|< Company Profiles / Tesco||
By Corporate Watch UK
2. Who, where, how much?
'The company is run from an ugly concrete building in rural Hertfordshire, next door to a handful of scruffy pubs and a betting shop. Inside, dimly lit and spartan, it would make a fitting home for a parochial British manufacturer.'95
Tesco's head offices
are situated along an industrial estate in Cheshunt. Its a far cry
from the Mayfair or Park Lane addresses of many of the other FTSE
100 companies Corporate Watch monitors. In a way, this is reflective
of Terry Leahy and his management style. It is all very ordinary.
No fuss or fanfare, no pomposity or conspicuous consumption.Around
1000 support staff work in Cheshunt for the massive multinational.
Tesco PLC is a publicly owned company.
Major shareholders (% at 01/06/2004)96
1. Barclays Global
2003 - £28,280m
2004 (53 weeks) £33,557m
2004 (52 weeks pro forma) £32,989m
According to the Annual Review, this means that group sales rose 18.7% in 2004.97
A tiny chink in Tesco’s armour can be seen from the fact that it is really spending at the edge of its means, as underlined by the £773m share placing in January 2004, and the £650m property sale in March 2004. This trend is set to continue with Tesco spending forecast at £7bn over the next three years, which will make big dividend increases and debt reduction difficult.98
During 2004, several long serving members of the board have retired including former chairman John Gardiner.
Current directors are:
Leahy, Chief Executive (48 years old)
Non-Executive Chairman (57)
Rolfe - Company secretary (51)
Commercial and Trading Director (42)
International Operations and IT Director (43)
Finance and Strategy Director (46)
Marketing and E-commerce Director (46)
Retail and Logistics Director (46)
Chase, Deputy Chairman and Senior Non-Executive (60)
CBE, Non Executive Director (47)
Davies, Non Executive Director (51)
Non-Executive Director (59)
Dr Harald Einsmann,
Non Executive Director (70)
Morali, Non Executive Director (45)
Non Executive Director (54)
According to the Guardian, the eight directors who run Tesco earned £26m between them in 2003-2004. 100 This is more than any other board of directors in the FTSE 100. The Tesco key players netted £4m more than directors from Vodafone, in the number two spot, and £23m more than rivals Sainsbury and Morrisons. None of the Tesco executive directors earned less than £1.8m.
The report notes that David Reid was the highest paid Tesco executive, making £8.6m last year, largely as a result of cashing in share options accumulated during his 20 years on the board of the grocery group. He became non-executive chairman during 2004.
Sir Terry Leahy, the chief executive, was paid £4.3m in cash and long-term incentives.
Average Tesco wages outside the boardroom were among the lowest in the survey. An analysis by the Guardian found that Sir Terry was valued the same as 335 of his employees.
The eight non-executive directors get paid between £44,000 and £72,000 a year for turning up to a few meetings.
At the 2004 Tesco AGM, Investor group Pensions Investment Research Consultants (PIRC) was critical of a proposed new incentive scheme. PIRC vowed to oppose rules which allow departing directors to claim average bonuses earned in the previous two years, which can add up to the equivalent of a year's salary. PIRC was also critical of executives' pay and bonus deals for 2003, although Tesco said its remuneration report was approved by 97.08% of votes cast. 101 In previous years, PIRC has been highly critical of Tesco directors’ pay as 'overgenerous' with 'inadequate performance targets'. PIRC was especially critical of directors’ two year rolling contracts which have now been renegotiated (See below).102
The seemingly fierce competition between companies who produce similar goods and services actually masks some close corporate interconnections. Directors often move seamlessly between companies and lobby groups – such as Michael Wemms, who left Tesco after nine years as their retail director to move to House of Fraser as chairman in 2001 and then on to the chairmanship of the British Retail Consortium. Tesco directors Richard Brasher and Tim Mason were both in the running for the top job at Sainsbury before the appointment of Justin King, previously head of food at M&S, was announced.103
'The only personality
I believe in is Tesco'104
He ascribes Tesco's phenomenal success under his leadership to his policy of 'listening to the customer'. Though every company claims to listen to its customers, genuinely doing so requires a humility that is rare in senior management. Commentators claim that Leahy has it in spades. Raised on a Liverpool housing estate, Mr Leahy first stacked shelves in a Tesco store for a summer job. He claims 'I've been fortunate enough to see all layers of British life...I feel I know personally all our customer groups.'106
Leahy very much believes that customers vote with their feet. 'We're selling 50% more food than we did five years ago; we're the biggest customer of British farming there is and we've created 100,000 jobs in the last five years'. As Chris Blackhurst in Management Today says, 'It's those values that tell him he's right to fight the farming and corner-shop lobbies...Some farmers who can't match the quality he demands and some cornershops that can't compete may go out of business, but so what?'107
Leahy was knighted in the New Years Honours list 2002 for services to food retailing, and in 2002 was also appointed Chancellor of UMIST. In October 2001, Leahy was awarded the Freedom of the City of Liverpool, his home town. He is apparently a fanatical Everton supporter.
