Corporate Governance and Strategy: Tesco Accounting Misconduct

This report delves into the accounting misconduct of Tesco, a major UK retailer, examining the role of corporate strategy and governance in addressing and preventing such issues. It begins with an overview of Tesco's background, the nature of the accounting scandal involving overstated profits, and the objectives of the study. The literature review explores the concepts of corporate governance and strategy, their impact on business performance, and the specifics of Tesco's accounting misconduct. The methodology section outlines the research approach, including data analysis and discussion of primary and secondary data. The report then presents findings, including a frequency table and a detailed discussion of the investigation. Finally, it offers recommendations, an action plan, and a conclusion, emphasizing the importance of corporate strategy and governance in mitigating financial misconduct and maintaining stakeholder trust. The report aims to provide insights into how corporate governance can be implemented to prevent similar issues in the future.

Corporate Strategy and
Governance
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CONTENTS
Contents...........................................................................................................................................2
Title..................................................................................................................................................3
INTRODUCTION...........................................................................................................................3
Background of company..............................................................................................................3
Background of study....................................................................................................................3
Review of issue faced..................................................................................................................3
LITERATURE REVIEW................................................................................................................5
Concept of corporate governance and strategy or its role in the context of business..................5
Accounting misconduct of Tesco................................................................................................6
Influence of accounting misconduct on the overall performance of Tesco.................................7
Appropriate measures are considered by corporate governance for addressing the financial
misconduct within Tesco.............................................................................................................8
RESEARCH METHODOLOGY....................................................................................................9
DATA ANALYSIS AND DISCUSSION.....................................................................................12
Frequency table..........................................................................................................................12
Discussion of primary investigation..........................................................................................13
Discussion on the basis of secondary data.................................................................................21
RECOMMENDATION AND ACTION PLAN............................................................................22
Recommendation.......................................................................................................................22
Action Plan................................................................................................................................23
CONCLUSION..............................................................................................................................25
REFERENCES..............................................................................................................................26
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Title
To examine the potential role of corporate strategy and governance in eliminating the
accounting misconduct of an organisation. A case study on Tesco
INTRODUCTION
Background of company
TESCO is the UK largest retail store which has strong global presence across the world.
The respective company was incorporated in the year 1919 and is headquartered in Welwyn
Garden City, Hertfordshire, England, and United Kingdom. It is also acknowledged as the third
largest retailer across the world which generates huge revenues (Larcker and Tayan, 2015). The
respective company mainly offers diversified products at market place with the motive of
reaching maximum number of customers towards them. Products range of TESCO includes
books, clothing, electronics, furniture, toys, petrol, software, financial services, telecoms and
internet services. Even though the company is having good market image but still it is required to
take several initiatives and develops certain strategies with which they can easily grab attention
of maximum number of customers and maintain their sales performance in rightful manner.
Background of study
Corporate governance is basically said to be as the group of several rules, systems and
procedures with the help of which business association directs and controls their organisational
activities effectively. The main motive of corporate governance is ensuring that interest of
stakeholders like customer, supplier, shareholder, senior executive, financer and government and
company aligns with one another effectively (Bhasin, 2013). Incorporation of corporate
governance also helps businesses in executing all of their practices in the ethical manner along
with the transparency and accountability. Corporate governance is also supportive for the
businesses as it helps them out in developing strong image at marketplace. The present
investigation is conducted with the motive of including corporate governance in TESCO so that
problem associated with accounting misconduct can be resolved in the timely manner.
Review of issue faced
This investigation would cover one of most essential issue of TESCO associated with the
corporate governance. Here, it has been analyse the company has overstated its profits in the first
half of their financial year. By doing so the main motive of the company to inflates its profits by
simply pulling their payments which are required to be paid to the suppliers for selling their
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products in the retailer’s numerous stores in and outside the UK. It has also been seen that the
TESCO has overstated its profits by almost 263 million pounds. Also, many sources have
revealed that the respective company had been performing similar kind of activities from many
years which have directly developed their negative image among the suppliers with the passing
period of time (Cooper, Dacin and Palmer, 2013). This has directly worsened the organisational
conditions as amount which are required to be paid to suppliers have risen with the passing
period of time. In order to develop detailed information on the same and the usage corporate
governance within the company so that this kind of situation could be avoided in the future, the
top management team of the company have conducted effective investigation. In this regard,
investigator has also developed effective aim and objectives which are specified as below in
detailed manner.
Research Aim
To examine the potential role of corporate strategy and governance in eliminating the
accounting misconduct of an organisation. A case study on Tesco
Research Objectives
 To critically provide understanding about corporate governance and strategy or its role in
the context of business.
 To discuss the accounting misconduct of Tesco.
 To explore recognition in regards to the influence of accounting misconduct over the
overall performance of Tesco.
