Tesco - a tragedy in three parts

The saying “Pride goes before a fall” has its roots in ancient Greek tragedy, which was based on the inevitability of human hubris triggering retribution. Tesco’s increasingly precipitous fall from favour – with customers, shareholders and now regulatory and government bodies – is the stuff of which trilogies could be made. As this article in The Independent describes, the conditions that made it possible for Britain’s largest and best known (if not loved) retailer to overstate its first half profits by an estimated £250m arose from a widespread culture of fear, intimidation, aggressive chasing of targets and immunity to criticism at the top that has been the dark side of Tesco for decades.

In fact, as far back as 1986 Bill Grimsy, who was brought in by then CEO Ian MacLaurin as Tesco’s first ever customer services director and who later went on to run Park ‘n Shop in Hong Kong and Iceland and Wickes in the UK, described Tesco managers as “a bunch of leather-jacketed bully boys” who enjoyed terrorising those beneath them. Despite MacLaurin’s best efforts to get change such behaviour, it was already too deeply embedded and only grew worse as Tesco’s ascendance over Sainsbury (which was suffering its own period of retribution for its prior hubris) under Terry Leahy attracted hard-hitting “winners” and fueled managers’ belief in themselves and the superiority of the Tesco way. As the company’s market share, profits, international presence and share price rose continuously, so did the level of arrogance at the top, epitomised it must be said, by Leahy himself. As several Tesco insiders told me previously, Leahy’s word was God and not to be questioned. I found this for myself in a small meeting of analysts in 2008 when I dared ask whether he thought customers liked going to Tesco as much as they used to and if it might be worth investing a bit less in new stores and more in renovating existing outlets. Leahy took it as a personal affront and instead of answering the questions (whose validity has since been proven all too clearly) launched the most aggressive, condescending, and generally unpleasant  “counter-attack” I have ever been unfortunate to experience. It took me a while to realise this was the result of Leahy’s insecurity and lack of experience of being questioned, not just his dislike of City scribblers.

Leahy’s successor Phil Clarke was different but still a product of Tesco’s tough culture, having spent all his working life there. Like Leahy he was not naturally sociable and more of a loner, which may help explain why he ended up being the sole member of the management board left by the time he was given his marching orders by Tesco’s genial but utterly ineffective chairman Richard Broadbent (who it should be noted had given Clarke his full support up until the month before he was fired - we suspect shareholders told Broadbent either he or Clarke had to go).

The investigation into how Tesco managed to overstate its first half 2014/15 profits by £250m, and collapse of corporate governance along with its share price, clearly strengthens new CEO Dave Lewis’s mandate for radical change. The question is whether someone with no experience of food retail understands what needs to be done. Lewis’s recent comments about the need to change Tesco’s culture and put more staff into stores are encouraging, but one has to wonder whether he understands the importance of engaging employees at all levels, and if so whether he is capable of doing this. When Archie Norman took over a similarly disfunctional Asda in the early 1990s, he fired 70% of managers in order to break the culture before remaking it. It will be interesting to watch “drastic Dave’s” next moves and once again I can only wish him the best of British luck in what will be a truly formidable turnaround challenge at a time of unprecedented challenges for the traditional supermarket industry.

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