Scandals between Tesco and the Ahold Company - Case Study Example

Tesco and Ahold Companies’ Scandals of the Affiliation History and introduction of both companies: This paperconsists of two companies, the Tesco, and the Ahold Company respectively. Both companies are seen to be a nightmare of accounting indifferences that erupted scandals that in turn left the companies in critical states prone to all kinds of attacks. To start with, is the Ahold Company; developed in the year 1887 and was founded by Albert Heijn store of grocery in a place known as Oostzaan in The Netherlands. In the first half of the twentieth century, the company went public in the year 1948. The company under the founder continued to make a drastic and excellent impact of food retail all over the Netherlands in the following four decades. In that case, the company was able to pioneer in new development of another new own brand, self-service purchasing and the development of a new brand on the grocery category store. In addition, due to its magnificent growth, the company started popularizing in products such as kiwi fruit, sherry, and wine. The introduction of these new products, it led to the development of using fridges in the houses of the Dutch’s, and also, it introduced provisions of ready frozen pizzas and meals. As a result of good popularity and excellent customer service, the company happened to be the greatest and largest grocery chain during his time in the Netherlands. In addition, it improved in the production of health, liquor, and beauty, cares too in the year 1970. Later in the year 1973, the holding company rebranded its company name to Ahold, which means Albert Heijin Holding. In relation to the company, the company in the mid-1970s, it began to rapidly expand all over the world and started acquiring some companies in the United States and Spain. There was the new leadership eventually. The leadership did not include the Heijin family; the company accelerated the big growth by the act of acquisition in the year 1990s in the latter half of Central Europe, Latin America and Asia. In addition, there was a sad story of how the only brother to Ahold got kidnaped for a reason of ransom money, and eventually, was murdered. However, despite the company’s good flow there was a nightmare in the year 2003 that was a financial crisis that halted the companys ambitions to expand further. The crises lead to the firing of the CEO Van Der Hoeven together with CFO Michael Meurs, plus some number of the senior management. The scandal was income related as it happens in many companies in the United States. The issue that followed after the official announcement was company’s share price plunging by two-thirds and, as a result, the credit of the company reduced. Just like the Ahold Company, the Tesco Company also was caught up in a financial scandal too. Tesco Company is considered as a multinational grocery together with general merchandise retailer. The company’s headquarters is located in Chesnutt Hertfordshire in England in the United States of America (Ryle, 2013, p. 132). Tesco is considered to be the third largest retailer company that makes very large profits. Tesco was founded in the year 1919 by a person known as Jack Cohen. The first time the Tesco name appeared was in the year 1924 after the company purchased the shipment of tea from the T. E. Stockwell. The company, initially, combined the two initials of its surname. In addition, to the history of Tesco, its first store launched in the year 1929in Middlesex Burnt Oak. The business after the shipment started to expand rapidly and by the year 1939, Tesco had a hundred own stores across the nation. After a good improvement in the grocery business, the Tesco Company started to venture into clothing, books, electronics, toys, furniture, software and petrol. In addition, it started to venture in telecoms, financial services and also internet services to its esteemed customers (Ryle, 2013, p. 456). However, the Tesco company after a good performance, it started to experience scandals just the Ahold Company. The company clearly gave details on the restatement figures of the company. It was having deferring costs, plus accelerating income recognition. The company had a scale of overstatement that was marginally above the first estimate of two fifty million pounds. The company was facing the biggest nightmare of all times when a new executive chief officer Dave Lewis, who moved from Unilever to Tesco. Dave realized that the company was in a critical state that reflected a black hole in the entire Tesco’s profits. The Tesco’s company scandal on the profits discomforts leads to the company’s senior boss to face a possible threat of being jailed due to a very serious fraud. The Fraud officer launched an investigation into the ailing company of 263 million scandals of accounting. Just like in the Ahold case, senior officers in Tesco were fired and in this case, eight of them. In the Tesco scandal just like the Ahold scandal, the reason as to why the scandal erupted is because of the supplier contributions booking conditions and target not getting to be accomplished at last. The Tesco Company had booked suppliers, who would contribute to the resources that were, on the other hand, conditional. The conditions were in the line that they expected that they would hit the target, but unfortunately, did not even come close to hitting the targets. The secret also prompted the Tesco company scandal that the company kept. The secret was about the small group of employees not getting struck by it releasing the sales targets by striking a deal with the suppliers. The company promised the suppliers to pay their payments, and still will provide benefits in the course of the next financial year. The benefits were kept secret; thus, altering the normal financial records and rating of the company’s profits. At the moment, Tesco is battling another fight that has been brought up by the competitors in the United States of America. What happened in the Ahold Company and Tesco Companies? In the year 2003 the Ahold Company started to experience some financial crisis, and it leads to the official announcement of its critical state. The crisis evolves on the Accounting Scandal. The scandals lead to the stock price in Amsterdam to plum to over 72 per cent in just two weeks only. The scandal is, on the other hand, traced from the United States Food service (USF) that is an immediate subsidiary of Ahold Company. The Ahold purchased the company in the year 2000. In response to that, the company started to have overstated the company’s profit structurally. The company violated the law or the policy of corporate and conservatism governance in relation to allowance vendor receivables that were from the company’s suppliers. The allowances by the suppliers based on the specific sales target that got recorded even if, unfortunately, the targets sadly not achieved. As a result of the Ahold scandal, the securities