An Assessment of Corporate Governance Issues at Tesco

This report provides a comprehensive analysis of corporate governance issues at Tesco, a major retail company. The study begins with an introduction to corporate governance and its importance in the retail sector, followed by an overview of Tesco's background and its position in the market. The report identifies and examines key issues faced by Tesco, including competition, share price concerns, and sales in big stores. It then delves into specific case studies, such as the Aldi trademark dispute, Tesco's store expansion strategies, and the impact of legal cases on the company's reputation. The report also explores the application of corporate governance theories, including agency, steward, and stakeholder theories, to understand the complexities of Tesco's decision-making processes. Finally, the report concludes with an assessment of the impact of these issues on Tesco's performance and offers insights into potential strategies for improvement. The analysis covers various aspects of Tesco's operations, including financial performance, customer loyalty, and brand image.

ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
RATIONAL OF THE COMPANY.................................................................................................1
ISSUE OF THE CASE....................................................................................................................1
DIFFERENT CASE OF TESCO.....................................................................................................3
Tesco settles Aldi trademarks case.........................................................................................3
Enhancement in expectations from the three thousand stores................................................4
Tesco just bought its way out of a legal case. Clearly the economic elite play by a different set
of rules than the rest of us.......................................................................................................4
Tesco's profits crash: the global picture.................................................................................5
Improvement in advertising performance to make high profits.............................................5
THEORY OF CORPORATE GOVERNANCE..............................................................................5
ETHICS THEORIES AND CORPORATE GOVERNANCE........................................................9
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

Illustration Index
Illustration 1: Agency theory...........................................................................................................6
Illustration 2: Steward theory...........................................................................................................7
Illustration 3: Stakeholder theory.....................................................................................................8

