Founded in 1919, Tesco has been a business success story. With its core business focusin on food retail, in just under a century, Tesco has grown from a market-stall in the East End of London into the largest supermarket in the United Kingdom, and the third largest globally. In 2012–13, Tesco boasted group sales

 Founded in 1919, Tesco has been a business success story. With its core business focusin on food retail,
in just under a century, Tesco has grown from a market-stall in the East End of London into the largest
supermarket in the United Kingdom, and the third largest globally. In 2012–13, Tesco boasted group sales of £72.4 billion, with £2 billion profit before tax. At the end 2014, Dave Lewis, who had been Tesco’s CEO for only three weeks till then, sent an email to the company’s staff members saying that the organization’s culture had to change. He said that Tesco needed to focus on its customers and work hard on being open, honest, and transparent. Most people in his position would have probably waited more than three weeks
before recommending such sweeping changes, especially for something as significant as the
organizational culture. So what caused Mr. Lewis to make such a dramatic public announcement? Put
simply, a financial scandal. With significant issues, related to the drive for growth and positive market
results, being brought to light by a whistle-blower, at the end of September 2014, Tesco had to make an
embarrassing announcement—they had overstated their mid-year profits by £250 million, later revising
this to £263 million. The issues faced were twofold. In order to improve its own financial position, Tesco
delayed its payments to some of its suppliers and it had also been including payments from suppliers as
profit. It appeared that these payments were made against suppliers getting more favorable positioning
for their products and more shelf space. Tesco’s announcement resulted in an 8 percent fall in the share
price, wiping £1.5 billion off the company’s market value. A total of £3 billion was wiped off the share
price in the three weeks following the announcement. On top of this, both the Grocery Code Adjudicator
(an independent body set up to oversee the relationship between suppliers and supermarkets) and the
Serious Fraud Office (SFO), the section of U.K. law enforcement focusing on serious or complex fraud and
corruption, announced that they would be carrying out an investigation into the matter. When you look
at company documents from this period, this type of activity would seem out of step with the culture of
the organization. In 2013, the then-CEO, Philip Clarke, stated that the company should do all it could to
earn stakeholder loyalty and trust. In fact, the 2013 annual report identified poor relations with suppliers
as a reputational risk and reaffirmed the company’s aim to comply with the Groceries Supply Code of
Practice. However, the satisfaction of customers and other stakeholders was replaced by a drive to meet
financial targets and maintain share value. In January 2016, Christine Tacon, the Grocery Code
Adjudicator, released her report. It didn’t make for a pleasant reading for Tesco management. She found
evidence of internal emails that suggested staff members should not make payments to suppliers before
a certain date, in order to temporarily improve margins and ensure that the company was not seen to be
underperforming against targets. A list explaining how the staff could help Tesco reach mid-year targets
was uncovered, which included an instruction not to pay money owed. Some payments were delayed by
nearly two years and in some cases the supplier simply gave up asking! Following the overstatement in
2014, 125 institutional funds filed a joint lawsuit for £100 million, and Tesco is still under investigation by
the SFO. It may be some time before a new culture of trust and transparency will be allowed to flourish;
however, Tesco seems to have seen the error of its ways. The company has improved its communication
channels with suppliers, a majority of whom now say they have a more positive relationship with Tesco
than they did previously.
3.1. Which stakeholder groups are affected by the financial scandal discussed in the case?
3.2. How could the omnipotent and symbolic management perspectives explain Tesco’s financial
scandal?
3.3. How is the email sent to staff members linked to Dave Lewis’ view that the organization’s culture
needs to change?
3.4. Imagine you are looking to join Tesco. How would the organizational story of this scandal affect your
decision? Consider both the scandal and how it was managed. 

Given data

 

In 2012-2013;

 

Tesco boasted group sales = 72.4 billion

 

profit before tax = 2 billion

 

At the end of September 2014 ;

 

mid-year profits = 250 million

 

8% fall in the share price

 

wiping = 1.5 billion

 

wiped off = 3 billion

 

In 2014,

 

institutional funds =125

 

lawsuit = 100 million

 

3.1. Which stakeholder groups are affected by the financial scandal discussed in the case?

when we go through case number of stack holder are affected by scandal as listed below :

·       Suppliers for not making payments on time that as long as for 2 years and for altering invoices.

·       Shareholders for over showed profits.

·       Creditors for not paying borrowed money as per agreement.

·       Employees for forcing them to work against rules. Means ordering them not to pay money for specified period etc.

3.2. How could the omnipotent and symbolic management perspectives explain Tesco’s financial scandal?

 Omnipotent and symbolic management perspectives & Explanation of the financial scandal:

·       Under omnipotent perspective managers or management is responsible for success or failure of organization.

·       Whereas under symbolic perspective managers are not directly responsible for success or failure of organization because some factors are out of their control.

·       Here what ever scandal happened in the organization is because of decision taken by the management and not by uncontrollable factors they could have been transparent and loyal to suppliers and creditors and could have requested for delay in payments, but they didn't do it. They went on illegal way.

3.3. How is the email sent to staff members linked to Dave Lewis’ view that the organization’s culture needs to change?

The email sent to staff members linked to Dave Lewis' view that the organization culture needs to change:

Dave Lewis mail to its employees regarding change in culture of organization can be seen as right thing for that movement because whatever scandal happened came out to public, and they had to face investigation by Tacon. And company have to follow recommendations given by Tacon.

3.4. Imagine you are looking to join Tesco. How would the organizational story of this scandal affect your decision? Consider both the scandal and how it was managed.

By considering joining Tesco:

·       As if now i will join the company because company had taken steps to be more transparent to its stockholder and even promised that it will change organizations culture.

·       Lewis said. “We have changed the way we work by reorganizing, refocusing and retraining our teams, and we will continue to work in a way which is consistent with the recommendations”.