Consequences Of Sir Terry Leahys Resignation From Tesco Business Essay Example

marketing prowess, the company's share price experienced significant growth surpassing the market by 13% during the period of 2003/2004. These achievements have not gone unnoticed as Sir Terry received numerous awards for his accomplishments within the business community. He was named Most Outstanding Individual Retailer from 1998 to 2003 and Retail Leader of the Year in 2008 by Retail Week. In recognition of his contributions to food retailing, he was knighted in the 2002 New Year Honours list. Additionally, Fortune Magazine honored him as European Businessman of the Year in 2004 while Wall Street Journal and CNBC named him European Business Leader of the Year in 2005.Management Today named him Britain's Most Admired Leader in 2005 and 2006, while a Guardian Unlimited Politics panel declared him the most influential non-elected individual in Britain in 2007. He was also honored with the Freedom of the City of Liverpool for his achievements. Sir Terry strongly believed in prioritizing customer satisfaction, which he demonstrated through the creation and implementation of the Tesco Club Card loyalty program, showcasing his marketing talent and creativity. Furthermore, he valued employee motivation and regularly visited competitors' stores to stay informed on customer preferences. To ensure staff support, Tesco implemented various public assistance strategies such as the save as you earn scheme. Personally walking the floor of one of Tesco's many shops seven days a week, Sir Terry gained firsthand understanding of different job roles, consumer preferences, and customer needs. However, not everyone approved of his leadership style or business practices. Despite impressive financial performance, there were criticisms regarding Tesco's HR policies such as having one of the lowest average salaries in the UK

retail industry and calculating wages on an hourly basis without considering tea breaks. Additionally, sick pay was not provided for the first three days of absence. Furthermore,Tesco faced accusations of disrupting operations for smaller competitors and suppliers.In 2004, Proudfoot lodged a complaint with the Office of Fair Trading against Tesco for "predatory pricing", while also referring their ?54 million acquisition of Adminstore to the same office. Rivals of supermarkets and convenience stores have called on regulators to eliminate the distinction between these two types of stores, claiming that Tesco utilizes its purchasing power to provide lower prices compared to traditional convenience stores (source: http://www.telegraph.co.uk). According to an article by Jorn Madslien titled "Tesco Chief Sir Terry Leahy," Sir Terry was admired by both internal and external stakeholders of Tesco as he began as a shelf stacker and eventually became CEO, creating an image of valuing hard work within the company. He received praise for inspiring employees at Tesco through his own humble beginnings in the organization. In addition, his democratic leadership style greatly contributed to his popularity. His success can be attributed to four principles: having a clear purpose, focusing on consumers, delegating tasks, and keeping things simple. The company effectively communicated their objectives, listened to customer feedback, distributed responsibilities among directors and staff members while maintaining simplicity. Therefore, when he unexpectedly announced his resignation on June 8th, 2010, it came as a surprise to the entire industry.He mentioned that he had achieved his main goals of making Tesco the largest supermarket chain in Britain and expanding internationally. He wanted to establish a purpose and values that could support Tesco through challenges and develop future

leaders. The strategy took 14 years to become a reality, leading to speculation about the consequences of his resignation.

Experts predict that stock prices will decrease as investors react to this major change. Concerns arise regarding the impact on staff morale and future leadership during this uncertain period of transition, especially given the current economic climate and global recession. The market is nervous due to tough trading conditions faced by supermarkets with declining food prices benefiting grocers.

Monetary values served as an economy crutch during the recession. Furthermore, consumer confidence is expected to be negatively affected by anticipated government spending cuts outlined in the emergency budget. Additionally, increased costs of importing goods from the Far East and an expected rise in VAT will also negatively impact gross revenues.

Significant movements within the industry have further complicated and made British retailing more uncertain. Dalton Phillips replaced Marc Bolland at Morrisons, while Bolland moved to Marks & Spencer and Andy Clarke became CEO of Asda.Several studies have highlighted the significant consequences of poorly managed administrative transitions on shareholders' income and company operations. The decision to undergo such a change can be interpreted positively or negatively by markets. The impact of a CEO transition on performance varies, with some cases indicating worse performance than previously anticipated, while others raise concerns about the new CEO's ability to enhance performance. Furtado and Karan (1990) observed a notable decrease in stock prices for companies undergoing CEO transitions, whereas Bonnier and Bruner (1989) found a positive return for struggling companies after making administrative changes.

An example illustrating this is Tesco, where Sir Terry Leahy's resignation resulted in a 3% drop in stock price on the London

Stock Exchange. The following table displays Tesco's stock price performance subsequent to this announcement.During the week, there was an immediate decrease in price on the day of the announcement, followed by a brief recovery before overall declining prices as shown by weekly and monthly closing figures. The share price performance of Tesco PLC can be summarized as follows:

TESCO PLC SHARE PRICE PERFORMANCE

Monthly Performance

Date | Open | High | Low | Near | Avg Vol | Adj Close | Gross
Jul-10 377.4 407.2 368.4 390.65 20,540,100 390.65 ?8,023,990,065.00
Jun-10 409.6 420.9 379.2 380.05 26,323,400 380.05 ?10,004,208,170.00
May-10 439.4 441.75 389.4 411.6 30,442,100 411.
?12,529,
968,

