Tesco Financial Scandal Leads to Reputation Crisis

Already hurting, new scandal puts grocer in a dangerous position

UK-based grocer Tesco is under the microscope of investors and regulators that results in a reputation crisis, as well as being lambasted by the public, following the revelation that some seriously shady accounting had been going on.

Business Matters summed the situation up:

Tesco was once the darling of the high street but now the 95-year old supermarket chain is facing its worse crisis ever as it admitted to inflating its accounts by £250 million last week. This wiped more than £2 billion off its market value, saw shares drop by 40% and put them at the bottom of the FTSE 100.

As a result, four senior executives were suspended, including finance director, Carl Rogberg, with UK managing director Chris Bush also thought to be one of the four, whilst an investigation takes place into what has been going on. Questions will also be asked of former chief executive, Philip Clarke, and Laurie McIlwee, the chief financial officer who left last week.

Tesco said it discovered the overstatement of its figures, made as part of an August 29 profit warning, during its final preparations for its forthcoming interim results. It then announced that full-year trading profits could be as low as £2.4billion – some £400million lower than expected – after ‘challenging trading conditions’.

Scandalous as it is, this is the type of issue that a well-prepared business should have crisis management plans for, although the sheer magnitude of the executive’s deceit will make recovery a slow road. After all, while it’s a great asset to a rapid comeback, no amount of planning will instantly put £2 billion back into your coffers.

Jonathan & Erik Bernstein