The fallout from the revelation that Tesco had been overstating their profits continues to be immense.
Warren Buffet has announced that he made a “huge mistake” by investing in Tesco shares with estimates that his losses on his Group’s holding in Tesco shares exceeds £500 million.
Other less notable losers will of course included Tesco employees who bought into the company’s share scheme and have seen the value of their investment drop by 50% in the past year.
Further illustration of the hubris of the previous Tesco senior management was the ordering of a £31 million jet for corporate travel. No doubt the new board will be under pressure to dispose of this in the not too distant future.
This self-aggrandisement is an all too familiar story, it was exactly the same type of behaviour we saw from Fred Goodwin when he was at the helm of the RBS Group albeit that the fall-out from his ineptitude came at a far higher cost to the group’s shareholders and the UK taxpayer.
The components of this story are the usual suspects, loose governance, directors preoccupied with their own bonus structure, Auditors not getting to grips with the fundamental issues of the business they are auditing.
Meantime the UK’s top financial regulator (FCA) has launched an investigation into whether Tesco broke rules on adequate financial disclosure and it will
The figures are wrong through incompetence or deliberate falsification it can only be one of these two issues.
In smaller companies it is not unusual for management under pressure to resort to “massaging the figures” whilst unacceptable business practice it does not have the implications that accompany the Tesco situation.
The damage to shareholder confidence and the brand itself is incalculable coming at a time when Tesco is facing rapidly declining sales.
It will be difficult to rebuild trust from either the market of its customers with the overhanging feeling that there may well be more skeletons lurking in the cupboard.
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