Unfortunate At Best

Tesco Chair's Case of Foot in Mouth

Allan's remarks add to the burden of a delicate merger and sales struggles.
At Closing, April 25th
239.40 GBp

There's never a good time for a corporate faux pas. For Tesco Plc Chairman John Allan, ill-judged comments that white men on boards are an endangered species are at best unfortunate as the retailer struggles to get growth going again. They might be worse. 

Allan's an affable chap who's unlikely to have set out to offend. But he's also a hugely experienced director, and should have known that telling a group of aspiring non-executive directors that white men on boards had to "work twice as hard" would be controversial.

To start with, his facts are wrong: about 70 percent of directors appointed in the U.K. last year were men. Furthermore, non-executive directors don't work to be put on boards anyway, they are selected.

Allan says the comments were meant to inspire future non-executive directors from diverse backgrounds, with the slightly exaggerated language chosen for effect.

Even so, they show a lack of judgement. And that's a worry for Tesco investors, particularly at the moment.

Starting Over, Again

Tesco's year of scrambling to revive itself has done almost nothing for shares

Source: Bloomberg

The company has a strong chief executive in Dave Lewis. That requires a chairman whose authority to challenge him is beyond question. Thanks to Allan's comments, he's now in a weaker position.

To start, its trading isn't off to the races. Sales growth slowed in the past four weeks, according to the latest data from Kantar Worldpanel. Even though growth is now positive, it isn't out of the woods -- it still had net debt of 4.4 billion pounds ($5.4 billion) as of August 2016, and a pension deficit of 5.9 billion pounds -- and is now engaged in a complicated merger.

Running out of Steam?

Tesco's sales growth slowed over the crucial Christmas period

Source: Bloomberg Intelligence, company reports

Earlier this year, Tesco agreed to acquire Booker for just under 4 billion pounds. The deal is likely to face a lengthy competition inquiry, and if approved will require a huge integration exercise to achieve the promised cost savings. 

The deal risks a period of distraction as competitive pressures intensify -- Wal-Mart Stores Inc.'s Asda is looking to regroup under new chief executive Sean Clarke, and Wm Morrison Supermarkets Plc has a revival underway. Meanwhile, German discounters Aldi and Lidl continue to open stores apace.

Tesco is also no stranger to boardroom controversies. Richard Cousins quit as senior non-executive director because he did not agree with the Booker deal. Other directors, including Allan, demanded detailed due diligence before they agreed to it.

Premium Pause

Tesco's rating has slipped as the excitement over buying Booker has faded

Source: Bloomberg Intelligence

A 2014 profit overstatement prompted the company to completely overhaul its board. Before this shake-up, it had come under fire from some investors for having too few non-executives with retail experience.

So there's no room for Tesco to slip up. A consumer boycott, which has been threatened after Allan's comments, would be particularly unwelcome.

The shares, which rose on the back of the Booker deal, are back to their levels last October.

However unintentioned Allan's offense may have been, his comments have undermined his effectiveness. That's just what Tesco doesn't need right now. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andrea Felsted in London at afelsted@bloomberg.net

    To contact the editor responsible for this story:
    Jennifer Ryan at jryan13@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.