INTRODUCTION
The present study is based on the case analysis which determines assessment of issues
that are faced by retail sector business. Corporate governance is the process which has aim to
allocate resources to maximise value for customers and other people as well (Goranova, Abouk
and Soofi, 2017). In the selected business unit Tesco, it holds to evaluate decisions with
transparency to assess problems and issues. Purpose of the present study is to identify impact of
issues on the performances of organisation. In this aspect, corporate governance issues could be
addressed in Tesco unit.
There are various important issues in corporate governance which play a vital role while
encountering problems. In this aspect, issues can be reveals which exists in corporate governance
and perceives with different priorities. In the present study, business unit theory and issues
addressed to develop effective results.
RATIONAL OF THE COMPANY
Tesco is British and multinational grocery retailer which exist in London, UK. It is the
third largest retailer in the world in terms of earning profits and ninth largest retailer in terms of
revenue. It has stores in over 12 nations and it is also grocery market leader in UK. Jack Cohen
who was the son of a Jewish Migrants from Poland founded Tesco in 1919. The company is
continuously expanding its operations and functions with variety of products and services. From
1950, the chosen enterprise growing their operations organically through acquisitions in more
than 800 stores (Audretsch and Lehmann, 2014). Further, the business also introduced loyalty
cards and internet shopping as well, which increased sales of the firm significantly. In July 2001,
Tesco involved internet grocery retailing which obtain 35% stake in the grocery market. In
addition to this, firm also made convenience stores market through purchase of T & S stores
(Ayuso, Rodríguez and Ariño, 2014).
ISSUE OF THE CASE
Tesco comes in term of supermarket giant that shows positive profit report in first time of
three years. Further, the company also forced apologise for the disgraceful that shows domestic
work which being slapped. There are three biggest challenges exists which face in 2016 by Tesco
such as competition, doubts over the share price and sales within the big stores (Tihanyi, Graffin
and George, 2014).
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Competition
Tesco is the biggest Britain supermarket. This is because, it possess the best
performances in all over the supermarket. However, from the records, it has been found that the
chosen enterprise is the second worst performances over the 12 weeks in 2016. Therefore, its
sales dropped down around 2.7% from the year. It led to 0.8% dip which has low share around
28.3%. Morrison has high share and profits from Tesco that is 2.6% from all over the market
(Burke and Mattis, 2013). Further, Sainsbury is another biggest competitor of Tesco that has
rising sales continuously in last year.
Doubts over share price
In the last year 2015, Tesco’s shares dropped on the 153p, which is the lowest value in all
over stock market. Due to its strong performances on Christmas, share value of Tesco increased
continuously. Further, the latest updates of the business also strong over the period which
significant rise international sales in business unit for more profits and revenue (Tesco
turnaround: The three BIG problems Britain's biggest supermarket will face in 2016, 2016). UK
performances were much stronger which increase profits and revenue. It was good to sell more
clothing to expand better in profitable manner. However, due to changes in Aldi and Lidl, profit
margins permanently reduced in the supermarket sector. Price reflect the share prices of the
product and services.
Sales in big stores
Sales of Tesco is continuously increasing which also enhanced competition from smaller
stores and online shopping as well. It is the key challenge which was faced by the organisation in
2016. Idea of opening big stores around the market gradually enhance market share so that it also
improved quality, range, services and price which have been seen to get everything that needed
for one most convenient form of shopping (Bushee, Carter and Gerakos, 2013).
Impact of the issues on the Tesco enterprise Less profits and revenue: Due to high competition within the market, performances of
Tesco has impacted over the years. This is because, in UK there are various organisations
exists who sell same products and services as Tesco. Therefore, profits and revenue of the
company are declining which could be affected negatively in the business operations
(Iatridis, 2013). Less profit and revenue also create problem to make further expansion in
different areas of market.
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 Conflicts among different businesses: In order to pursue same operations and functions,
there several organisations has conflict with Tesco. Therefore, it creates negative impact
on the performances of the enterprise which reduce successful results as well. In addition
to this, it reduces positive relationship among various organisations (Devinney,
Schwalbach and Williams, 2013). It could reduce brand image of the business that
hamper profitable results in business unit. It can also harm to perform successful results
that required for developing market areas in different sectors.
 Decreasing loyalty of customers: Customer loyalty also decreasing due to high price of
products and services. It can be effect to business results that gradually decrease due to
inconvenience to people (Darrat, Gray and Wu, 2016). Therefore, it reduces opportunity
to expand business in further areas of market. In order to focuses of customer loyalty,
Tesco can also increase their power to create more profits and revenue in business unit.
Thus, it gradually makes profitable results and functions for further expansion.
DIFFERENT CASE OF TESCO
Tesco settles Aldi trademarks case
Retail Giant Aldi getting more than 1,50,000 pound that damages legal costs under the
settlement of Tesco. Therefore, they took action against Tesco for allied infringement of
trademarks in different stores. In Ireland Tesco also undertaking Aldi without taking trademarks
to defined different range of circumstances. It also undertakes use of the display in comparison
of product price without clearly specifying and ascertain applicability as well. Quality assurance
and other scheme recognised in different state (Carolan, 2012).
Other undertaking requires to Tesco Ireland due to not use properly setting of product
price so that it create impact on quality and ingredient as well. In order to meet with quality and
effective results, the chosen business need to concentrate on products advantages which possess
