Tesco drops PwC over audit error

The inside track on Phil Clarke’s final chapter

TESCO has taken a further leap away from its troubled past by sacking auditor PwC after 32 years, writes RupertSteiner.

The Big Four accountancy firm is the subject of a Financial Reporting Council inquiry into the preparation, approval and audit of Tesco accounts following a financial scandal in which profits were misstated by £326m.

The grocer said that Deloitte will replace PwC.

In a statement Tesco said: ‘Following the conclusion of a formal tender process for its statutory audit contract, the board have approved the proposed appointment of Deloitte as the new auditors.’

It was mutually agreed that PwC would not take part in the tender process and will stand down at the annual meeting in the summer.

New Tesco chairman John Allan said: ‘I would like to thank PwC... and we look forward to working with Deloitte.’

Tesco was left reeling last year after it unearthed a financial scandal at the same time as attempts to turn the business around stuttered. Most of the senior team stood down or were fired and new chief executive Dave Lewis is taking the business back to basics in an attempt to fix it.

Deloitte also has a chequered past after being fined £14m in 2013 for misconduct connected to the collapse of car maker MG Rover.

WHEN former Tesco chief executive Philip Clarke skipped around his head office singing ‘Here come the walking dead’ after axing another senior executive it was the bizarre moment some insiders began to lose confidence.

The troubled supermarket sacked auditor PWC yesterday in another strident move away from its past.

PWC is the subject of a Financial Reporting Council inquiry into the preparation, approval and audit of Tesco’s accounts following a financial scandal in which profits were misstated by £326m.

So what went so wrong with Clarke’s tenure that left Britain’s biggest retailer facing a criminal investigation for fraud while lurching to a £6.4bn loss in its latest accounts?

A range of former and current insiders, talking to the Mail, shed some light on what was happening behind the scenes.

One former insider said that Clarke had a high IQ but felt his EQ – or emotional intelligence – was zero, meaning he struggled to relate to some people and failed to persuade them to buy into his various initiatives.

While there were many contributing factors to Tesco’s misfortune, some blame its failings squarely at the door of its chief executive.

Another said he criticised the retailer rather than recognising he had a good business which he needed to position differently.

‘I think that then fed on itself and the business lost confidence and consumers lost confidence,’ he said. ‘ The chief executive needs to champion that brand and protect that brand.’

THE most striking disconnect between Clarke and his most senior team is best illustrated from a management event held in 2012 at a luxury golf and spa resort in Bedfordshire called Luton Hoo.

The first former insider said the most senior people within the business were told that the turnaround was tougher than first thought but that they were all in it together and would need to make sacrifices. There would be no bonuses.

Then, during a break, the source claims that Clarke marched some of the bosses into the car park at the hotel to show them his recently renovated Ferrari.

But the problems ran deeper than a low EQ.

Clarke’s undoing was axing most of his senior team, said the second source.

‘I think he made a terrible mistake letting go all those people,’ he said. ‘Ultimately it is a sign of weakness, it’s a character thing, I think it was a fatal error.

‘Ultimately he may not have been comfortable around other independent thinkers, which is fatal in a big organisation. You have got to be confident in yourself and confident to let other people have a view and show leadership.’

This appears to have been a major failing, with some of the executive team feeling his actions undermined them.

The former chief executive, who started life as a shelf stacker and whose own father worked his way up to become a Tesco store manager, was signing off on key decisions only to change his mind hours later.

Executives were communicating messages on strategy only to find they had to row back when Clarke allegedly staged a U-turn.

‘When you have 350,000 staff listening to you, a volte face makes you look stupid,’ he said.

Others have said Clarke did not react well when people stood up to him and he quickly created a close-knit team described as his ‘inner caucus’.

A source says ‘ he was putting huge pressure on people to deliver the numbers’ but the source went on to allege: ‘ The phrase that came out was, “I don’t care how you do it, just do it.” ’

The suggestion being they were pushed to the limit to improve performance.

It was at this point that it was claimed he was found skipping up and down the corridor on the second floor of Tesco’s executive suite spouting about the ‘walking dead’, an anecdote he has denied.

The second source said: ‘ You have got to be a co-leader and not the only leader.

‘It’s like Plantagenet history – you get good kings and bad kings.’

A monarchy is the last thing Tesco needed. Under more egalitarian new chief executive Dave Lewis a republic seems to be the way forward.

Phil Clarke declined to comment on the record.