 To identify appropriate measures considered by corporate governance for addressing the
financial misconduct within Tesco.
Research Questions
 What is the concept of corporate governance and strategy or its role in the context of
business?
 What is the accounting misconduct of Tesco?
 Which kind of influence accounting misconduct has over the overall performance of
Tesco?
 What appropriate measures are considered by corporate governance for addressing the
financial misconduct within Tesco?
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LITERATURE REVIEW
Literature review is defined as the significant procedure inside of an examination since it
helps in developing theoretical framework via the help of using secondary sources, for example,
articles, books, magazines, distribution exploration, journals and numerous different sources
pertinent to a specific subject area. Therefore, literature review is effective in providing indepth
analysis to assist the whole investigation in right direction to reaching at suitable results.
Principle reason and witticism of literature review is to discover research holes in past
investigations (Shi, Connelly and Hoskisson, 2017). In this present investigation work based on
analysing the potential role of corporate strategy and governance in eliminating the accounting
misconduct of an organisation, literature review is effective in providing in-sight out in regards
to the investigation area and provides opportunity to the individual learner and investigator to
explore their recognition about the similar area of study. This is a principle hole of ebb and flow
study and so as to survive or decrease this hole, research inquiries of the investigation will be
trailed by analyst. The purpose of this study is to analyze business strategies and good corporate
governance, both partially and simultaneously affect the company’s performance. This will help
them in achieving of examination aim and objectives just as conquering the exploration hole
deliberately and successfully. This section mainly encompasses over research question and the
detailed analysis of this investigation is associated as under:
Concept of corporate governance and strategy or its role in the context of business
As per the views expressed by Margaret Rouse, 2020, corporate strategy and governance
are two important aspect which are significant to provide suitable guidance to the business to
execute their operations in valuable manner to gain progression. Corporate governance is defined
as the combination of rules; procedure or the laws through that organisation are operated,
regulated and controlled (Bhasin, 2015). Therefore, the term also relay over internal and external
aspects that are influences the interest of business stakeholders which involves customers,
suppliers, shareholders, and management and government regulators. As per the evaluation of
Wendel Clark, 2017, corporate governance is also termed as the imperative aspect of strategic
management which can improve business performance. In addition to this, corporate governance
in the term of strategy management defined to the set of internal ethics and norms which are
analysed how a business is directed and operatied within the competitive business scenario.
Thus, Strategic management is evaluated as an important business management concept, which
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state strategy and explains the key concepts in strategic management; strategic vision, objectives,
strategy formulation, strategy implementation, evaluation and initiating corrective action. In an
operating environment that is dynamic and highly competitive, business organizations need to
appreciate the importance of crafting and effectively executing strategies that can help the
business in developing effective and sustainable competitive edge. In another words, Strategy
also defined as the aspect which drives decisions in business and through helping businesses
identify their strengths and weaknesses, an effective strategy will help the business effectively in
taking initiate decisions that are in favour of business and drives the operations in the manner to
attaining higher growth and success (Carcello, Hermanson and Ye, 2011). As per the views
expressed by Danielle Smyth, 2019, corporate strategy and governance are the two imperative
aspect which plays effective role in providing systematic direction to the business and provide a
way to resolve conflicts among the stakeholders in the business. In addition to this, the corporate
governance framework needs to ensure the business to take decisions that are made under ethical
practices, regulations and laws. In addition to this, corporate governance has also performs viatal
role in managing corporate social responsibility as it is efficient for the business in attaining
growth via enhancing brand reputation. Therefore, In general purpose of an organisation is to
look for the highest profit. An increase in profits shows the company’s performance is good, thus
it also ensure that the company’s performance is good; it must be supported by a business
strategy and good corporate governance.
Accounting misconduct of Tesco
Tesco is one of the most leading multinational grocery and general merchandising retailer
firm which has its operations all over the world and the business is operated since 1919 by the
potential efforts made by Jack Cohen. Therefore the company is having effective marketing
reputation, thus in the year of 2014 the reputation and the success of the company were shamed
through an accounting scandal. However, the TESCO has announced an overstatement of £250
million of its expected profit for the half year, eventually for the reason of accelerated gratitude
of commercial growth and downfall accrual of costs (Cowen and Marcel, 2011). Therefore the
investigation over the giant food retailer company has been stated that, the board believes that
the direction issued on 29 August 2014 for the Group proceeds for the six months to 23 August
2014 was overstated through an overall estimation of around £250 million, thus the some of this
effect involves in year timing differences. Despite from this, in this same time duration, the
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evaluation were determine the aspect that “the misstatement is mainly encompasses to Tesco’s
financial arrangements through suppliers, that mainly render liberal credit terms to big grocers in
order to win contracts. After that, the top management and CEO Dave Lewis has asked Deloitte
to conduct an effective and comprehensive independent examination in relation to these
accounting issues, that are working closely with Fresh fields, the with the support of suitable
adviser (Bell, Moore and Filatotchev, 2012). However, this misconduct has influences the
operations of TESCO and ruined their brand reputation and affects the overall growth and
functions of the business. Therefore, the major reason behind the issues is encounter as the non
appropriate management of business operations.
