Today’s publication of a new report by the Groceries Code Adjudicator has found that Tesco ‘seriously breached’ a legally-binding code to protect grocery producers. Tesco opted to prioritise their own finances over the equitable treatment of their suppliers.  

Tesco’s over-focus on operating margin is the potential root cause of many of the issues highlighted in the report. It demonstrates the danger of pursuing a financial metric in isolation. With UK boards (both Executive and Non-executive) dominated by leaders with financial and commercial backgrounds, it is not surprising that FTSE listed companies are biased towards financial measures and fail to understand the longer term impact on the broader supply chain. Of greater concern is the impact that such commercially biased leadership has on the culture of the whole organisation, and the broader industry. Suppliers in the broader retail sector express concern that the ‘Tesco-buyer’ phenomena is becoming increasingly prevalent and potentially undermining the supply chain.

Such practices were reinforced and fueled Tesco’s meteoric rise in the last decade, and even enabled them to weather the storm of the global economic downturn, with their share price remaining buoyant throughout.

As my grandmother used to warn me, ‘be sure your sins will find you out’: by pursuing such a ruthless commercial strategy at the expense of the supply chain, Tesco created a time bomb. Now that it has gone off, Tesco’s share price has dropped to levels not seen since 2000.

There are 3 critical lessons for the boards of UK companies:

1. Ensure that they have a more holistic and balanced approach to both the development and measurement of their strategy.

2. To enable this, ensure that there is equal capability within the board of commercial, financial, technical and supply chain expertise

3. Look beyond the bounds of your firm. Remember it is supply chains that compete and not individual firms.