Corporate Strategy and Governance: Tesco Accounting Scandal Analysis

This report examines the corporate governance failures exposed by the Tesco accounting scandal. It investigates the background of the scandal, the problems faced, and the research objectives, which include reviewing the concept of corporate governance, identifying challenges leading to failure, and determining the impact on investors and stakeholders. The report includes a literature review of relevant articles and journals, followed by a discussion of the primary and secondary research undertaken. Primary research likely involves surveys, while secondary research analyzes online resources. The report critically reviews the research results, analyzing the findings and discussing the secondary data. It then provides recommendations and an action plan for improving corporate governance, and concludes with a summary of the key findings and implications. The report highlights the importance of corporate governance, the factors contributing to its failure, and the significant impact of the Tesco scandal on investors and other stakeholders, emphasizing the need for transparency, accountability, and effective leadership.

Corporate Strategy and
Governance

Executive Summary
The current assignment is based on corporate-governance and its need and importance for an
organisation along with evaluating about the Impact of corporate governance failure on investors
and other stakeholder for which an investigation is made ion the accounting scandal of Tesco.
For that purpose both primary and secondary research is taken out which forms a part of this
assignment. The secondary research is based on evaluation of online articles and journal which is
evaluated in literature review where as primary research consists of use of survey method where
data is collected with the help of questionnaire.
Table of Contents
Research Topic: “Impact of corporate governance failure on investors and other stakeholders”. A
case study on accounting scandal of Tesco. ...................................................................................1
Chapter 1: Introduction ...................................................................................................................1
1.1) Background to the study......................................................................................................1
1.2) Problem faced .....................................................................................................................1
1.3) Aim and objectives .............................................................................................................1
1.4) Scope and limitation ...........................................................................................................2
Chapter 2: Literature Review ..........................................................................................................3
.....................................................................................................................................................4
Chapter 3: Discussion about primary and secondary research undertaken .....................................7
Chapter 4: Critical review of results of research ..........................................................................11
4.1) Analysis and interpretation of Primary findings ...............................................................11
4.2) Evaluation and discussion of secondary data ...................................................................19
Chapter 5: Recommendation and action plan................................................................................19
Conclusion................................................................................................................................24
REFERENCES..............................................................................................................................25

Research Topic: “Impact of corporate governance failure on investors and
other stakeholders”. A case study on accounting scandal of Tesco.
Chapter 1: Introduction
1.1) Background to the study
Corporate governance is a vital concept the associated wit the way and system through
which a business organisation is operated and governed by its top authority, brad of directors and
other stakeholders (Bain and Band, 2016). Thus, corporate-governance consist of set of rules and
principles to lead better evaluation and performance of an organisation through meeting viable
needs and expectation of all stakeholders. Therefore current investigation is lead out on Tesco
plc to understand the need and importance of Corporate-governance along with evaluating the
impact of corporate governance failure on investors and other stakeholders.
1.2) Problem faced
The current investigation is based on problem faced by Tesco that is basically associated
with the failure in its corporate strategy that lead to accounting scandal where its financial
statements are misrepresented to boost its profit (Boddy, 2016). Thus, the issues faced by Tesco
is mainly associated with the violation of accounting principles and many other ethical
challenges that lead to failure in corporate-governance of Tesco.
1.3) Aim and objectives
Research Aim
The main aim of current investigation is, “To evaluate about the factors and reasons that
lead to failure in Corporate Governance along with its impact on Investors and other
stakeholders”. An investigation conducted on Accounting Scandal of Tesco.
Research Objectives
 To review about the concept of corporate governance along with evaluating its needs and
importance for an organisation.
 To determine the main challenges and factors associated with the failure of corporate
governance and strategy in a business environment.
 To determine the impact of accounting scandal of Tesco on its investors and other
stakeholders.
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 To recommend the possible ways and strategy that lead improvement in corporate
governance of Tesco in order to perception of its investors and other stakeholders.
Research questions
 Explanation of the concept of corporate governance along with evaluating its needs and
importance for an organisation?
 What are the main challenges and factors associated with the failure of corporate
governance and strategy in a business environment?
 What impact is lead by accounting scandal of Tesco on its investors and other
stakeholders?
 What are the possible ways and strategy that lead improvement in corporate governance
of Tesco in order to perception of its investors and other stakeholders?
