'Australia's Harvey Nicks' stunned by sex scandal

The Australian equivalent of Harvey Nichols, the department store David Jones, has been a reassuring presence on high streets for more than 170 years.

Shoppers knew what to expect: upmarket brands, at prices that "DJs" promised could not be beaten. What they did not expect was that a sex scandal would engulf the company's chief executive and lead him to resign and flee the country, leaving the normally sedate world of retailing – and DJs' customers – reeling.

In a statement to the Australian Stock Exchange, Mark McInnes said he had behaved "in a manner unbecoming to the high standard expected of a chief executive to a female staff member" at two recent company functions.

The sensational departure of one of the country's corporate high-fliers shocked the business world, as well as David Jones's famously loyal customers. Just 37 when he was appointed seven years ago, the extrovert Mr McInnes single-handedly transformed the company's fortunes. Its share price dived nearly five per cent yesterday before recovering most of its losses.

Exactly what Mr McInnes did to the woman, reportedly a 25-year-old member of the marketing department, is the subject of ferocious speculation. Known as a party animal, he made regular appearances in the gossip columns, often with his arm around the glamorous models whom he co-opted to promote DJs.

The spiky-haired 45-year-old will receive a severance payment of nearly $2m (£1.2m). But that is unlikely to be much of a consolation to a man who earned nearly $4.5m in pay and bonuses last year, and who forfeited several million dollars because of the manner of his departure.

Mr McInnes, who had been on leave since the complaint was lodged a week ago, said in his statement: "I formally acknowledge that I have committed serious errors of judgement and have inexcusably let down the female staff member. I have also let down my partner, my family, all my staff, the board and our shareholders." He would be overseas with his partner "for the foreseeable future", he added.

While he had a flirtatious reputation – one commentator said yesterday that Mr McInnes was "long known as an avid admirer of the female form" – the revelations of sexual harassment astonished colleagues.

The company chairman, Robert Savage, told a hastily convened press conference in Sydney: "Neither I nor any member of the board have had any reason to question Mark McInnes's behaviour in this way before. I was very surprised when this was brought to my attention."

Mr McInnes's victim, who is still working for David Jones, made a formal complaint through her solicitor. The two incidents took place at corporate functions, one in late May, the other a fortnight ago.

With women making up 70 per cent of the company's 10,000 staff, and a similar proportion of customers, Mr Savage acknowledged that the brand was likely to "take a hit". He said: "I suspect the female staff at David Jones will be very disappointed and angry about the whole situation".

DJs was struggling when Mr McInnes was headhunted by the retailer in 1997, initially as its head of marketing. Promoted to chief executive in 2003, he boosted the company's share price by 300 per cent. Annual fashion shows became a staple of the calendar. Mr McInnes hired the Australian-born international model Megan Gale as the "face" of DJs, and, more recently, Miranda Kerr.

The scandal prompted comment from Australia's most powerful woman, the Deputy Prime Minister, Julia Gillard, who said: "We want to make sure that every workplace, every education institution ... is a good environment for everyone, a good environment for women, free from any harassment or pressure."