Weekly Performance

Date | Open | High | Low| Near| Avg Vol| Adj Close| Gross
28-Jun-10||398.|400.|368.|381.|56|29.,500|
21-Jun-10||394|402..75||379..5||398..65||
14-Jun-10||398..15||||387..6||||390.,7590||
07-Jun-10||406..25||||392..25||||394..
01-Jun-10||409....90||||402...70.....412...250|

Daily Performance

Date ||Open ||High ||Low ||Near ||Avg Vol ||Adj Close ||
11-Jun-
1 ..404 .60.........403...40........393...40.......394...
20.......22,,979,,600......394,,200 ...9,,058,,558

The potential volatility within a company can have negative consequences on relationships between shareholders and bondholders and may result in conflicts that hinder the resolution of shareholder-management issues (Hallman and Hartzell, 2003;Zhang and Nandini, 2006).Sir Terry Leahy took note of these risks when devising his plan for succession. By promptly appointing Philip Clarke as his successor and asserting his authority, Sir Terry was able to alleviate concerns in the market about the change being driven by dissatisfaction with his strategy or ability to navigate challenges during the UK's economic downturn. This decision made it clear that he was not a scapegoat, as Tesco's financial performance remained strong despite the recession. If Sir Terry had been forced to resign, the market's response to Tesco's internal state would have been even worse. Market anxiety tends to intensify and become less tolerant of change when a competent leader is removed due to internal disputes and corporate politics. The market

also reacts sensibly in cases of both internal and external successions. Zhang and Nandini (2006) noted that there are greater fluctuations in volatility for outside successions compared to inside successions when voluntary departures occur. This enabled Tesco to quickly recover from the initial decline in its stock values. The positive reaction from the market towards Sir Terry's replacement can partly be attributed to Tesco's culture of promoting internally. Philip Clarke, who has been with Tesco since 1981 and currently leads operations in Asia and Europe as well as the IT department, followed in his predecessor's footsteps by starting from a grassroots position within the company.Grinstein acknowledged that the impact of such a change could be long-lasting and may not fully materialize for up to two years. The effect of Sir Terry's decision-making on staff morale is evident. Despite some internal disruptions in 2006, which resulted in Dido Harding and John Browett resigning and accusations of underpaying employees, Tesco remains a prominent employer with over 20 thousand global workers. Sir Terry's democratic and low-key demeanor has inspired many employees, earning him loyal supporters. The concerns about Philip Clarke effectively replacing Sir Terry are shared by the President of the Tesco board and others who recognize his unparalleled contributions to Tesco's progress. Only time will tell if this gap can be adequately filled. However, as new management takes over next year, corporate governance remains crucial. The incoming CEO will need support to successfully execute their plans and ambitions. Currently, employee morale is high, and Tesco maintains its dominant market share. Both Sir Terry and Philip Clarke's appointments reflect the brand's internal recruitment policies that have garnered loyalty

from many employees.Tesco's philosophy aligns with Likert and Stodgill's theories, American researchers from Michigan and Ohio respectively.These theories argue that leaders can be trained in their behaviors and relationships with followers rather than solely relying on inherent traitsIt is believed by experts that the appointment of Philip Clarke resulted in a reshuffle of management, which was considered to be the right decision. This decision helped maintain the positive attitudes of aspiring individuals towards their positions and garnered support for the new management. In conclusion, issues related to career advancement can be highly competitive and stressful for both individuals and companies. The progress of employees is crucial as they are seen as valuable assets to the company. Therefore, effective administrative transitions play a vital role in ensuring sustainability and reputation. A well-executed management of this change is essential for the future of the company.

The sudden resignation of Sir Terry Leahy posed a significant challenge for Tesco because such a substantial shift in power had the potential to either make or break the company. However, Tesco has successfully mitigated any damage to its sales turnover and corporate value through strong financial performance and by maintaining a prevailing corporate culture. CEO transitions are not common in the retail industry, which leads to high expectations for new leaders. If the replacement is perceived as excellent, there is usually optimism from the market. However, despite their credentials, how much a new CEO's improvements impact a company heavily depends on corporate administration.

The management of Tesco during their CEO change process was commendableThe analysis after the fact has primarily focused on stock price and staff motivation, failing to consider the psychological effects

on employees and the market. Over time, we will see the full extent of this impact. It is crucial for the new management to ensure that directors remain dedicated to maintaining control and promoting motivation and support among employees.

Mentions

- Arnold, J and R, Randall et al., 2005, Work Psychology: Understanding Human Behaviour In the Workplace, 5th edition, Pearson Education
- Bonnier, K. A. and R. F. Bruner, 1989, An analysis of stock monetary value reaction to management change in struggling companies, Journal of Accounting and Economics 11, pp.95-106.
- In their article titled "Causes, Consequences and Shareholders Wealth Effect of Management Turnover: A Review of the Empirical Evidence," Furtado E.P.H and V.Karan (1990) examine various factors contributing to management turnover and its impact on shareholders' wealth.
- Researchers from the University of Texas at Austin analyze in a working paper titled "Carrot and Sticks: The Threat of Dismissal as an Incentive" by Hallman G.Jand C.Hartzell (2005) explore dismissal threats as a form of incentive for employees.
- In a 2006 publication titled "Preparing for the Top and Ending the CEO Succession Crisis," Zhang Yan and Rajagopalan discuss the significance of adequate preparation and planning in effectively managing CEO succession within organizations.