Influence of accounting misconduct on the overall performance of Tesco
As per the views expressed by Gianmarco Persiani, 2017, finance and accounting are
termed to be the most important and considered aspect of business which needs to be recognised
by the business and its management for the intention of executing systematic business operations
in imperative manner. The accounting scandal related with the overstatement of profit has had an
effective influence over the operations and progression of TESCO, Therefore, the shares of
company has immediately declined and closed the day around 6.5% down after the issue was
encountered and announced globally (Chen, 2012). In addition to this, there is a rapid downfall
arises in the profit of TESCO in the year of 2014, thus the downfall in profit were estimated of
around 91.9 percent to £112 million versus £1.3 billion a year earlier. The final salary pension
scheme of the company has also been congested which defined that new staff will obtain
eventually lower pension, therefore, this also influences the operations of TESCO adversely. The
scandal has also affect the financial performance of the business and impacted over the
productivity of the business. Thus, this creates lower profitability which result of extreme
operating costs and inadequate revenue for the reason of quick recognition of commercial
income and deferred accrual of costs, that had a wider influence on financial statement of 2015.
Despite from this, the scandal has also affected the revenue of the business, relationship suppliers
as the company has lost customers trust which also turns as the key reason of decreasing sales of
TESCo. However, the accounting miss conduct affects the overall functionality and operations of
the business and these needs to be addressed by the business in the manner of generating higher
profitability and revenue (Armstrong, Guay, Mehran and Weber, 2015).
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Appropriate measures are considered by corporate governance for addressing the financial
misconduct within Tesco
According to the views expressed by Nicholas J. Price, 2018, in today’s modern business
environment the key motive of each small as well as large business enterprises is to attaining
higher growth and success, thus the businesses are concern over following best corporate
practices for the purpose of conducting effective business practices to gain growth and success.
In another words, corporate governance or the board governance is defined as the standards of
norms which allows a business to ensure that they are serving the needs of their stakeholders,
shareholder, buyers, suppliers, management efficiently and responsibly (Cuganesan, Dunford
and Palmer, 2012). TESCO is a large retailer business which plays a vital role in the progression
of UK economy, thus the brand reputation of the company got affected by its accounting scandal
in the year of 2014, thus the company has concern over implementing assorted measures like
building a competent board, therefore, the Boards needs to have an appropriate composition
which incorporates all of the required abilities and recognitions to build an effective business
decisions for the productive operations, even when the company is having long debts. The study
stated that, TESCO has making alternation in their business structure and also hire new
employees and management team to lead the business operations in right manner to gain growth
and success. The business should align the strategies which leads the development of business,
thus an appropriate strategy with the end goal of growth helps the business in improvising their
operations for generating more profitability and revenue (Pope and Lee, 2013). Tesco also needs
to hire best advisor who are having suitable experience in the entire corporate e field, thus this
helps the business in attaining higher development via the effective implementation of the
business.
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RESEARCH METHODOLOGY
Research methodology is mainly referred to as the essential part of every investigation as it
simply helps individuals or the researcher in carrying out whole research in rightful manner.
Here, it can be said that research methodology section is basically consist of several tools and
techniques which are adopted by the investigator according to the core nature of the investigation
as its topic (Tricker and Tricker, 2015). Also, the respective section provides appropriate
knowledge to the readers about the validity and authenticity of the research effectively. With
reference to the current research conducted on accounting misconduct case of TESCO and usage
of corporate governance in order to address this problem. For this, investigator has made use of
the primary and secondary type of investigation which is stated as below:
Primary Research: -
Primary research is acknowledged as the effective method in which main focus of
investigator is on gathering information on the proposed topic by having personal interaction
with the respondents (Balachandran and Faff, 2015). This directly contributes in gathering the
present data in rightful manner. The main sources of primary methods are survey, questionnaire,
interview, focused group etc. This is generally acknowledged as the time consuming method but
simply provides completely free and raw data to the investigator with which they can easily draw
valid research outcome.
 Research method: - In order to gather desired information, investigator focus on using
quantitative method among both the qualitative and quantitative methods. The main
reason behind selecting quantitative method is that it includes numerical data which
contributes in accomplishing research outcome effectively as per the research aim and
objectives. In order to carry out this, deductive research approach has been used by the
investigator with the motive of completing it properly along with the accurate research
outcome (Wang, Kung and Byrd, 2018).
