Sir Terry Leahy, the supermarket superhero? Not exactly …

The Guardian explains…

A year ago, Sir Terry Leahy presented himself as too lofty, or too decent, to engage in the grubby business of putting the boot into his struggling successor, Philip Clarke.

“I am happy to be judged on what I have done at Tesco,” was about all he would say. He wouldn’t even rise to the bait when reminded of what his own predecessor, Lord MacLaurin, said at Tesco’s annual meeting in 2013 – that Leahy “lost the plot” in his later years and that the adventure into the US with Fresh & Easy was “disastrous”.

Leahy now seems to have decided that Tesco’s woes have become so severe that he’d better discourage further scrutiny of his own record. In any case, a simple plotline – a visionary leader is succeeded by an incompetent fool – works so much better on TV.

Thus Leahy told last night’s Panorama: “People tried very hard to do the right thing; it clearly has not worked. In the end, that’s a failure of leadership, not a failure of the business, not a failure of the people who work hard every day in the business. When you’re the CEO, if it goes well, you get credit, if it doesn’t go well, you must take responsibility and Phil Clarke has taken that responsibility and paid the price with his job.” In other words: don’t blame me, blame the guy who was fired.

There is, of course, some truth in Leahy’s analysis. If Clarke inherited a business that was “running hot” – his description when unveiling the first calamitous profits warning in January 2012 – he had the chance to cool things down. Instead, Tesco seems to have taken supplier-bashing to new levels of intensity, as last night’s programme documented. Clarke could have done things differently. He looked out of his depth.

But the idea that the trouble at Tesco started only when Leahy waved goodbye to Cheshunt is nonsense. If you doubt it, read the devastating piece by Terry Smith, the fund manager [£], in the FT last September.

Smith looked beyond the superficially impressive financial statistics of the Leahy years (profits and earnings per share doubled then doubled again) to show that return on capital employed fell on his watch from “a very good 19% to a less-than-adequate 10%.”

That’s very significant if, like Smith, you believe return on capital employed is a better measure of value-creation than earnings per share, which takes no account of the capital deployed to generate those earnings. As Smith argued: “To drag the average [return on capital employed] down so dramatically it is likely that returns on new investments in those years were not just inadequate, but in some cases negative – as the ill-starred US expansion proved to be.” At some point, Tesco was headed for a fall.

Leahy, no doubt, would reject the idea that the Tesco empire was built on debt, inadequate cash flows and an unsustainable dividend. But let’s hear him speak in depth about his own record, rather than issue a few airy assertions about Clarke’s incompetence. How on earth did Tesco end up losing almost £2bn on his pet project in the US? What went wrong in China, another expensive catastrophe? Why did gross borrowings rise from £948m when Leahy took over to a peak of £15.9bn in 2009?

It was good TV last night. But the caricature – Leahy the superman, Clarke the duffer – is just far too simple.

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