1.4) Scope and limitation
The scope of current investigation is based on corporate-governance that is having a wide
scope associated with the needs and importance of this concept for an organisation to have better
decision making and strategy formulation. Furthers, it also consists of main challenges and other
factors that lead to failure of a corporate-governance while operating in the dynamic
environment along with evaluating the impact of accounting scandal and other frauds on the
mind set and attitude of investors and other stakeholders. Thus, the scope of current investigation
is quite wide which also lead information about the possible ways and strategies that lead to
improvement and betterment of corporate governance.
The limitation that could be encountered during this research project and investigation
conducted on accounting Scandal of Tesco is associated with the lack of time and resources that
cloud hamper its efficiency and performance. The another limitation that could be faced is
related with maintaining the authenticity and reliability of collected data to accomplish
objectives of current investigation. Use of Gantt chart and other research methodology is made
for current project to overcome the issues of time and resources management. Further,
implication of effective research method and strategy along with meeting the associated ethic
consideration ensures proper maintenance of authenticity and relatability of collected data.
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Chapter 2: Literature Review
This is the part of research project that consists of information and evaluation of various
scholarly article and other available resources to get better understanding about a research topic
and its associated concepts and objective (Canedo, 2016). Following literature review is based
online journals and other authentic articles on the topic of failure in corporate governance am
evaluation of which is provided below:
To review about the concept of corporate governance along with evaluating its needs and
importance for an organisation.
As per the information provided by Prachi Juneja, 2020, the corporate governance can be
defined as set of rules and procedure that are adopted and applied by the top authority and other
directors and managers to operate or govern business of an organisation. Thus, with respect to
Tesco it means conducting and leading out a business as per the desires and viable expectations
of all stakeholders. Corporate governance thus represent the system, structure and ways by which
all activities and business operations of Tesco are directed and controlled thus it is vital and
important for Tesco to bring a check on efficiency of boards of directors and also keep control on
financial scam and other sandal (Chilisa, 2017).
Further, the corporate governance structure is basically consist of the arrangements and
specifies the distribution of rights and responsibilities among various stakeholders and directors
of a company consists of role and responsibility of both executive and non-executive directors
(Dieleman, 2017). With respect to Tesco Plc, it is having a much effective corporate governance
framework that supports Board of directors to deliver effective Group’s strategy and also support
long-term sustainable growth.
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Illustration 1: Corporate Governance structure of Tesco, 2020
Source: Corporate Governance structure of Tesco, 2020.
Thus, the corporate governance structure of Tesco consists of a board of director along
with a audit committee, Corporate Responsibility Committee, Nomination and Governance
Committee and Remuneration committee to ensure a right level of attention and consideration
for all vital and specific matters (Fink, 2019). Further, the strategic approach and planning of
Corporate governance at Tesco consists of identifying the need and purpose of an initiative to
acheive the gaols along with leading and building action plan to create and implement all
corporate strategy through promoting effective communication between Executive and Non-
executive Directors.
The mission of Statement of Tesco is to create value for its customers and other
stakeholders to earn their life time loyalty. Beside this, The vision of Tesco plc is to become
most highly valued business through serving its customers, communities and leading out loyalty
and commitment in colleagues and shareholder. Thus, implication of Corporate governance
become more vital and crucial for Tesco to lead more transparency and accountability in its
operation to bring higher value and loyalty in its stakeholders (Fearn-Banks, 2016). The main
objectives set out by Tesco Plc consists of Following main points:
 To enhance creativity and innovation level of its employees and corporate governance to
ensure higher productivity in coming 6 months.
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 To bring transparency in corporate governance structure to lead enhanced loyalty and
commitment in its shareholders to lead increase in profits in coming 4 months. To lead better training programmes for its directors to enhance there efficiency and
performance level to build trust in investors in coming 5 months.
The main challenges and factors associated with the failure of corporate governance and
strategy in a business environment
As per the view point of Hopkin. P., 2012, the corporate governance is consider to be one
of the most essential practice that each larger scale organisation must operates in order to remain
sustainable within marketplace. There are several reason due to which an organisation usually
fail in maintaining appropriate corporate governance. Some of the common factor that leads to
failure of corporate governance are mentioned below:
 Lack of board effectiveness: The ineffective board of an organisation is consider to be
main limitation within the skills and competence factor. Additionally it also affect the
ability of non executive director to monitor and control the senior executive. This in turn
influence the efficiency of work as there is not appropriate direction toward the
organisational objectives (Fulford and Hodgson, 2016).