 Data collection tool: - For gathering primary information investigator could go for
several sources such as interview, questionnaire, focused group, survey, case study etc.
Among them all questionnaire method has been selected by the investigator in order to
gather maximum information from the respondents within the limited period of time.
The questionnaire for current investigation is stated below:
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QUESTIONNAIRE
Q1 Do you have knowledge about accounting misconduct of TESCO?
a) Yes
b) No
Q 2) Have you ever heard about the concept of corporate governance?
a) Yes
b) No
Q 3) Do you think, incorporation of corporate governance would help TESCO regaining its
brand name back after accounting misconduct?
a) Agree
b) Disagree
Q 4) According to you viewpoint, which one among the below stated is the main benefits that
TESCO would get with effective incorporation of corporate governance within the business
entity?
a) Decline in corporate risk
b) Maintains transparency in the business
c) Develops positive image at global scale
Q 5) In your viewpoint, What would be the main challenge that TESCO could have faced while
implementing corporate governance activities at workplace with the motive of developing their
positive image back after incident of accounting misconduct?
a) Decline in profitability
b) Low shareholder return
c) Influencing employees interest
Q 6) In what manner, accounting misconduct has influenced the overall performance of Tesco?
a) Increase in employees’ turnover
b) Reduction in sales performance
c) Increase in government audits
Q 7) Among the below stated options, which one is the best measure considered by corporate
governance for addressing the financial misconduct within Tesco?
a) Conducting regular based internal audit
b) Regular evaluation of BOD performance
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c) Enhancing awareness of ethical practices among employees.
 Sampling technique: - Sampling is basically considered as the effective method through
which investigator selects sample size from the overall population with the motive of
gathering required information on the proposed topic by having direct conversation with
the individuals (Kranacher and Riley, 2019). Sampling is mainly done with the usage of
two methods such as probabilistic or non-probabilistic method. For conducting present
research investigator have made use of random sampling method that comes under
probabilistic method. The main reason behind selecting this method is that it provides
equivalent opportunity to sample population. For this research total 40 respondents have
been selected as the sample size from which information would be gathered on topic “To
examine the potential role of corporate strategy and governance in eliminating the
accounting misconduct of TESCO”.
Ethical issues: - At the time of conducting every investigation researcher are required to
focus following all kind of ethical norms so that they does not indulge into any sort of legal
obligations in the near future. Also, it can be said that if the researcher does not follows into
ethical practices that then it might directly create problem for the investigator in the form of
reliability and validity of the research outcome (Vasconcelos, 2015). For doing this effectively
investigator focuses on ensuring that whatever data that has been taken by the respondents would
remain confidentiality with the safety and security purpose of the respondents. Also, complete
access to data would be only given to the authorised person so that it does not get misused by
anyone else.
Secondary Research: -
In this type of research, the main focus of investigator is on gathering information from the
several sources where they can easily approach authenticating data. This simply includes states
that the used information for the research is not raw as it is collected from the already conducted
research (Davidson, Dey and Smith, 2015). The main reason behind using these methods is that
it allows investigator is including several views perception and aspects in the study so that most
reliable outcome on the research topic can be attained. Also, the respective method is highly
feasible for the research where time is very less for conducting the research. The main sources of
secondary research are books, articles, journals, company record, media etc.
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Research method: - While carrying out secondary research, the main focus of investigator is
on qualitative research method in order to analyse it in detailed manner (Rodgers, Söderbom and
Guiral, 2015). In addition to this, here, the main focus of investigator is on using inductive
research approach with the motive of considering theoretical framework for it so that new theory
can be developed for the same.
Research strategy: - In order to carry out secondary investigation, the main focus of
investigator is on using competent analysis method so that investigator can easily explain the
gather information in rightful manner that contribute in drawing valid outcome towards the same.
In addition to this, it also help in making the information clearer and explanatory (Ge,
Matsumoto and Zhang, 2011).
DATA ANALYSIS AND DISCUSSION
Data analysis is comprehensively said to be as the core process of analyzing overall gathered
information from different sources in order to give it the meaning and provide better outcome to
the readers (Post and Byron, 2015). With reference to the current investigation, researcher have
made use of content analysis in which several themes are developed by the investigator which
would definitely make it easier for every reader to draw better output associated with the core
research problem. In this regard frequency table have been developed by investigator with the
motive of clearly showing primary data collection. The respective frequency table have been
specified as below:
Frequency table
Q 1) Do you have knowledge about accounting misconduct of
TESCO?
Frequency
a) Yes 35
b) No 5
Q 2) Have you ever heard about the concept of corporate
governance?
Frequency
a) Yes 32
b) No 8
Q 3) Do you think, incorporation of corporate governance would
help TESCO regaining its brand name back after accounting
Frequency
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