The FT is full of comment this morning that Tesco now has a board with little or no experience of food retailing.
I am not sure what the surprise is about. It's long been obvious that what happens at board level in most companies has little or nothing to do with what actually happens within the entity itself.
The business may (let's be generous) be about meeting customer need and providing a valuable service.
The board is about extracting rents from that process by reshuffling the pack of entities that make up the whole, re-jigging the finance and minimising the tax bill.
These activities have remarkably little to do with each other. One is about business and what capitalism was (and should be) really about.
The other is about rent seeking and what the so called modern entrepreneur really thinks capitalism should now be about, which is extracting value from others.
Tesco has chosen a board of experienced rent seekers. It can hire people to run the business. The rent seekers are in a class of their own. As one of those FT comments said, the main attribute of Tesco's new chair is he is well known in the City. Quiet so. One of them. Not one of us. And that's what Tesco wanted.
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Well, Tesco is not just a food retailer any more. It is also a bank with about £6 billion of deposits, and a mobile phone company, and the operator of a massive customer loyalty scheme that costs £600 million a year in awards (with a very valuable database, which no doubt it will want to monetise at some point). And it has a property portfolio worth about £34 billion.
Overall, it has annual revenues of about £63 billion, about 70% in the UK, but makes about 85% of its £2.6 billion operating profit in the UK.
But you might have thought that someone on the board should be an expert in its core business.
The Tesco database has already been “monetised” by GCHQ (& the NSA – natch). If you have a “Tesco loyalty card” then GCHQ know more about you than anybody else. In terms of generating cash for Tesco – I’m sure the company is already selling the data with or without your consent – it all depends on which jurisdiction the servers/data stores sit in.
Tesco having non-food people on the board = bad
Co-op bank having non-bankers on the board = good?
Not at all
I was in favour of Co-op reform
As I am also in favour of HMRC reform
You said this before it was found Paul Flowers put most of his salary up his nose:
“The farce that the Coop was told recently that its board was not suitable to run a bank because it was not made up of bankers has to go: it’s precisely because people are not bankes that they may be suited to their new roles of making sure banks are clean, although competence will also be important too, of course”
If banks can benefit from having no bankers on the board, can Tesco benefit from having no foodies on the board?
There is real value to having non-bankers on bank boards
But not all non-bankers
How can you always extrapolate to the point of nonsense?
Its core business is making money.
It doesn’t make food, it pays others to make the food.
It doesn’t do banking, it is an intermediary for others.
It doesn’t do mobile phones, it uses O2 (or whatever it is called this week)
In fact:It is about money.
As I understand it Tesco’s business is structured to put ownership of its properties into off shore companies in low tax jurisdictions in the EU, that charge the stores operation rents based on turnover. So rent seeking and tax avoidance is central to the business model.
The business may (let’s be generous) be about meeting customer need and providing a valuable service.
It has to be said that Tesco are brilliant at this.
Sometimes
That’s why I said it
This Tesco, is another reason I do my utmost to shop almost anywhere else other than in your stores.
Oh dear – its not clever to extrapolate to extremes.
When a business has no-one at the top who understands its core business, then its unlikely to succeed at that core business. And Tesco is an example as people have pointed out, of a business being run purely to extract as much money as possible – the complex financial and tax structures being pretty bare faced evidence, together with its failure in the end to run a successful retailing business. That is its core business and the other areas are primarily extra products to sell to their customer base
Its equally valid to point out that banks whose boards consist only of people from the in-bred world of the City are unlikely to take into account or have any awareness of the wider world. As an aside, from experience, they are also operationally appallingly inefficient and quite complacent about that. But then being a good operations person is not a path to the top..
Its no great insight to point out that a healthy board contains a good cross-section of people from within and outside of its own business world, and a few real outsiders who will really ask the dumb and difficult questions. And maybe, to be really heretical, have a few worker directors as well like those incompetent, unprofitable German manufacturing businesses…
And no, I havn’t shopped at Tescos for years.