significant results. It also required to take appropriate source of products that need to be taken to
make effective results in business unit (Klettner, Clarke and Boersma, 2014). Aldi said that
Tesco using its trademarks to accomplish effective goods. However, Tesco argued that they
honestly practices and not detrimental to trademarks of Aldi. It is misleading and comparative
advertising to the chosen business.
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From the above base, it can be stated that Aldi said that Tesco is very pleased to
undertake court. Therefore, it is favour of comparative advertising which need to be accurate and
fair towards consumers (Eling and Marek, 2014).
Enhancement in expectations from the three thousand stores
Tesco is the leading supermarket chain which has more than three thousand stores and
branches in all over the market. All stores kept at different locations of UK which create positive
impact on the business performances. There are more than 12 nations and continents in which the
company mainly deals such as Asia, Europe and North America, etc. (Lim, How and Verhoeven,
2014). It is the third largest business who measure profits and revenue in all over the world.
Stores has aim to provide modern retail environment to that areas from where customer can
easily access. Stores determines efficiency to follow successful results. On the trail basis, Tesco
demonstrate following elements:
 Substantial time saving with ascertain developing equipments.
 Ability also determines to count vouchers, coupons, cheques and foreign coins.
From the above discussion, it has been analysis that complete confidence in Tesco
develops for enhance customer base and earn more profits (Alam Choudhury and Nurul Alam,
2013).
Surpassing client specifications
Tesco demonstrate their cash master to design a bespoke cash counting which actually
exceed reconciliation specification. Machine also boasted ability so that it makes effective
results. Effective features in the Tesco assists to enhance various outcomes in significant manner.
Tesco just bought its way out of a legal case. Clearly the economic elite play by a different set of
rules than the rest of us
In supermarket, exchange involve for paying prosecution in order to remove false
accounting that was occurred in 2014. It was less than 0.3% of operating expenses incurred by
Tesco. The company agreed to pay more prosecution which settle extensive overseas bribery by
the employees. In order to offers DPAs, the chosen enterprise need to save public money within
the administration of justice. With the help of avoid public expenses, complex and trial can be
made to assess risk within the big enterprises. There is high risk to access expensive legal advice
to perhaps technical results (Ayuso, Rodríguez and Ariño, 2014).
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DPA's fines are supposed to acting as the deterrent in future when company pursue
wrong things. Shareholders also pursue effective police management more carefully. Operating
expenses making annual profits that are more than the expenses. It is very important to
implement laws and regulations of systems to make justice in proper manner. In the wider social
and political aspects, law magistrate’s courts and prosecutor also agrees to understand system for
justice properly for several employees (Klettner, Clarke and Boersma, 2014).
Tesco's profits crash: the global picture
Tesco suffered due to decline of sales in every nation where it operates its business. In
China, the latest series of Tesco admitted to force and spend large amount of cash to build
effective infrastructure that needed for large country. The chosen enterprise paying more to make
effective results in term of partnership with state backed China resources (Lim, How and
Verhoeven, 2014). In recent trends, the selected business unit focuses on expansion of operations
and functions in online terms which put to the brakes on the new stores. With the help of
franchise outlet, outlet open in last year. With reducing size of the largest store retailer grows
operations with sports direct.
In Hungry market of Europe, Tesco see profits and revenue enhancement to develop
spending. In international market, the selected enterprise is known as the leader to make halted
and small stores for developing results (Alam Choudhury and Nurul Alam, 2013).
Improvement in advertising performance to make high profits
Tesco claims for new advertising strategy to produce effective and assess measurable
results through taking customer feedback. Therefore, the organisation can make improvement in
business unit in order to concentrate on advertising which enhance profitability and annual
profits as well. With the improvement in perception and brand performances of the selected
business unit, high profits can be made through ascertain more relevant products and services.
With improvement in target group, annual profits seek to in the 20 years. Thus, Supermarket
reported taking action for solving affected food in the industry (Alam Choudhury and Nurul
Alam, 2013).
After biting the costs, supermarket reported statutory profits has been led down in the
UK. Thus, Tesco confirmed that it will pull to US with closure and fresh outcomes in strategic
review.
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THEORY OF CORPORATE GOVERNANCE
Agency theory
Agency theory consist as root of economic that was framed by Alchian and Demsetz.
Later, it was also developed by Jensen and Meckling which developed relationship between
principals such as shareholders, agents, executives, directors, etc. In this theory, shareholders of
Tesco owners and principals of the enterprise. It delegates running of the operations and
functions with the help of direction of manager and shareholders. Further, there are two factors
determinant to standing of agency theory (Klettner, Clarke and Boersma, 2014). It includes
conceptually and simple theory that diminish corporation to two people such as managers and
shareholders. Secondly, agency theory also suggests self-interested of employee and managers.
Agency theory shareholders expect agent to act and making decisions with principles
interest. On the other hand, agent may not necessarily make decisions in term of the best interest
of the principals. Problem also highlighted which subsequent explores detailed description of
agency theory. In this theory, agent may be succumbed to self-interest, opportunistic behaviour
and falling short of congruence. Agency model can also be applied on the goal of management
with owners (Bushee, Carter and Gerakos, 2013).
Stewardship theory
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Illustration 1: Agency theory
Source: (Valentine and Abdullah, 2017)

