You are an independent corporate governance consultant and you have been approached by Tesco minority shareholders to provide them advice that is based on the following newspaper article. 

"Tesco is facing accusations of inflating its profits by more than £250 million. The scandal came to light after a whistleblower tipped off Tesco's Legal Department which in turn informed the new Chief Executive Officer.

Since these allegations were made, Tesco's shares have now fallen by 40 per cent resulting in more than £2 billion being wiped off its market value. Pension funds, traders and small investors have subsequently suffered huge losses since the announcement by Tesco of this scandal. 

The company has suspended four of its directors pending investigation and a new finance director has been appointed two months ahead of schedule to assist with investigations which are being conducted by external auditors. 

The Tesco profits inquiry, which will examine whether the retailer accounted for payments from suppliers improperly, has rocked investor confidence, with some shareholders openly questioning the leadership of its current chairman who has rebuffed the criticism 

Tesco could now face pressure from shareholders to withhold payments destined for former chief executive and finance director who resigned in April, until the outcome of the investigation is known".

 

You are Required:

 

a)   To write to the Minority Shareholders, a Report that gives a detailed analysis of the following key corporate governance issues. Your Report should:

 

Define Corporate Governance and Discuss the reasons why the current Tesco Chairman is facing criticism for his lack of leadership in the wake of this scandal.  Your discussion should also explain whether the positions of Chairman and CEO should be separated. 

                                                                                                                    

Explain who has the responsibility for suspending executive directors in Tesco and discuss the procedures that should be adopted in their appointment.  

                                                                                                                    

                                                                                                 

Analyse whether the external auditors had a duty to unearth this scandal and the reasons they may have missed it. 

                                                                                                                    

 

Analyse the reasons Tesco's executive directors may have felt compelled to inflate the profit figures and suggest ways that can be adopted to avert such a scenario in the future.                                                                    

                                                                                                                    

Discuss in the context of the Agency Theory, whether it is the shareholders' prerogative to lobby Tesco to withhold payments destined to the former CEO and finance director. How should remuneration for directors be set in the company? 

                                                                                                                    

 

Discuss the actions that minority shareholders in Tesco can take in order to address this problem.                                                                                                                                                                                                       

 

Evaluate the likely effects of whistleblowing and whether any actions should be adopted to encourage it in Tesco.                                                               

                                                                                    

Discuss the effects that this scandal may have on the other Tesco stakeholders.