 Boards' risk blindness: - The another factor due to which the corporate governance get
failed is due to lack of vision and estimation of potential risk that may affect the business.
This in turn leads in the failure of organisation to get link the operations with reward and
opportunity.
 Poor leadership on ethos and culture: When the leadership of an organisation is not
operates as per the culture and ethos then this in turn bring negative influence on the
manner in which the employees linked their work with that of objectives. This is so
because leader are one who provide employees with the appropriate direction to work
along with understanding and intrinsic motivation which employees require to perform
well (Grennan, 2019). Defective communication: This is also one of the main reason due to which corporate
governance get failed, as when the senior executes doesn't get right information to work
on then several issues get arises within management as well as execution of operations.
The impact of accounting scandal of Tesco on its investors and other stakeholders
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According to the view point of Martin. W., 2016, The accounting scandal of Tesco has
bring up major issues to the organisation due to dissatisfaction it get from its stakeholders. This
scandal was the result of misrepresentation of financial statement due to management of UK
retailer Tesco. This scandal bring up a huge impact over its stakeholder as TESCO has mislead
the investors with presenting the false information which in turn result into loss of their
investment as it influence their rate of return. This is so because it has been found that TESCO
has overstated its profit by £263 million in year 2014 and this overstatement was later on revised
upward to £263 million which was the major difference. As a outcome of this scandal the share
price of Tesco also get reduced by 20% drop within its actual price. So, this in turn bring up a
negative impact over investors as they get cheated by the company which in turn lead them into
a huge loss. This is so because TESCO is alleged that it tried to artificially boost up the false
accounting which make up a fake representation that the company is doing well in the market
place (Habbash, 2017).
In order to cover up this losses the investors are trying to recoup this money with the help
of taking up legal actions. As a result of which the TESCO has been forced to pay off the
significant amount of money to investor who experience loss due to this scandal. With this the
profitability of company dropped down to a huge extend which affect the dividend of its other
shareholder as well as incentives of board of director which created more dissatisfaction among
them (Hassan and Chindamo, 2017).
On the other hand it can be said that the TESCO employees are highly affected by this
scandal, as due to this event the company is facing such a great loss which could potentially be
lay off and shutting down of stores top recover from the losses. This in turn may result into loss
of salary a well as job that in turn affect their personal life and living hood too.
Recommend the possible ways and strategy that lead improvement in corporate governance of
Tesco in order to perception of its investors and other stakeholders.
As per the view point of James. K., 2020, the corporate governance issues are required to
address on timely manner so that the operations can be executed in effective manner. The
following points are some recommendations that are usually opt by different organisation to deal
with the issues of financial and accounting standards and cane be consider by TESCO for future
actions. These are mentioned below:
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 In order to effectively set the internal control over the accounting function organisation
must put emphases toward segregating the duties. This in turn help in separating the
record keeping, review function as well as authorization within the accounting process.
Hence, by keeping strong internal control it become easier for the management to get a
ethical toward the actions to be performed which help in avoiding the accounting fraud
issues within organisation (Jacoby, 2018).
 For ensuring that the financial and accounting frauds can be avoided an organisation must
focuses toward establishing a strong control over environment. This means maintaining a
strong control by the top management which also involves enlisting of the management
to demonstrate about the ethical behaviour. This ensures that the standards as well as
policies are strictly followed by the organisation while operating its functions which in
turn avoid the chance of mistaken. There must be an annual examination of the financial statement which is usually done
with the help of auditing process. As when such actions are taken on constant basis then
the management feel under pressure to meet up with the financial goals of the company.
This fear of getting disclosed of the fraud practices always keep the management alert
toward the actions that are to be conducted and hence help in avoiding any kind of fraud
practices (Johnson, 2016).
