Tesco Scandal and Strategies to Help the Company Restore Its Image after the Scandal - Case Study Example

Tesco Scandal Location Introduction Corporate reputation is crucial in ensuring that the company maintains its competitive advantage in the market. One way a company can do this is by maintaining its company legitimacy (BREITSOHL, 2009). Legitimacy is conforming to the values norms, and expectations of a society. Institutions that do lose their legitimacy find it difficult to be competitive as they are considered not to be in compliance with the set rules. When an organization is in conformity to the set rules of the society, it is in a better position to gain continuous support from external stakeholders (RAHIM, 2013). This case is based on the scandal that was seen at Tesco that involves an investigation over the accounting irregularities that have created a shortfall of £263m in the company’s profits. The Serious Fraud Office (SFO) notified the company that it would launch a formal criminal investigation into the accounting practices used in the company. The Financial Conduct discontinued its own investigations because of the SFO’s intervention. In order to analyze this case, a number of concepts and theories can be used including the legitimacy theory and stakeholder theory. The legitimacy theory assumes that organization aim at operating within the rules and norms of the society. The stakeholder theory assume that the organization work towards fulfilling the interests of its stakeholders. The Case Context Tesco scandal involves an investigation over the accounting irregularities that have created a shortfall of £263m in the company’s profits. The Serious Fraud Office (SFO) notified the company that it would launch a formal criminal investigation into the accounting practices used in the company. This means that if found guilty, the company and employees could face criminal charges. The Financial Conduct discontinued its own investigations because of the SFO’s intervention (The Telegraph, 2014). Deloitte accounting firm was hired by Tesco in order to conduct the investigations into the scandal and hand over the findings to the regulators. Even though the retail company is yet to comment on the conclusion, it is believed that evidence of inappropriate behavior had been found that aims at misleading auditors. It is believed that Tesco booked supplier contribution on condition of hitting sales target that it was not going to reach. Because of this, some employees struck deals with suppliers to still make payments by offering benefits in the next financial year; however, the benefits were kept a secret. As a result of the investigations, eight executives were suspended. The company was also withholding payments in favor of Laurie Mcllwee and Philip Clarke, the former chief financial officer and chief executive worth £2m. Data Communication is crucial in all organizations, both small and big. The main aim of communicating with stakeholders is to maintain a positive relationship with them. Communication can be in various forms including the company’s website, e-mail, advertisement, corporate reports, and through press release (CONRAD, 2012). In cases where there is a crisis as seen in the case of Tesco, the most common tools used by organizations to communicate with their stakeholders are corporate reports and press release (CARROLL, 2013). In the case of Tesco, a press release is more appropriate through the company’s website. Through its website, the company confirmed that it has been notified by the Serious Fraud Office that they would start investigating its accounting practices. The press release further says that the company has fully cooperated with the SFO (TESCO PLC, 2014). Dave Lewis, Group Chief Executive Officer also gave a media statement indicating that the company has discovered a serious issue and that it would be dealt with accordingly. He further said that he and the chairman are establishing an independent investigation in order to maintain its integrity and transparency. Table 1: Tesco’s press releases relating to financial scandal No. Date Headline 1 22/09/2014 The Chief Executive officer makes a quote the uncovering of a serious issue. 2 22/09/2014 Assurance of investigations. 3 29/10/2014 Tesco regulatory update through its website Methodology Impression management tactic is crucial in repairing the legitimacy of this company. Various strategies can be used to repair the legitimacy of a company which are categorized into five sections as shown in the table below Table of Restoration Strategies Strategy Sub-strategy Key Characteristics Denial Simple Denial Arguing that the company did not perform the act. Shift the Blame Claim that another performed the act. Evasion of Responsibility Provocation This is characterized by responding to act of another Defeasibility This includes lack of ability or information Good Intentions This is the claim that a company meant well in the act. Accident This is a claim that the act was a mishap, Reducing Offensiveness of Event Bolstering This is characterized by stressing good traits. Minimization This is characterized by the claim that the act is not serious. Differentiation This is characterized by the claim that the act is less offensive. Transcendence This states that there are more crucial considerations. Attack Accuser This is characterized by reducing the credibility of the accuser. Compensation This involves reimbursing the victims. Corrective Action This looks at the plan to prevent or solve the problem. Mortification This involves giving an apology for the act. In the denial strategy, companies will try to save their reputation through denial and shifting blame to individuals or other institutions. In the evasion of responsibilities, companies try to convince their stakeholders through provocation, defeasibility, by claiming the intentions of the act were good, and by claiming that the act were as a result of an accident. Reducing offensiveness of event strategy helps companies save their reputation through bolstering, minimizing the seriousness of the