‘Shocked’ Tesco CEO Had to Re-Read Report on Misstated Profits
(Bloomberg) -- Tesco Plc Chief Executive Officer Dave Lewis told a London court of his “genuine shock” when he was first shown a report that described how the retailer had overstated income by 246 million pounds ($325 million), just weeks after he started the job.
Testifying at the trial of two former executives accused of an accounting fraud that wiped 2 billion pounds off the supermarket chain’s market value, Lewis said the report “took certainly two readings.”
Lewis told the court on Wednesday that he was interrupted in a meeting on Sept. 19, 2014 -- he started as CEO on Sept. 1 -- and asked to see the company’s general counsel, who showed him a report describing the misstatement.
The document described “a way of operating which I had never seen,” he said.
Ex-U.K. chief Chris Bush and John Scouler, ex-U.K. commercial director, were charged in September 2016 following a two-year Serious Fraud Office investigation of Tesco’s accounting practices. Former U.K. finance head Carl Rogberg had been charged but isn’t on trial because he is ill.
Prosecutors have said that the former executives deceived investors by conspiring with hundreds of suppliers to conceal a 250-million pound hole in the grocer’s accounts.
In a rare appearance for a British CEO at a U.K. criminal trial, Lewis said the company was under “under significant pressure” when he joined and didn’t have any “breathing space.”
He’d joined a month earlier than planned after getting a phone call while on holiday on Aug. 28 from then-chairman Richard Broadbent. During that conversation, Broadbent told him Tesco was going to cut its dividend payment and reduce its profit forecast, Lewis said.
A letter that Lewis sent to Bush on Oct. 27, 2014, which was read out in court, said: “You may have set out an inappropriate tone from the top which had the potential to create an environment of unreasonable pressure resulting in colleagues pursuing activities that they were uncomfortable with so as to meet budgets.”
At the hearing, Lewis provided a glimpse into the change he experienced when he moved from the consumer goods giant Unilever NV to the top job at the supermarket chain. He noticed that Tesco and Unilever used the term “legacy” in very different ways, he said.
Managers at Unilever talked about legacy as “the good things you leave behind,” he said, where at Tesco the term “was used to describe challenges present in the business today that had been build up over previous periods.”
©2018 Bloomberg L.P.