Former Tesco boss Sir Terry Leahy blames successor for firm’s woes

Tesco

The former chief executive of Tesco, Sir Terry Leahy, has broken his silence on the crisis engulfing the country’s biggest retailer by claiming there was a failure of leadership under his successor, Philip Clarke.

Leahy, who stepped down in 2011 after 14 years at the grocer’s helm, told the BBC’s Panorama programme: “People tried very hard to do the right thing; it clearly has not worked. In the end, that’s a failure of leadership, not a failure of the business, not a failure of the people who work hard every day in the business. When you’re the CEO, if it goes well, you get credit, if it doesn’t go well, you must take responsibility and Phil Clarke has taken that responsibility and paid the price with his job.”

After a series of profit warnings, Clarke was sacked last summer and replaced by former Unilever executive Dave Lewis. Tesco has since become embroiled in an accounting scandal that is now the subject of a Serious Fraud Office investigation.

Given the collapse in profitability in the wake of Leahy’s departure, his own legacy has come under scrutiny. He was previously celebrated for turning Tesco into a global retail giant, but problems at home – where it is now closing and abandoning stores – as well as the decision to pull the plug on US venture Fresh & Easy, has led to a re-evaluation.

At the first sign of trouble, Clarke famously accused the Leahy regime of running the important UK business “too hot” – a phrase that described the process of shoring up profits during recession by making cost savings and starving stores of investment. But Leahy Batted the suggestion aside in a Panorama documentary broadcast on Monday night, arguing that the bigger problem was that Tesco took its eye off the ball on price.

“The acid test is, are you attracting customers?” is Leahy’s response. “Yes we were, more customers each year. Were sales growing? Yes they were. Tesco is the biggest, people expect it to have the best prices,” he said. “I think that some of that trust has been eroded, which has meant that people have shopped around.”

After years of stable leadership, Clarke’s appointment led to a stream of high-level departures and the criticism that there had been a brain drain. “I think it lost too much talent,” Leahy told the BBC. “It’s a big company, Tesco, and also very empowered – people were given responsibility and trusted to get on with their job, so there was a big team of experienced leaders. And too many of those were allowed to go in too short a period of time and so there was a shortage of experience, the kind of experience you need to carefully navigate a business like Tesco through this very turbulent and difficult period of this long, long recession, with these changes in structure of retailing taking place.”

Leahy wewnt on to say that the company’s culture changed under Clarke and “not for the better”. He said: “I think if you talked to people who knew Tesco, worked in Tesco when I was there, actually the culture was pretty positive and it has to be, because it employs half a million people and you can’t make them do things, you have to motivate them to do things, they’ve got to want to do it.”

In a statement to the BBC, Clarke said: “Although the company had enjoyed unprecedented success in the past, it was plainly the case when I took over Tesco in 2011 that it faced a number of critical challenges that had been building for some time. In bringing about business and cultural change within the company, inevitably some executives who were not considered to have a role to play in the future of the business were let go. There are many others who remain silent out of loyalty to the company and who would describe Tesco under my leadership very differently.”

In an attempt to turn round the business, Lewis has announced plans to shut the retailer’s head office in Cheshunt, Hertfordshire, raising the spectre of thousands of job cuts as part of a shakeup that will also see the closure or abandonment of nearly 100 stores.

The Panorama programme also delved into the background of last autumn’s accounting scandal, which stems from how Tesco accounts for promotional monies received from suppliers and which resulted in first-half profit forecasts being artificially inflated by £263m, and revealed a falling out between Tesco and cosmetics giant L’Oréal – which led the French company to threaten legal action – over a disputed payment of about £1m demanded by Tesco.

It also unearthed a warning email sent in 2012 by its former chief financial officer, Laurie McIlwee, which highlighted concerns about financial controls at the retailer after a problem was discovered in its Polish business. The email told finance staff: “You should be in no doubt as to the seriousness [of] mis-declarations” and said that accounting for profits early was forbidden “where they cannot be justified”.

Powered by Guardian.co.ukThis article was written by Zoe Wood, for The Guardian on Monday 19th January 2015 22.35 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts