As defined by Sir Adrian Cadbury, widely acknowledged as the father of the UK Combined Code on corporate governance, it is “…the system by which corporations are directed and controlled…” (Barger, 2004). In 1954 the economists Kenneth J. Arrow and Gerard Debreu in their Arrow-Debreu model (Huang et al, 2004), which is one of the fundamental theorems of economics, states that the firm’s “… objective is to maximize the wealth of their shareholders and individuals pursue their own interests then the allocation is Pareto efficient”. This definition formed one of the foundation cornerstones of The Companies Act 1985 (britlaw, 2004) which was redressed by the Cadbury Committee in 1992 (Dahya et al, 2000), the Greenbury Committee in 1995 (Florou, 2000) and Hampel Report of 1998 (ecgi, 2005) which formulated today’s corporate governance context based on fiduciary responsibility and accountability. The Anglo-Saxon view of corporate governance as held by the United States and the United Kingdom is that corporate “… managers have a fiduciary (i.e. very strong) duty to act in the interests of shareholders” (Allen et al, 2002). Tesco’s Corporate Responsibility Committee, which meets four times per year as a minimum requirement, in publishing its “Corporate Responsibility Review in 2005” (Tesco, 2005) stated that its audit identified strengths of the company in this area as:
- the company’s strong support of the reporting process,
- that the company’s commercial priorities are “… frequently aligned with social, ethical and environmental priorities” (Tesco, 2005)
- “there is a strong positive perception of our Corporate Responsibility record among external stakeholders” (Tesco, 2005)
This same audit, however, revealed that the Committee identified that it had a responsibility to continually develop the company’s Corporate Responsibility strategy and as a result the Committee indicated it had (Tesco, 2005):
- put a programme in place “… to a accelerate…” (Tesco, 2005) the company’s Corporate Responsibility in its international business;
- reviewed as well as updated the company’s CR KPIs as well as its governance structure; and
- that the Committee had strengthened the internal as well as external CR communications strategy
As the first retailer in the United Kingdom to reach the £2 billion profit level (management-issues.com, 2005), the practices of the company naturally come under increased scrutiny, which is a fact of life for all industry leading corporations. Tesco was recently praised for its Corporate Governance record by the International Federation of Accountants which completed a study on why this aspect of corporate responsibility often fails to live up to its mandates and stated that it found Tesco’s record on its choice and clarity of strategy was excellent in that the company’s attention to this areas was reflected in its four point strategy outline, and that Tesco’s execution of its strategy as a good example to the industry (ACCforum, 2004).
In light of the preceding, Tesco’s approach and compliance shall be examined with respect to the Combined Code on Best Practice as well as other criteria.
Corporate governance represents the management and boa