TESCO'S CLEAN SWEEP

Britain's biggest retailer and its boss Sir Terry Leahy collect double honours.

by Nils Pratley
Last Updated: 09 Oct 2013
Britain’s most admired business leader 2003 doesn’t do small talk, is prone to sounding like a management consultant when he does speak, and clings to his two-year rolling contract in defiance of the corporate governance do-gooders. Sir Terry Leahy may not tick all the boxes required of a 21st-century boss, but he doesn’t have to. He has led Tesco to a position that no British retailer – not even Marks & Spencer or Sainsbury’s in their heydays – has ever achieved. The extraordinary statistic is that for every £100 spent in the nation’s shops, more than £12 now goes into Tesco’s tills. With a helping hand from its overseas ventures, it will this year make as much profit as M&S, Sainsbury’s, Next and WH Smith combined, if City forecasts are even roughly accurate. Now on top of all that comes a clean sweep in the annual Britain’s Most Admired Companies poll, compiled by MT and Professor Mike Brown at Nottingham Business School. Tesco collected both of the coveted top prizes – Most Admired Company and Most Admired Leader. The most impressive aspect of Tesco’s triumph is the margin of victory in both categories. The chain was four points ahead of GlaxoSmithKline in the company rankings; the next four points covered the finishers all the way down to Compass in 14th place. In the individual category, Leahy gained almost a quarter of all votes, some five percentage points ahead of BP’s Lord Browne of Madingley. In joint third, with 7% apiece, were Fred Goodwin of Royal Bank of Scotland and the now-retired Sir Christopher Gent, who vacated the hot seat at Vodafone this summer. Tesco also emerged top in six of the nine sub-categories that make up the overall company rankings, and second in two more. Only in the rankings for community and environmental responsibility did it fall outside the top 10. The stock market – traditionally suspicious of British retailers expanding overseas – is waking up to the fact that Tesco is a lot more than just the UK’s number one grocer. It had achieved that status just before Leahy became chief executive in 1997, but the group now has more than 300 overseas stores in 10 countries, as well as online ventures in South Korea and the US. And it is making profits from them, to the tune of almost £100 million in the first half of the year. It does so in a most unflashy way. Leahy, the son of a Liverpool ship’s carpenter turned greyhound trainer, rarely gives personal interviews, and on results days his constant refrain is ‘listen to the customer’. You would never catch him making unnecessary boasts, but he could rightfully claim that Wal-Mart, the world’s biggest retailer, now has a challenger outside the US. At 47, Leahy can clearly enjoy a long stint at the very top of the company he has served all his working life. Some, though, suspect that there is another big job down the line, noting that his wife works as a general practioner. What odds on Leahy to save the National Health Service? Now there’s a real management challenge. This year there are two new entries in our top 10 companies. One is really a re-entry – Astra- Zeneca rises from last year’s unusually poor 12th place to 3rd in the latest rankings. With Glaxo taking second spot, this is a rare triumph of Britain’s twin pharmaceuticals giants over its oil majors, represented by BP (4th) and Shell (5th). It must be said that the scores are close – but could Lord Browne’s halo be slipping a little? BP’s failure to hit its production targets was not a good start to 2003, and perhaps its peers sense that the next leg of BP’s relentless expansion – Russia – will be tougher than previous moves. Glaxo’s status as best of the rest is also surprising in that the company suffered some dreadful PR during the year. In May, shareholders voted against its remuneration report in what amounted to a humiliating rejection of the perceived salary demands of CEO Jean-Pierre Garnier. But 2003 was not all bad for Glaxo. Across the Atlantic, the market leader Pfizer struggled to digest its acquisition of Pharmacia. By contrast, Glaxo seemed to have overcome its own post-merger hiccups: sales targets were hit and there is some evidence that Garnier’s restructuring of the research operation into smaller units – revolutionary in industry terms – is yielding greater productivity. The other new entry in the top 10 is BSkyB at eighth – a rise of 28 places, making it this year’s highest climber at the head of the table. The only surprise here is that it has taken so long. Maybe it took the retirement of Tony Ball as chief executive for outsiders to appreciate the scale of the achievement. During his time as CEO, Sky’s subscriber base doubled to almost 7 million, revenues doubled to £3.2 billion, and churn (the percentage of customers leaving) fell from 13.4% to 9.4%. Along the way, it took two almighty gambles – cutting its dividend and giving away set-top boxes. These paid off. Sky is now a cash machine with an enviable market position. ITV has yet to recover properly from the £1 billion it blew on trying to compete with Sky via OnDigital; BBC executives, meanwhile, have nightmares about the day that Sky decides to divert more of its cash into original programming. Will the controversial new boss, Rupert Murdoch’s son James, be able to keep up the good work? One of the strengths of Most Admired’s peer-review approach is the ability to spot those who haven’t lived up to expectations. Goodwin’s personal stock may be high (as well as coming joint third in MT’s Most Admired Leader, he was Forbes magazine’s man of the year last year), yet his company managed only 20th place in the MT rankings. Banks in general make a poor showing this year: highest was HSBC in 19th place. Isn’t Britain meant to be Europe’s financial hub? Just as curious is the consistently weak performance by Vodafone in Most Admired. Britain’s second-largest firm by market capitalisation for most of 2003 failed to make the top 30 for the third year in succession – although former boss Gent fares better in the Most Admired Leader award: third this year and runner-up in 2001. Admittedly, Vodafone is the top-rated telecoms company, but even in the days when Vodafone was rewriting the rulebook on acquisitions with its Mannesmann takoever in Ger- many, it never troubled the very top of the MT tables. The inference then was that Vodafone was promising more than it could deliver. Is it just coincidence that the share price is still a third of the level seen in the go-go days? The lower reaches of this year’s league table are littered with firms that fell to earth after the dot.com and telecoms bubbles burst – Telecom Plus, Project Telecom, Kingston Communications, Colt Telecom, Thus, Cable & Wireless… Lodged among them, though – in 219th place out of 220th – is Royal & Sun Alliance, which will surely find a place in management textbooks as one of the worst-ever failures of management at a British company. In the pre-merger days, the two halves of this company were global forces in their own right; this year, the business had to be rescued with a £1 billion rights issue. And what about easyJet, stuck uneasily in 181st place, two slots below British Airways? In popular myth, easyJet’s brash style has overthrown the established order in the skies. Peers in the transport sector seem unconvinced. EasyJet scored well on marketing and innovation – as might be expected – but came last or nearly last in its sector in terms of quality of management, quality of goods & services, ability to retain top talent (do they mean you, Stelios?), financial soundness and value as a long-term investment. That’s a worryingly long list. Such examples demonstrate the eternal fascination of Britain’s Most Admired. At one level, it may appear as if the same familiar names emerge year after year (Tesco won three times in the mid-90s); but dig a little deeper and you’ll uncover plenty of intriguing examples where the insiders’ views clash with received wisdom. mt

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