Outback's chief financial officer quits
It's the company's third key loss in six weeks. He blames the burdens of the Sarbanes-Oxley Act.
By SCOTT BARANCIK
Published April 22, 2005
Scratch another name from the organizational chart at Outback Steakhouse.
Bob Merritt, who joined the Tampa company as chief financial officer in 1990, announced his retirement Thursday during a conference call with restaurant-industry analysts. He blamed the decision on frustration with overzealous regulators, accounting rules that border on "lunacy" and a "growing public perception that all business people are dishonest."
The resignation marked Outback's third key loss in six weeks. Chris Sullivan and Bob Basham, who co-founded the company with a single Tampa restaurant in 1988, called it quits last month as CEO and chief operating officer, respectively, though they remain with the company as co-chairmen.
Though Sullivan and Basham cited no particular motive behind their resignations, Merritt, 53, complained about the expanding legal and regulatory burdens associated with the Sarbanes-Oxley Act of 2002, a federal law created to prevent a repeat of Enron Corp.-type ethical and financial meltdowns. A key component of the law makes company officers and directors, including CFOs, liable for fraudulent behavior.
In an interview Thursday evening, Merritt said he believes the ideas behind Sarbanes-Oxley were mostly reasonable. But he said the expansive regulations implementing it have left executives like himself with little time for strategic planning or profit building. Instead, he said, CFOs spend much of their days trying to comply with arcane rules and avoid making mistakes.
"I cannot tell you how many e-mails I got from people today in the restaurant and financial industries thanking me for saying what no one else would say publicly," he said. "I don't know of a single CFO of a publicly traded company who hasn't thought about quitting in the last six months."
"He's not the first person that we've heard of resigning," said Ron Paul, president and CEO of Technomic, a restaurant research company in Chicago. "Sarbanes-Oxley has just raised the whole fear level in the public arena."
Securities and Exchange Commission spokesman John Heine declined to comment on Merritt's resignation speech to analysts Thursday.
Merritt said he has been contemplating retirement for about a year. Though he vowed never to work for a publicly traded company again - he said he does not have a job lined up and considers himself retired - he said he might be willing to serve on public company boards if invited.
A divorced father of twin 11-year-old boys who lives in south Tampa, Merritt has worked at restaurant chains for more than two decades. In the early 1980s he served as CFO of Vie de France Corp., and later as vice president of finance at JBs Restaurants Inc. He has served on several local nonprofit boards, including stints as chairman of Lowry Park Zoo and the Florida Orchestra.
"He's been a real leader in the company and the industry," said David Geraty, restaurant analyst for RBC Capital Markets.
"His departure leaves us wondering how the company will find an Outback face suitable for investors and analysts," analysts at Friedman Billings Ramsey & Co. said in a research note Thursday.
Merritt said he believes that Outback's future is solid and that new CEO Bill Allen is the right person for the job. But "it ain't fun coming to work and having to do this (compliance) stuff."
What sent Merritt over the edge, he said, was an esoteric set of accounting rules concerning the payment of rent and improvements to leased property. Though the lease-accounting rule had changed little since the Financial Accounting Standards Board issued it in 1976, Merritt said, public accountants made jittery by Sarbanes-Oxley in 2002 began to question the way restaurant chains and other public companies addressed the rule. (Outback, which has eight chains and 1,206 locations, leases 67 percent of its restaurants.)
After one restaurant company, CKE Restaurants Inc., restated its prior financial statements based on a new interpretation of the rule, a number of other public companies followed.
In the two years since, discussions among accounting firms, the SEC and others have complicated the issue. According to the Wall Street Journal, about 250 companies have restated prior-year earnings based on changing interpretations of existing lease-accounting rules, including Outback.
And according to Merritt, those same companies are dealing with the accounting questions in as many as four different ways, making it difficult to fairly judge one peer's financial performance against another's.
"To me, this was a complete breakdown in the way public company accounting was managed," said Merritt, who emphasized that he was speaking for himself, not Outback.
Merritt's last day at Outback is May 27. A search for a replacement is under way. CEO Allen briefly eulogized him during Thursday's conference call.
"I'm not really sure how you replace Bob Merritt," he said. "It is with great regret that unfortunately I won't be leading Outback Steakhouse with him."
Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.
Outback Steakhouse Co.The Tampa restaurant company reported first-quarter income slightly higher than the same period last year. Same-store sales at company-owned Outback Steakhouse-brand restaurants fell 0.5 percent, while sales at Carrabba's Italian Grill, Bonefish Grill and Fleming's Prime Steakhouse and Wine Bar rose 4.3 percent, 0.3 percent and 10.7 percent, respectively. Outback's stock closed Thursday at $42.76, down $1.01 per share, or 2 percent.