Was Tesco Corrupt? – II


Corrupt cultures in any organization or city or country don’t happen by chance. Tesco is a microcosm of the real world where activities are engineered by those in authority to create an atmosphere of pressure – maybe extreme pressure.

(earlier post on this: Was Tesco Corrupt?)

Listening to Melvyn Bragg’s “In Our Time” on Radio 4 today about the Haitian Revolution, it is easy to be complacent about how much we have changed. Slavery in Haiti was extreme – 90% of the population enslaved and under conditions that we in the West would rightly be scandalized about. Yet, we see similar conditions in many parts of the world today – countries like Equatorial Guinea where Transparency International is working to alert the world to tremendous poverty and lack of rights that are accorded to its people because the elite there takes virtually all the revenue from oil resources. Showing why “per capita GDP” data is, on its own so misguided in a world which is moving towards more income inequality, Equatorial Guinea has a per capita GDP on a par with Italy – yet most citizens lack access to clean drinking water.

 

The extraordinary problems that Equatorial Guinea has (caused by extreme corruption) may make any comparison with the UK seem a step too far. Surely the issues raised by the mis-accounting at Tesco is not even similar to what happens in Equatorial Guinea, Angola or other nations where vast resources are corruptly taken by a few.

 

However, that argument is much like someone arguing that, because of wars in Iraq and Syria, we should be content and not concern ourselves with knife-crime in the UK or poor waiting times in the NHS.

 

Corruption is corruption and what we are witnessing at Tesco has been the corrupt mis-accounting of £263 million and the humbling of a once-great business.

 

Deck Chairs on the Titanic?

 

Almost understandably, writers on Tesco and the company itself portray the problem as a few people that were under severe pressure and made bad decisions to bring forward hoped-for future profits into earlier periods. The Chairman is now leaving and various senior staff remain sidelined.

 

The auditors, Price Waterhouse Coopers (PwC) claim to have been “misled” by senior staff that were carrying out the mis-accounting. No-one seems surprised that they missed £263 million amongst the billions that are moved into and out of Tesco.

 

Accounting is but a reflection of a business. It is notoriously hard to find major errors which management are trying hard to hide. Most accounting crimes are found via whistle-blowers (as in this case and cases like Enron – which led to the demise of one of the big accounting firms – Arthur Andersen – who were complicit and went out of business as a result). This is not to say that PwC are in any way complicit. The issue is that audit firms are not that good at finding fault and (after 30 years as Tesco’s auditors, with ex-PwC members of the Tesco Board and being paid £10m a year) there are always suggestions that audit firms don’t try too hard.

 

The Board seems to have been in complete denial of the issues. Not only did they not know that the accounting problems existed until the whistle blower blowed, but they did not “see” the culture that led to the problems. Non-executive Directors on the audit committee, for example, are usually transfixed by numbers – and usually fail to ask the hard questions.

 

How many companies operating from the UK into nations where bribery and corruption is the norm ask the hard questions in Board and less formal meetings even now that the Bribery Act (and before it the Foreign Corrupt Practices Act in the USA) has been in place for 4 years. Glaxo (GSK) is feeling the pressure now about how it did business in China – a country where corruption is / was the norm and GSK went with the flow for many years. Here, staff were under pressure to perform but did so with the help of corruption.

 

The numbers could have indicated the problem but the culture certainly would have. Yet, how many Boards understand the culture of the organization for which they serve and can connect the culture with the potential for corruption or even associate the two?

 

Business Culture is key to success – and failure

 

When the banks entered into their maniacal dance of death resulting in the financial crash of 2007 and thereafter (which we are still paying for – literally), it was their common casino and bonus culture that was to blame. Senior management encouraged their investment banks and those outside the traditional banking rigours to take larger and larger risks but also to defraud customers. Ian Fraser’s excellent “Shredded” about RBS (Royal Bank of Scotland) is an example of how individuals create the culture of a bank or any organization and then reap the whirlwind that follows – whether good or bad.

 

The worst business cultures see staff swept along like leaves. As a character in my own book “Last Line of Defense” said”

 

“A business can take on an independent existence of its own. It begins to direct the individuals within it, rather than the other way. There is a dynamic to a business which can make you feel like a leaf in a river, unable to change the river’s course. Eventually unable to change its own course, the leaf is swept away downstream. The river carries on as before.”

 

So, it happened in Tesco. The CEO demanded results and got them – trouble was, they were not real. Instead of Tesco being a great company with great products and services that its customers wanted, it relied on mis-accounting to boost results.

 

That is a corrupting culture. It corrupted staff to engage in non-value added activities that prejudiced the company’s future and were a direct result of the pressures of a business that was failing to differentiate itself through its proper business activities.

 

Some argue that no-one benefitted from this. Maybe true if all the culprits are shown to be culpable and pay back any bonuses and pensions gleaned from the additional profits and maybe pay for the corruption with their jobs. Saving a job and its not unreasonable salary through corrupting the numbers has resulted (arguably) in a threat to Tesco’s future that a focus on how to make Tesco a better business would not have done. Just like the bureaucracy in Terry Gilliam’s “Brazil” that took up all a country’s resources and added no value, so a corrupt culture spends far too much time “corrupting” and not enough adding real value. So, a business collapses from the inside unless the corruption is arrested.

 

This is true of any corrupt organization – business or city or nation – where corruption exists and exacerbates the already bad conditions in which those who are party to the corruption or affected by it have to endure.

 

Fine, Tesco is not Equatorial Guinea but it is in the same game when, as a respected multinational business, it engages in bad business practices – corrupt practices.

 

Learning the Lessons?

 

Tesco seems not yet to have learned these lessons or at least not admitted to them. Accounting issues, changing board members, adding new processes and the like are all outputs of decisions to change culture. Why doesn’t Tesco actively state that this is what is has to do and then establish how best to do it. If it does not, then the changes will not result in real change but be like those deckchairs on the Titanic?

 

 

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