Tesco warned it must address damaging company culture

Following the shock revelation that Tesco had overestimated its half-year profits by £250m, the source said that it is critical that a culture that contributed to the crisis is changed in order to safeguard the future of the retailer, the UK’s biggest and the third largest in the world.

Tesco, which disclosed on Monday an overstatement of profits related to the recognition of income Tesco receives from suppliers, has long had a reputation for tough dealing with suppliers harking back to the era of Sir Terry Leahy.

But the well placed source told Retail Week that the culture that has developed in recent years is different to the normal cut-and-thrust of retail and supplier relationships.

New Tesco chief executive Dave Lewis, only three weeks into the job, launched an investigation into the profit overstatement crisis over the weekend after an employee alerted the retailer’s general counsel of the issue.

Four senior directors, including UK boss Chris Bush, were suspended pending an investigation by Deloitte, assisted by lawyers Freshfields, and the interim results were pushed back to October 23.

Lewis has been praised for his decisive action after the problems emerged. He was able to parachute in his new finance chief, ex-M&S man Alan Stewart, two months early to help deal with the issue. It is understood he negotiated Stewart’s release after personally contacting M&S boss Marc Bolland.

Tesco chairman Sir Richard Broadbent has come under pressure following the crisis, but it is understood the majority of big shareholders are not calling for him to step down because they do not want further disruption from more leadership changes.

Bernstein analyst Bruno Monteyne argued that Tesco does not have a balanced board containing sufficient relevant retail experience and “that may go some way to explain why Tesco stuck so long to a bad strategy and why it wasn’t more alert to the risk of these accounting practices”.

He said: “The responsibility for the board composition ultimately lies with the chairman and investors should review their options.”

Broadbent defended his position on Monday and said that the accounting issue is “out of the ordinary”.

He said: “If you go back over the last 18 months, we have dealt with so many issues, we’ve taken decisions when we were not making progress, and ultimately we changed the management. We have not ducked any issues.”

Broadbent maintained: “Shareholders will decide if I am part of the solution or the problem.”