Jeff Swiatek, The Indianapolis Star

Former CEO Don Marsh admitted to spending company money on five mistresses

Oversight by company%27s board or directors questioned

Marsh was dismissed in 2006 after company was bought by private equity firm

INDIANAPOLIS -- Cases of executive excess are nothing new. But who would have expected a regional Midwestern grocery chain with the slogan "We value you" to conjure recollections of corporate tawdriness?

That was the case in a two-week civil trial earlier this month which showed that Indiana grocer Don Marsh was dealing with a lot more than deli orders and fresh baked goods while he ran Marsh Supermarkets.

Like mistresses. He admitted to spending company money on five of them.

And globe-trotting. The grocer cozied up to Fidel Castro, Hugo Chavez and Middle East potentates and took trips to the Super Bowl, the Olympics, the Grammys and Mardi Gras.

And trappings of wealth. He had a $90,000-a-year chauffeur, five vacation homes and a habit of handing out $20 bills to maids and stewards, butlers and maitre d's.

After all of the salacious details were played out, jurors took about five hours to reach a verdict. The former CEO, they said, must repay $2.2 million to the company for his overspending.

But the verdict still leaves room to wonder:

How did a longtime family-run business, founded in the small community of Yorktown, Ind., and literally weaned on milk and bread, ice cream and canned goods, allow its CEO to lead the kind of outsized corporate life he did for so many years?

What was behind Marsh's behavior, which was far from a business-school-taught model of a CEO in action?

The answers may have to do as much with the mindset of the man who led Marsh Supermarkets for 25 years as it does with the board of directors. The board had the job of overseeing its CEO but -- trial evidence showed -- gave him a long leash to operate almost autonomously.

Jurors didn't put all fault on Marsh. They more than halved the company's request for $7 million in damages because, they said, Marsh and his former company equally bore responsibility.

Sense of entitlement

If ego can build a company, ego also can sometimes bring a company trouble.

Indianapolis clinical psychologist Gregory Sipes sees a common trait among many company CEOs, politicians and elite athletes who have run afoul: a "sense of entitlement and grandiosity."

Being the namesake CEO at the company your father founded, as Marsh was, often can make the effect worse, Sipes says.

"Usually these guys have been successful so long they think they are untouchable," he says. "It feeds that sense of narcissism when you drive up and you're the boss and the store has your name on it."

A sense of entitlement?

The Marsh trial brimmed with it.

There was the routine entitlement: company money Marsh spent on wedding gifts for his friends, a $554 Hong Kong tailor's bill from one of Marsh's Asian jaunts, a $4,815 purchase at a diamond shop in Scottsdale, Ariz., on the company credit card. (Company attorney, during trial: What was the bill for? Marsh: I have no idea what that was.)

There was the beyond-routine entitlement: Marsh would rent his Dominican Republic resort villa to his own company during August and September every year. The charge: $495 a day. And he used company money to host frequent company get-togethers at his Saugatuck, Mich., vacation house on the shore of Lake Michigan, where his yacht bore the name Maison Blanche Research Center. (Company attorney: Did you have the right to have your boat washed at the company's expense? Marsh: Sure.)

A sense of grandiosity?

An African safari that Marsh approved for his son David (then the company's president) and his family. A flight Marsh arranged on the company jet to New York for 14 Marsh family members to catch the Macy's Thanksgiving Day parade. (Company attorney: How much did that cost the company, Mr. Marsh? Marsh: I have no idea.)

And then there were the mistresses.

Marsh -- married for 54 years, with five children -- admitted to five extramarital relationships.

Two were company officers. One was a vendor. Another, an old flame. All received company-paid items of value, from dinners to jet flights to tickets to the Indianapolis 500.

Mistress No. 5 was a Russian woman who directed a ballet program that Marsh talked his board into possibly sponsoring on a U.S. tour. She stayed in a New York apartment at company expense. (Marsh to jury: I can't pronounce her last name.)

Marsh's trial-highlighted improprieties ran from 1999 to 2006, when he was dismissed as CEO by the supermarket chain's new owner, Sun Capital, a Florida private equity firm. During Marsh's tenure, Marsh Supermarkets was a publicly traded, shareholder-owned company.

As new owner, Sun was forced to pay a $3 million federal notice for back taxes, mostly related to Marsh's CEO spending.

Questions of oversight

Marsh's behavior raises a key question: Where was the oversight by the company's board?

Why, according to a company travel audit, was Marsh allowed to travel 181 to 216 days a year from 1999 to 2006?

And how, according to another audit, could he run up questionable expenses during that time of $3.4 million. The amount was equal to the chain's profits from 2003 and 2004 combined.

Defense attorneys argued that the board encouraged Marsh to promote the company.

"The entire board was behind Mr. Marsh's travel," testified longtime board member Stephen Huse.

"Bond and network -- that's the name of the game" Marsh told jurors.

But the board was not the most impartial evaluator of the executive's travel needs.

The nine-member board included, for many years, three Marsh family members and a director whose construction company contracted with Marsh Supermarkets to build some of its stores. Huse, who headed the committee that set Marsh's pay, has a daughter married to one of Marsh's sons.

Furthermore, board members also took part in some of the trips Marsh arranged, such as his annual salmon-fishing and bear-hunting outing to Alaska that cost the company more than $90,000 each time.

The Marsh trial "should be a wake-up call for public companies to make sure they have ... clear, written expectations of their CEO and a really clear conflict of interest policy that all board of directors sign," said Charlotte Westerhaus-Renfrow, a visiting lecturer of management at Indiana University's Kelley School of Business in Indianapolis.

Marsh Supermarkets did put in place a set of ethics guidelines and internal accountability controls after passage of the federal Sarbanes-Oxley Act, a measure enacted after the Tyco, Enron and WorldCom accounting scandals shook Wall Street. Included was a company code of conduct for all employees and officers.

One problem: Marsh testified he didn't recall the code being passed, and in any case, he didn't think he fell under its rules.

If true, that should have been a big concern for the board, said Eleanor Broxham, an expert on corporate governance who runs the Value Alliance consulting company in Westerville, Ohio.

"That's one of the oversight responsibilities of a board, to make sure those kind of codes are in place and people sign off on them," Broxham says.

Good governance, Broxham adds, "very much does come down to the board setting the tone: If they're in on the goodies, they become part of the problem."

Scandals and lawsuits

The board finally reined in its CEO in 2006, when the company posted a loss of $40 million as competitors Kroger, Wal-Mart and Meijer ate into its business with new superstores.

The board grounded the jet and limited Marsh's travel to Indiana, Ohio and Illinois, where the company had stores. And it stripped him of some CEO duties.

For his part, Marsh responded by trying to fire Huse, the board's point man in its belated effort to control its CEO. (Huse: Don called and said, "You're fired." I said, "You can't fire a board member. The shareholders fire a board member.")

In the fall of 2006 Sun Capital bought Marsh Supermarkets for $88 million. Company officers and board members other than Marsh received $17 million. Marsh's 20 percent share in the company stock was worth about $17 million. Marsh would later say at trial that Sun Capital "stole the company."

The resiliency of the supermarket chain, which has rebounded after reaching the brink of bankruptcy in 2006, shows that Marsh the brand was bigger than Marsh the longtime CEO and minor TV celebrity, says Tom Denari, president of the Indianapolis ad agency Young & Laramore.

"A brand is bigger than the person," Denari says. "It can survive through scandals and lawsuits and affairs."

Meanwhile, the judge in the Marsh trial has yet to rule on a remaining claim. Marsh is countersuing his old company. He says it owes him $2 million in withheld severance.