner unbecoming of the high standard expected of a chief executive officer,” he said in a statement. He said he has “inexcusably let down the female staff member. I have also let down my partner, my family, all my staff, the board and our shareholders.”

McInnes won’t receive any of his contracted incentive payments, the company said, a sum that Savage said was worth “several million dollars.” He’ll receive a settlement of A$1.5 million ($1.3 million) and statutory entitlements, such as accumulated annual leave, worth A$445,000.

Short-Term Issue

“This is a bit of an issue short term,” said Paul Xiradis, chief executive officer of Ausbil Dexia Ltd., David Jones’s biggest shareholder with an 8 percent stake. “The transformation of the David Jones brand was something that McInnes was very involved in.”

Still, Xiradis said “fundamentally nothing has changed.”

McInnes oversaw an effort to attract richer customers to David Jones. At store openings, promotions and Sydney horse races, he was often photographed next to celebrities including singers Delta Goodrem and Natalie Imbruglia, and model Megan Gale, the face of the retailer’s sales campaigns.

Miranda Kerr, the partner of actor Orlando Bloom also models for the chain, appearing in catalogs, fashion shows and television advertisements.

Formal Complaint

The female staff member, who David Jones didn’t identify, made a formal complaint to the board about McInnes’s conduct through a lawyer.

“The board has taken and will continue to take steps to ensure that this complaint is appropriately addressed,” Savage said in the statement.

Zahra, who as the new chief executive will also join the board, has 28 years experience in retail, including the past 12 as part of David Jones’s management team.

Speaking to reporters, Zahra described the circumstances of his appointment as “fairly difficult” but said “it’s business as usual” at the retailer.

The company affirmed its forecast for second-half earnings to rise as much as 10 percent and said the first two weeks of its clearance sales have been “pleasing.”

McInnes, who worked at David Jones for six years before becoming chief executive, said he and his partner will be overseas “for the foreseeable future.”

To contact the reporters on this story: Robert Fenner in Wellington rfenner@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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