Tesco’s maestro moves on

June 8, 2010

It’s a fitting, if back-handed, compliment to one of Britain’s leading businessmen that Tesco’s share price dropped 1.74% after the surprising news that its chief executive of 13 years, Sir Terry Leahy, will be stepping down next spring.

Leahy really can claim to have inherited an edifice made of brick and left it of marble. There are many landmarks in his long reign which single him out as a pivotal figure. When he began as ceo, in 1997, Tesco was already a major high street and out-of-town player, but it was still in contention with Marks & Spencer and even Sainsbury’s. No one could say that today. When he began, Tesco made pre-tax profits of about £750m a year; today they are nearly £3.5bn. When he began, Tesco was barely an international player; now it is the third-largest retailer in the world. Clubcard was little more than a twinkle in the eye; now it is an invaluable customer database, CSR and promotional tool integral to Tesco marketing. Then, Tesco was a grocer; now it is a diversified retailer with substantial interests in financial services and consumer durables. Then, Tesco was just bricks and a few clicks; now it is one of our most successful online operators.

Most of all, perhaps, we should recognise the personal dimension in all this achievement. Leahy is a self-made man who had no particular advantage in life except a Robert the Bruce determination to succeed against all odds. Even Tesco rejected him the first time he applied for a job. A natural flair for marketing was his eventual conduit to achievement. But that would have meant little in the top job had he not also demonstrated managerial skills of the highest order. This rare blend has earned him an iconic position in the marketer’s pantheon. The fact that he heads a top FTSE 100 company and that marketing has been integral to Tesco’s success remains an inspiration to people in the sector who feel that industrial culture is too driven by the bottom line and not enough by the top. Leahy has been exemplary at both skills.

It’s typical of Leahy’s unobtrusive personal style that his succession arrangements should come as a surprise. And yet, they should not have done. The falling share price, ironically, misses the point about him. He will have achieved little if those arrangements crumble soon after his departure. Strong management is a culture, not a cult of the individual. The anointment of Phil Clarke as his successor emphasises the latter-day importance of non-US international expansion as Tesco’s main business driver. It’s no surprise that Tim Mason, one-time favourite to succeed Leahy, has not made the final cut. Fresh and Easy, the Californian grocery enterprise he is steering on Tesco’s behalf, has proved anything but. Note, however, that Leahy has not entirely cut him out of the will: he has been promoted to deputy chief executive. Similarly, he has attempted to bind in other strong, but disappointed, contenders – David Potts, UK retail and logistics director, and commercial director Richard Brasher – with promotion to two new roles,Tesco’s first Asian chief executive and UK chief executive respectively.

For Leahy, however, it’s over. The Tesco strategy has been set: now it’s for others to implement more of the same. The manner of his departure is itself a lesson in management, often overlooked by the best. Quit while you are ahead.

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