Failure of Corporate Governance in Tesco PLC

7007CLS

Table of Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Overview of the Case Scenario................................................................................................................3
Failure of Corporate Governance.............................................................................................................4
Reasons Behind Corporate Governance Failure in Tesco PLC................................................................5
The Corporate and Governmental Responses to this Scandal and Also the Legal Issues Involved..........7
Propose Certain Solutions to Avoid Such types of Failures in Corporate Governance in Future.............9
CONCLUSION.............................................................................................................................................12
REFERENCES..............................................................................................................................................13

INTRODUCTION
Corporate Governance can be defined as the rules and regulation which are needed to be
complied by any of the business entity. It is necessary for any of the entity to work according to
the corporate governance because it certainly provides the way through which entity can perform
effectively through which goals and target can be accomplished easily. Although, corporate
governance is helpful for entity in making any of the successful business decision but at the same
time it need to be understood that if any of the entity fails to follow the rules and regulation of
corporate governance then huge problem may arise for the entity. The problem can be seen in the
form of different types of penalty which can directly affect in the existence of the entity because
serval penalty which can be imposed are of serious nature as well. In any of the organisation, the
situation of corporate governance failure can occur only in the situation where members,
shareholder and different stakeholder do not perform as per the requirement of law. This
situation basically occurs because of the carelessness shown by internal management.
In context of the file, one of the corporate governance crime case is to be selected within
the premises of UK or US. The main purpose of selecting this particular section is just to identify
in the task that what where those area or situation due to circumstance of failure of corporate
governance occur. In the similar manner, it will be discussed in the file that what are the main
things within the case and what were the major decision which has been taken by government in
order to resolve this particular issue for future time period as well.
MAIN BODY
Overview of the Case Scenario
There was a case related to TESCO Plc which is one of the major multinational
organisations dealing in the market since 1919. The headquarter of the organisation is located in
Welwyn Garden City, United Kingdom. Although, company has been able to perform quite well
in different market but still it has been seen that they have struggled in number of occasion
where they didn’t perform their business activity as per the requirement of corporate
governance1. It needs to be understood that any of the organisation must not conduct any sort of
1 A.M.I. Lakshan and W.M.H.N. Wijekoon, 'Corporate Governance And Corporate Failure' (2015) 2 Procedia
Economics and Finance.

those activity due to which different problem may occur for the organisation. Here, one of the
famous scandals came to known in TESCO where company was showing wrong accounting
statement. It was found that directors of the company were showing wrong statement related to
profit and loss where they showed that the profit of the company is £1.1 billion but actual profit
amount was only £263 million which is far different then the result shown by the organization2.
The main purpose of showing higher percentage of profit then the actual profit earned was just
for the purpose of increasing customer base of the organisation. Also, to deliver higher
confidence in front of investor that company is doing well so they can easily invest within the
organisation.
It was among of the biggest scandal which was found by authorised department, where this
type of case falls under the category for corruption and fraud which any of the entity is not
allowed to do so. Looking at the scenario, the authorised department and Board of Director took
some of the important decision to deal with the matter but still it was found that £500 million
penalty was imposed upon the organization. In addition, investor in the company was not
satisfied so even they also decided to file the case against them which related with
misrepresentation and fraud. The clause of Fraud falls under the category of fraud within the
premises of UK. On the basis of case, there were different decision which were taken by the
government so that any sort of issues can be resolved in a very short time of duration.
Failure of Corporate Governance
It has been seen that most of the corporate governance failure cases are seen within the
multinational organization which likes to perform their business activity at a greater platform.
Similarly, TESCO Plc is also among one of those entity which has been capable of producing
something different in the market since long time period. But in this particular phase, it was seen
that entity failed meet out the requirement of corporate governance3. The image which has been
developed by TESCO Plc in the market is quite remarkable as they equally contribute in the
sector of Social Corporate Responsibility which means that organization is able to do all of those
tasks which they must be able to do. Working on all of this factor, rarely gives indication that
any sort of corporate governance failure will occur. But it was found that entity didn’t performed
2 Emerald Group Publishing., Corporate Governance (Emerald Group Publishing 2015).
3 Philip Stiles and Bernard Taylor, 'Maxwell ? The Failure Of Corporate Governance' (2016) 1 Corporate
Governance: An International Review.