Tesco CEO knew things were bad. They were about to get worse from accounting scandal

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Tesco Plc Chief Executive Officer Dave Lewis got 1,300 emails from staff calling for change in his first days in the role. The troubled supermarket’s situation was about to get much worse.

Lewis, testifying at the accounting fraud trial of two former executives, talked of his genuine shock when he was first shown a report that described how the retailer had overstated income by 246 million pounds ($326 million). The revelation, which came out at a surprise internal meeting in 2014, wiped 2 billion pounds off the supermarket chain’s market value.

“I’ve never ever found myself in that sort of situation before,” Lewis said. “All the conversation we had at that meeting was, if the content of the report is right, what was the consequence for the business and we needed to find out if it was right or not.”

He also spoke of a meeting over drinks in a bar in London’s Blackfriars district, one evening after he accepted the job, at which a former Unilever colleague who was working for the supermarket chain described “significant tension” between the retailer and its suppliers.

That colleague, who was leaving Tesco, didn’t mention anything about false accounting at the meeting, Lewis — the first witness to be called in the trial — said.

“He was very clear” that Tesco was “making more and more requests of supply partners to support the business,” Lewis said.

“It was pretty clear before coming in that there were problems between Tesco and suppliers,” he said.

Lewis also told the London court that he read the 1,300 emails from employees listing what they believed needed to change at the supermarket chain.

Ex-U.K. chief Chris Bush and John Scouler, ex-U.K. commercial director, were charged in September 2016 following a two-year Serious Fraud Office investigation of Tesco’s accounting practices. Former U.K. finance head Carl Rogberg had been charged but isn’t on trial because he is ill.

Prosecutors have said that the former executives deceived investors by conspiring with hundreds of suppliers to conceal a 250-million pound hole in the grocer’s accounts.

Bush and Scouler were charged with two counts of fraud and false accounting. The men deny the allegations and have pleaded not guilty.

Bush told Lewis in a letter dated Nov. 17, after Bush had been suspended, that he wanted “nothing more” than to remain in the role and could help bring about a “change in culture and performance.”

Bush said he could be “part of the solution” and was “someone who faces the truth” in that letter, read in court Thursday.

“I do not believe I have anything to hide,” he continued.

— With assistance from Jonathan Browning

Bloomberg News
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