exchange commission tightened the past accounting regulations and rules with controlled respect to the vendors allowances. In relation to the company’s scandal, there was a need first to check whether the announcements of the Ahold scandal there were irregularities involved in any manner. The Ahold when they announced that they needed to restate the company’s financial results, the report for that specific year was not yet published. The conclusion on the Ahold annual report published by the Ahold Company was, therefore, the audited version. As a result of the fraud case, the Ahold also announced the resignation of the CEO Cees Van Der Hoeven and Michael Meurs, who was the chief financial officer in the Ahold Company. On the other hand, the Standard with the Poor’s Corp in return slashed the company rating to the double B-plus and eventually regarded it as “junk” status. Just after the scenario, the company was put under review of its debts for possible downgrade (Leipziger, 2010, p. 98). Early the year 2003, the company had begun to rattle the investors with the many endless problems, which also included the methods of questioning in calculating the organic growth. In addition to the problems rattled to the investors, there was even a problem of accountability of the real estate transactions. There was a scenario in the company whereby the CEO Cees wanted to resign, but the board of the Ahold declined and turned the request down. Additionally, the Tesco Company, on the other hand, experienced almost the same blow as the Ahold. The Tesco Company had scandals on the financial rates together with unfulfilled promises to its suppliers. Poor management of the companies’ funds was also is another reason of the scandals together with poor supplier, customer, and employees’ relationship (Culpepper, 2011, p. 78). Reasons for the Scandals The major reason as to why scandals erupted in both Tesco and Ahold Company was as a result of financial fraud issues. Both companies involve the senior officers with the scandals. In both companies, the allowances by the suppliers were based on the specific sales target that got recorded, but, unfortunately, the targets sadly not achieved. In both companies, the scandals were as a result of accounting irregularities at the subsidiaries of the companies. Role of the corporate governance, ethics and factors The corporate governance usually involved with the issues on social responsibilities, business ethics, fair and full disclosure, equal treatment of the distinguished stakeholders and in addition the board of director’s responsibilities. Due to the many fraud issues of the employees within the both companies the Ahold and the Tesco, the corporate has to act accordingly according to the policies of the companies and the governance of the corporate. The worst treatment of the employees within both companies the Ahold and the Tesco was a result of the companies not being able to control its financial information. Failure of the two companies of not controlling their financial information considered as a failure to the corporate governance. In the case of the Ahold and the Tesco, this was clearly an issue. In relation to the disclosure of the financial information, for example, in the Ahold company is considered dangerous (The economist, 2010). It is because the phenomenon would be as a weakness and would in a great way influence the decision making when it comes to investment practices. In addition to the role of the Corporate Governance, the two companies after the scandals, they can be allowed to have a better restating mechanism. For instance, the Ahold Company booking of the vendors’ allowances was implemented in an aggressive manner and a very optimistic manner. As a result, if the Ahold handled the allowances of the vendors conservatively, they had a chance to restate the earnings at a much better high level rather than subsequently affecting the price of the stock. In conclusion, the two scandals by the two companies; Ahold and Tesco were just, but an eye opener to the Corporate Governance and the other companies. In that, the organizations should adhere to the new and the already existing rules to be conservatives when it comes to allowance vendors’ receivables (Markham, 2005, p. 105). Summary It is clear that lack of good and sophisticated accounting practices can cause very serious and dangerous scandals in organizations. As seen in the two companies, the Tesco and the Ahold, fraud and lack of accountability caused the failure of both. On the other hand, if a company lacks efficient and effective financial controlling is at risk of causing scandals and falls into the trap of not adhering to the policies of the corporate Governance. By not treating the suppliers and the employees accordingly, the company is answerable to the corporate governance (Read, 2006). Good management of the company is crucial in the eligibility of each and every activity that conducted in the company and all the subsidiaries of the company. In these two cases of the Tesco and Ahold, the senior officers are facing the biggest blame on the scandals, whether they directly contributed to the scandal or indirectly contributed to the same. In relation to the correction the scandals these companies, are working differently (Raab, 2008, p. 89). For instance, the Tesco is seen playing with its numbers trying to make things look better, which is a bit disturbing to the company since it is losing its market space to the competitors. The aspect of losing its share in the market is lacking the company loses a lot drastically, and it is expected to work tirelessly to alleviate the problems. After having discussed the issues related to the Ahold and Tesco scandals, it is clear that the accounting concepts were eventually violated, and that is why the scandal erupted. It is not a surprise on how the two companies struggle with the bad picture of lack of accountability and customer and supplier poor relations. The situation is hardly sustainable since to completely understand the scandals on has to dig deeper. Both scandals as seen are a mind opener to the two companies, and also, other companies. The vendor and suppliers are important characters in these kinds of chain businesses, and if not accorded as it is supposed to be, and then the scandals are prone to attack (Jones, 2011, p. 341). References Fisse, B., & Braithwaite, J. (1993). Corporations, crime and accountability. Cambridge: Cambridge Univ. Press. Busco, C., Frigo, M. L., Riccaboni, A., & Quattrone, P. (2013). Integrated Reporting: Concepts and Cases that Redefine Corporate Accountability. (When values meet value.) Cham: Imprint: Springer. Culpepper, P. D. (2011). Quiet politics and business power: Corporate control in Europe and Japan. Cambridge, U.K: Cambridge University Press. Jeurissen, R., & Rijst, M. W. (2007). Ethics in business. Assen, The Netherlands: Van Gorcum. Jones, M. (2011). 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