Corporate Governance and Globalization

Corporate Governance and
Globalization
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Table of Contents
Introduction................................................................................................................................3
Assessment of the case...............................................................................................................3
History / Background.............................................................................................................3
Overview of Case...................................................................................................................4
Non-compliance of corporate governance.............................................................................4
Lesson Learned......................................................................................................................6
Tesco Plc (Current scenario)......................................................................................................7
Restructuring Supplier Relation.............................................................................................9
Role of Auditor......................................................................................................................9
Building a better Tesco........................................................................................................11
Conclusion................................................................................................................................12
Bibliography.............................................................................................................................13
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Introduction
Increasing interest in pressures on national system relating to corporate governance to
congregate which is asserted being developed by the process of globalization1. It has been
assessed that the trend of globalization will lead to the efficient allocation of capital.
However, a significant change has been accessed in national governance system which
eventually led to effective market-driven as well as enhancing procedure. Corporate
governance can be referred to as a set of rules and provision which are applied by a business
organization in order to control the business operations2. The present study emphasizes on
Tesco Plc accounting scandal. Initially,the background of the company has been provided
along with the detailed analysis of the accounting scandal issue of the company. The major
objective of corporate governance is to establish and sustain the balance held among
corporate operations and stakeholder’s interest as well as shareholders of the company. But
even though recent addition to corporate governance scam has been accessed amount which
Tesco –Plc is the most prominent one. Further, the present status of the company and changes
that have been made in the company have been discussed so that a similar conspiracy does
not arise in future. Lastly, the core learning’s from Tesco Plc accounting scandal has been
provided in the form of conclusion.
Assessment of the case
History / Background
Tesco-Plc was formed and introduced in 1919 by Jack Cohen being a group of market stalls.
The company appeared for in the year 1924 when it come up with a tea shipment from Mr T.
E. Stockwell. The expansionary thrust of the company was assessed when it implemented
actions to purchase rival shops. The company initiated its ambitious plans of expansion
1Ruth King and Fitzgerald Lin. "10. Challenges facing the accounting profession: maintaining
relevance in a changing environment." Perspectives on Contemporary Professional Work:
Challenges and Experiences [2016] 176-220.
2Bob Tricker. Corporate governance: Principles, policies, and practices. (Oxford University
Press, USA, 2015).
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through opening outlets in the US with the name ‘Fresh and easy’, and now the company is
operating in almost thirteen countries.
Overview of Case
The voluntary disclosure of falsification of books of accounts by the management of Tesco-
Plc, a UK based retailer affected the market price of the share as well as the investment value
of its shareholder. In the year 2014, Tesco was pitched into deeper crises, and led to
suspending of four senior executives of the company. Further, the reason behind the same
was the outrage of overstatement of the first half profits by £250 million. The management of
the conducted the overstatement of corporate profits to be £1.1 billion. However, it was later
assessed that the company has experience profits of £ 263 million. The overstatement of
profit was made to influence the shareholders and to enhance the value of the investment as
well as funds to the retailer. Though, legal authorities and management of the company took
specified scandal matter under significant concern and reduced the £2 billion of net value
from Tesco –Plc3. Due to the specified accounting scandal, the company was convicted for
fine of £500 million in the year end. Further, a case was filed by approximately 125 investors
in opposition to the company following the reason for accounting fraud and alleged that the
company had been providing incorrect facts in order to gain funds as well as investments.
Thus, the company faced criticism in the form of investor’s outburst for accepting practices
despite several warnings from analyst regarding aggressive accounting practices.
Non-compliance of corporate governance
Tesco Plc has been acknowledged for compliance with the structure of corporate governance
as well as its concern towards promise towards safety and ethics relating to individuals and
the environment. But, the fraud in the year 2014 is one of the events which declined or had a
significant negative affect on the image of the company. Due to the above specified corporate
governance, a lot of individuals of the company were terminated which comprises 4
executives and several other employees of the company. Even the Chief Finance Officer gave
resignation just before the incident of the accounting scandal was known to the general
public. The same was followed with the resignation of other senior management executives
3Al Jihad Okaily, Dixon Roband SalamaAly. "Corporate governance quality and premature
revenue recognition: evidence from the UK." International Journal of Managerial
Finance, 15.1 , [2019] : 79-99.
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