Tesco – The Cultural Perspective
I feel compelled to venture outside the financial services sector and reflect on Tesco’s announcement that it has overstated half year figures to the tune of £ 250 million.
The repercussions include:-
- A 12 per cent drop in the company’s share price;
- A possible downgrade;
- The suspension of the UK CEO, UK finance director, head of commercial matters and head of sourcing;
- The appointment of Deloittes and Freshfield to investigate;
- The involvement of the FCA as lsiting regulator.
Corporate governors will pore over the internal control and governance failures and hopefully lessons will be learnt allowing us all to avoid this type of shock.
But what about the cultural risk management framework. Clearly what happened at Tesco was a faulre of the board and senior management team to manage the risk that some executives would feel compelled to attempt to distort figures.
What was the root cause of this in cultural terms?
Was it a failure to communicate tone at the top using appropriate symbolism and artefacts?
Was it a failure to embed approariate recruitment checks?
Did the training mechanisms as to what is right or wrong miss the financial control function?
Were these executives financially incentivised to distort?
Were there other motivating factors that prompted this action that were not logged by the appraisal mechanisms?
What went wrong with PwC, the external auditors if anything?
Was the effect of external market developments (competition from Aldi and Lidl) on the culture of Tesco? Did the board and senior management team explicitly manage these effects?
It is interesting to note that this incident was discovered as a consequence of a whistle-blower.
We can look at Tesco through the lense of logic-based financial control gone.
Alternatively we can be courageous and look at what went wrong with Tesco’s processes to manage cultural risk.
Let’s use the Tesco story to test the Cultural Risk Management Framework.
Readers may also be interested in Risk Audit’s Auditing Cultural Risk Workshop on October 22nd.
Please share your comments on the Risk Audit Linked In Managing Cultural Risk Group.