‘The Rolls Royce of grocery retail has become Ryanair… The difference is people still want to fly with Ryanair.’
As I reported here last week, UK supermarket chain Tesco, held its first shareholder meeting since the supplier rebate accounting scandal and subsequent profit drop, last Friday. Despite reporting better than expected share values, the mood in the room was certainly not a jovial one.
Shareholder concerns focused primarily on executive pay. Of particular interest were the huge sums made out to former bosses that many hold responsible for both the financial and moral demise of the firm.
It was pointed out that Philip Clarke, the Supermarket’s former CEO, was given a £1.2 million early termination fee and will access a pension of nearly £14 million (or £658,000 a year), from a firm that is clearly in worse shape than it was when he joined it.
Clarke was at the helm during a meteoric fall from grace that culminated in Tesco reporting a £6.4B loss in April of this year. As well as plummeting profits, the firm became embroiled in a fraudulent accounting scandal around the way the firm booked £263m in supplier rebates on Clarke’s watch. The latter has resulted in an investigation by the Serious Fraud Office.
Criticism was not reserved for former executives
The firm’s new boss, Dave Lewis, also came under fire as 18 per cent of shareholders failed to back a remuneration report that showed Lewis had received £4.13M for his first six months in the new role.
While both men are contractually entitled to funds they have (and will continue to receive), the sentiment of the crowd certainly echoed a discomfort with the corporate greed that is attached to executive level salaries.
Shareholders directly juxtaposed these executive salaries to those earned by in-store staff members, which have been described as being below the ‘living wage’. One particularly stinging shareholder comment summed up this sentiment:
“We do not pay the living wage but we do make our executives millionaires for failure.”
Other shareholder quotes made on the day included:
“When we bought Tesco shares it was the Rolls-Royce of grocery retail but last year it became the Ryanair of grocery retail. The difference is that people want to fly with Ryanair.”
“Our country can no longer accept the greed of executives.”
The challenge ahead for Lewis and his leadership seems a daunting one. The eyes of his shareholders, and indeed the media, will be fixed on the firm’s performance in the coming months. The leadership team must not only turn around poor profit figures, but also navigate a sea of litigation that will be attached to the firms handling of the supplier rebate scandal.
At the shareholders meeting, Lewis stipulated that “We are managing the business in the right way and, at a fundamental level, the business is stepping in the right direction.” The recent share price improvements and company performances appear to be positive, but there is a long road ahead for the new boss.