Much to his shareholders' chagrin, Leahy had been holding onto a two year-rolling contract that would have paid up to five times his salary or £4.5 million if he were ousted in a takeover or sacked. The Board of Directors had felt that the shareholders were getting 'value for money' from Leahy, but at the 2003 AGM, 40% of Tesco's shareholders illustrated just how strongly they felt when they voted against or abstained from the vote on the length of Sir Terry's notice period. In March 2004, Leahy finally caved in, accepting a one year rolling contract.
In January 2004, Leahy was named European Businessman of the Year by Fortune Magazine.
For more information on Terry Leahy, see 'Influencing Government' section.
Tesco has 150 subsidiaries, around half of which have 'Tesco' in their name and are based in Cheshunt. Please contact Corporate Watch if you want more information. Readers should be aware of Tesco Corporation, which is an energy and oil company and is not related to Tesco PLC.
As part of its acquisition of T&S stores, Tesco acquired Dillons the newsagents. The Dillons chain includes 180 stores selling newspapers, tobacco and grocery items. In July 2004, Tesco was believed to be discussions to sell Dillons to private convenience store chain TM Retail, who own Forbuoys and Martins.110
Matalan, the membership-based clothing and home furnishing retailer has been struggling through 2003/2004, and rumours have been flying for some time that Tesco may be interested in a merger.111 Asda is also rumoured to be about to make an offer (August 2004)
In a Telegraph article published in 1999, it was suggested that Tesco and the other supermarkets were on the verge of submitting bids to take over the running of the 103 very basic grocer's shops inside British prisons. Hence capturing the the spending power, all £10 a week on average, of British prisoners’ wages from cooking and cleaning etc.112 While this does not seem to have happened, it is interesting that Tesco and the other major British supermarkets have not actively been tendering for contracts in the public sector – e.g. running shops in hospitals.
95http://www.economist.co.uk/research/backgrounders/displaystory.cfm?story_id=730271 viewed 8/7/04
97Annual Review and Summary Financial Statement 2004
98Lex: Tesco in The Financial Times 22/9/04
99 From www.tesco.com/corporateinfo unless otherwise stated
100 '£26m puts Tesco at the Top of the Table' The Guardian 27/08/04
101‘Tesco sales surge above forecasts’ 18/6/04 http://news.bbc.co.uk/1/hi/business/3817815.stm viewed 8/7/04
102 ‘Tesco targetted over 'Fat cat' pay’ 20/5/03 http://news.bbc.co.uk/1/hi/business/3045143.stm
103http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2003/11/16/cnsains16.xml viewed 1/9/04
104'Sir Terry Leahy' Management Today February 2004
106'Leahy's Lead' 9/8/01 The Economist www.economist.co.uk/research/backgrounders/displaystory.cfm?story_id=730271
108http://www.freshfields.com/news/dynamic/Pressrelease.asp?newsitem=258 viewed 8/7/04
110'Tesco: Selling Dillons, partnering e-Diets' www.just-food.com 26/7/04 viewed 26/7/04
112'Supermarkets strive to get into prison' By David Bamber, Home Affairs Correspondent The Telegraph 19/9/99