Strategy & Operations » Governance » Justin King: Tesco’s accounting and governance problems not sector-wide

ONE OF GROCERY’S most senior figures believes the accounting and governance problems facing Tesco are “specific to them”, with the industry passing various tests and investigations in recent years.

In a wide-ranging interview with Financial Director, Justin King, who stepped down as Sainsbury’s CEO last after leading a renaissance in its performance over a ten-year period, said grocery retail operated in a “highly competitive industry acting on behalf of the customers it serves”.

Tesco faces multiple investigations into its affairs after it revealed accounting problems relating to its commercial deals with suppliers, which has seen £263m wiped off its books. Accounting watchdog the Financial Reporting Council is looking into the Tesco’s recent financial statements, while new body the Grocery Code adjudicator is also looking into the practices related to the grocer’s profits booking.

“It is unfortunate the travails [Tesco] faces are seen as an indication of some kind of wider malaise,” King told Financial Director.

“We’ve had examples in channels like banking where it was clear the malaise was fairly wide-ranging. I don’t believe that’s the case in grocery retailing, in fact quite the opposite.

“I doubt there’s a sector that’s had more Competition Commission investigations…three fully-fledged. All of them concluded that, despite people arguing there was a tremendous amount of smoke and therefore must be fire, all of them concluded in very large part that this was a highly competitive industry.”

Adjudicator’s role

However, King questioned the adjudicator’s existence, as the “normal role” of an adjudicator is to protect the consumer, as opposed to become involved in business-to-business relationships.

“To have an adjudicator whose role, one might argue, is to fetter the competitive activity of the industry to the benefit of suppliers – which by definition means to the detriment of consumers – is a really odd construct.

“[The industry] is obsessively focused in its DNA on doing a great job with customers, and I don’t think the industry should apologise for negotiating had with the likes of Pepsi and big multi-national corporations, all of whom are significantly bigger and more powerful than any grocer in the UK.”

However, King conceded that retailers must step up to allay fears that they abuse their position in relation to smaller suppliers.

“I do think the story does need to be told better – but essentially that’s for individual retailers to do. At Sainsbury’s we were very clear that, if you look at what customers say is important to them, they want great prices but don’t want them at the cost of paying less to the supply base. That conjures up the image of the small farmer but more widely the vast majority of suppliers are small-to-medium sized organisations, and that’s competitive turf.”

Read the full interview with Financial Director on Wednesday.

Justin King is keynote speaker at the CFO Agenda 2015. Click here for more details #CFOAgenda2015