Stewardship theory has its effective roots from psychology and sociology which defined
as the steward protects and maximises shareholders wealth. In this aspect, performances of the
firm maximise the utility functions (Alam Choudhury and Nurul Alam, 2013). Therefore,
stewards are company executives and managers working for shareholders that protects and make
high profits. This theory suggests stewards that assists to satisfied and motivate organisation
success. Agency theory look towards economic being and also suppresses for individual own
aspirations. On the other hand, stewardship theory recognises importance of structure which
empower and offers maximum autonomy that build trust (Ayuso, Rodríguez and Ariño, 2014). In
Tesco, this theory suggests role of CEO and chairman which reduce agency costs and greater
role in the business unit.
Stakeholder theory
Stakeholder theory also embedded in the management discipline which gradually
developed and incorporates accountability in broad range of stakeholder. Stakeholder theory has
been derived from combination of the sociology and organisational discipline. It also developed
broad research tradition in Tesco that incorporating philosophy, ethics, political theory and
economics. Within the selected enterprise, this theory developed with creation of network of
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Illustration 2: Steward theory
Source: (Valentine and Abdullah, 2017)

relationship with many group of people that can be affect to decision-making (Goranova, Abouk
and Soofi, 2017).
Transaction cost theory
Transaction theory described as interdisciplinary connection of law, business and
economic. This theory attempts to view and also comprises of the people of Tesco with different
views and objectives. Underlying assumptions of this theory demonstrate effect of substitutes in
market for allocating resources. Further, it also carries structure of the organisation that develop
price and production. Unit of analysis in transaction cost theory determines combination of
people in which managers have opportunity to arrange the chosen firm transaction with people
interests (Bushee, Carter and Gerakos, 2013).
Political theory
Political theory bring approach for developing and support from stakeholder instead of
purchasing voting power. In corporate governance, political influence may have direct impact on
the organisation and public interest. This is also reserved as the government participates in
corporate decision-making. It also taking model of corporate governance that influence on
governance development. From past several decades, government of the nation seen strong
political influence on the firms (Ayuso, Rodríguez and Ariño, 2014).
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Illustration 3: Stakeholder theory
Source: (Valentine and Abdullah, 2017)

Resource dependency theory
In addition to this, stakeholder theory also focuses on the relationship with many groups
to create individual benefits. Resource dependency theory concentrate on the role of board of
directors that provides access to resources that are needed by the business. It also focuses on the
role of directors which plays to provide securing of essential elements that needed in the business
unit (Klettner, Clarke and Boersma, 2014). Firm also provide legal advice in board meeting and
private communication as well. Further, in this way, it can be argued that provision of resources
enhances the functioning of firm performances and its survival as well.
ETHICS THEORIES AND CORPORATE GOVERNANCE
In the fundamental corporate governance, there are different theories explained such as
agency, stewardship, stakeholder, political, transaction, etc. These all theories can be related
closely with corporate governance. It assists to include business, virtue, feminist, discourse and
post-modern ethics theories (Lim, How and Verhoeven, 2014).
Business ethics theory
In this context, business ethics theory studies about activities, decisions and situations
which are right and wrong and need to be addressed. Main reason due to which it can be
influence the enterprise is power in the given society to make it strong to produce products and
services in Tesco. This is because, business has the great impact on the society than ever before
and the demand is continuously rising for implementation of ethics in business. This business
theory also focuses to find right and wrong things of the organisation that need to be assessed in
significant manner (Alam Choudhury and Nurul Alam, 2013).
Feminist ethics theory
Feminist ethics theory emphasizes on the several elements such as empathy, healthy
social relationship and care for each person so that harm can be avoided. In the selected business
unit, care for each person is social concern, that merely required to earn more profits in Tesco.
Further, ethics can also be seen in the light of environment to exercised. It is very important to
make effective network of actions which can be influence communication level and interaction.
Discourse ethics theory
Discourse ethics theory is concerned with peaceful settlement of the conflicts in Tesco. It
is also known as the argumentation ethics which refers to the establishment of ethical truths
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