act, differentiation, transcendence, compensation, and by attacking the accuser. The corrective action strategy is useful in solving and preventing the problem. Finally, the mortification strategy is where companies give an apology for the act. Findings From the communication released through the press release posted on the company’s website and the statements from the Chief Executive, the company has adopted a number of strategies to help the company restore its image after the scandal. In the reduction of offensive of event, the company has used the strategy of claiming that it is an accident (XU, 2013). In the statement realized, the company makes it sound as if this is not an incident that normally occurs and that it was an unfortunate event. He also assures the investors that their investments are secure by claiming that they are doing all the best. For example, from the statement of the Chief Executive, makes it sound like the act was an accident in 22nd September, the Chief Executive officer makes a quote that; “We have uncovered a serious issue and have responded accordingly” The company also applied the strategy of denial by shifting blame after the scandal. It was reported that after the scandal, eight senior members of staff were suspended by the company (BRETON, 2006). These individual are still employees and have been requested to step aside while the investigations are being conducted even though there was no suspicion of any wrongdoing. This aims at gaining the support of stakeholders by giving a picture that the company aims at maintain its integrity by acting on those who were involved in the scandal. This also aims at shifting attention from the company to individuals at the top of the management team and also aims at gaining sympathy for the company because people would assume that the company is a victim of some reckless, irresponsible, or greedy individuals. Based on the press release, the company adopted the corrective action strategy by trying to find a solution to the scandal (MASSEY, 2001). This aims at restoring the confidence of stakeholders on the company. The company investigated the accounting practices in order to locate any errors and be able to make any correction necessary to avoid such incidence in the future. The company through its website quoted the following: “Tesco confirms that it has been notified by the Serious Fraud Office that it has commenced an investigation into accounting practices at the company.  Tesco has been cooperating fully with the SFO and will continue to do so. Tesco has been notified by the Financial Conduct Authority that, in light of the SFO investigation, its investigation will be discontinued.” Conclusion Corporate reputation is crucial in ensuring that the company maintains its competitive advantage in the market and in order to gain continuous support from external stakeholders. This study is based on the scandal that was seen at Tesco that involves an investigation over the accounting irregularities that have created a shortfall of £263m in the company’s profits. The results of the study show that Tesco used a number of strategies to help the company restore its image after the scandal. It applies the reduction of offensive of event where the company has used the strategy of claiming that it is an accident. The company also applied the strategy of denial by shifting blame after the scandal where eight senior members of staff were suspended by the company. Based on the press release, the company also adopted the corrective action strategy by trying to find a solution to the scandal (LIGHTSTONE, 2008). References List BREITSOHL, H. (2009), ‘Organizational Crises and Reactions from a Legitimacy Perspective – Results from Two Multiple-case Studies’, Schumpeter Discussion Paper 2009-007. Wuppertal. BRETON, G. AND COTÉ, L. (2006), ‘Profit and the Legitimacy of the Canadian Banking Industry’, Accounting, Auditing and Accountability Journal, 19(2), 512-539. CARROLL, C. E. (2013). The Handbook of Communication and Corporate Reputation. Chichester, Wiley. CONRAD, C., & POOLE, M. S. (2012). Strategic organizational communication: in a global economy. Chichester, Wiley-Blackwell. LIGHTSTONE, K. AND DRISCOLL, C. (2008), ‘Disclosing Elements of Disclosure: A Test of Legitimacy Theory and Company Ethics’, Canadian Journal of Administrative Sciences, 25(1), 7-21. MASSEY, J.E. (2001), “Managing Organisational Legitimacy: Communication Strategies for Organizations in Crisis”, Journal of Business Communication, 38(2): 153-184. RAHIM, M. M. (2013). Legal Regulation of Corporate Social Responsibility A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy. Berlin, Heidelberg, Imprint: Springer. Tesco PLC, 2014. Regulatory Update. [Online] Available at: http://www.tescoplc.com/index.asp?pageid=17&newsid=1082 [Accessed 12 11 2014]. The Telegraph, 2014. Tesco to be investigated by Serious Fraud Office. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11195376/Tesco-to-be-investigated-by-Serious-Fraud-Office.html [Accessed 11 11 2014]. XU, K. AND LI, W. (2013), ‘An Ethical Stakeholder Approach to Crisis Communication: A Case Study of Foxconn’s 2010 Employee Suicide Crisis,’ Journal of Business Ethics, 117(2): 371-386. Appendix Table 1: Tesco’s press releases relating to financial scandal No. Date Headline 1 22/09/2014 The Chief Executive officer makes a quote the uncovering of a serious issue. “We have uncovered a serious issue and have responded accordingly” 2 22/09/2014 Assurance of investigations. “The Chairman and I have acted quickly to establish a comprehensive independent investigation. The Board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear.” 3 29/10/2014 Tesco regulatory update through its website; “Tesco confirms that it has been notified by the Serious Fraud Office that it has commenced an investigation into accounting practices at the company.  Tesco has been cooperating fully with the SFO and will continue to do so. Tesco has been notified by the Financial Conduct Authority that, in light of the SFO investigation, its investigation will be discontinued.” Read More