Agency theory and stewardship theory
It has been emphasised by agency theory that interest of shareholder require maximum
protection by separation of incumbency of relationship in duties of board of chair and the CEO
of the company through leading a more economical models that emphasis on balance between
principle and agents of the company. On the other side the Stewardship theory is associated with
maximization of shareholders interest through leading a shared incumbency of the roles of
boards and CEO thus, it is a human model that emphasis on relationship between steward and
principal. Thus, in current case of accounting scandal of Tesco the agency theory is violated as
its board of directors has not meet the accounting principles as they had shown its profit at a
higher rate to attract and cater larger number of investors. Thus, efforts should be made by board
of directors to keep a balance and proper implication of Agency theory and stewardship theory to
fulfil all principles and interest of stakeholders in order to build higher level of trust and loyalty
among them.
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Chapter 3: Discussion about primary and secondary research undertaken
To ensure proper discussion about the method used for primary and secondary research
for current investigation implication of Research Onion is made a description and justification of
which is provided below:
Research philosophies- This is the outermost layer of a research onion that is mainly
divided into four main categories which are Positivism, Interprevitism, Realism and Pragmatism.
A suitable research philosophy is adopted for an investigation by the researcher on the basis of
its nature, source and type of knowledge need for conducting a study. With respect to the nature
of current investigation, Positivism philosophy is being adopted by the investigator as it is the
one that ensures better testing of set objectives and also ensures effective support and assists
quantitative form of data (Lutsenko, 2018).
Research approaches – It is the second layer of research onion that is mainly bifurcated
into two broad categorises that are named as deductive and inductive out of which one is selected
by the investigator for accomplish a study. With respect to current investigation on Tesco use of
deductive approach has been made as it the one that support research work with pre existing facts
and figure and also ensures support to quantitative facts to address the specific set of area
associated with the selected topic (Fearn-Banks, 2016).
Research strategy- This section of research methodology basically provides information
about the ways researcher intended to carry out a work and bifurcated into many type like action
research, experimental research, interviews, surveys, case studies, etc. In context of current
investigation, implication of survey strategy is made which is linked with the deductive approach
and considered as most finest and economical strategy for leading out a research work. The
strategy for current investigation includes use of a electronic questionnaire that is mailed to
selected participants from the employees of Tesco to collect required information for current
investigation (Mkandawire, 2019).
Choices of method- This layer of research onion is mainly bifurcated or divided into
three main parts that consists of quantitative method, mixed method and qualitative method of
research. Out of theses three types of research method, implication of Quantitative method of
research has been made for current investigation on Tesco that consists of collection of data in
numeric terms and also ensures its proper presentation and evaluation through use of various
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statistical tools which consists use of pie charts, frequency table, bar graphs, etc (Naciti, 2019).
Thus, use of quantitative research method is suitable and justifiable for current investigation as it
the one that lead a more measurable conclusion and effective way to achieve set objectives in
minimum time span.
Time Horizons – There are basically two main forms of types of time Horizon that
consist of Cross- sectional and longitudinal forms of time Horizons. Out of theses the former one
i.e. Cross sectional horizons are mainly associated with presenting all activates and tasks at
single point of time where as longitudinal are associated with presenting and evaluating activities
and particular variable over several years and different time span (Dieleman, 2017).
Data Collection and analysis
It is the most vital and crucial aspect of a research work that yield information regarding
the sources of data and its evaluation. Both the main sources of data i.e. primary and secondary
are being used for current investigation a description of which is lead out at below:
Primary source- The main reason behind making use of primary set of data is that it lead
to gathering of first hand and most authentic form of data directly from the participants that
consist of employees of Tesco. Thus, ensures reliability and authenticity of collected data. Use of
questionnaire is made to collect data from primary sources to ensures cost and time effective
gathering of relevant information (Chilisa, 2017).
Secondary sources- It consists of already recoded facts and articles that are mainly
present in form of past literature and records. The main implication and reason behind making
use of secondary sources of data is that it ensures a guidance and effective support for the key
findings of primary research through their evaluation and analysis on the basis of past facts and
records.
Sampling method- It is mainly associated and related with the selection of pre-
determined number of observation and respondents from a vast and larger number of population
to ensures more time and cost efficiency while conducting a research work (Canedo, 2016). With
respect to current investigation on Tesco, use of random form of sampling is made in order to
select a sample size of 30 responders from the employees of Tesco Plc in order to collect viable
and sufficient amount of information on the topic corporate Governance.
Research Instrument- The data collection tool used for current investigation is
questionnaire that is provided below to ensures gathering of ample and significant amount of
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