Philip Clarke, CEO of Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) since 2011, is what the press call ‘beleaguered’. The lifelong company employee worked his way up to the top, only to preside over its subsequent decline. With few of his former lieutenants still standing, Mr Clarke’s is a lonely command and there’s a groundswell of opinion that his time is up as well.
Yes we can
A new CEO can inspire confidence with investors and inject renewed vigour among employees. An outsider has room for manoeuvre that an incumbent lacks; just think of Pascal Soroit at AstraZenca, Antonio Horta-Osorio at Lloyds Banking or Stephen Hester at British Land, RBS and RSA Insurance — the latter proving that detailed industry knowledge isn’t an absolute requirement.
But just what levers would a Stephen Hester be able to pull? Could a change of management make a real difference in an industry which is undergoing unprecedented change? I think the answer is a resounding ‘yes’. Here are just a few of the items that could be on the agenda of the ‘strategic review’ that inevitably follows the appointment of a new CEO:
- Which overseas businesses to expand, which to bail out of;
- Much bigger price cuts, sacrificing margin for volume;
- Reinventing the brand and re-defining Tesco’s image — is the business too broad for a single brand?
- Are Tesco’s non-grocery business lines a help or a hindrance?
- What to do with those underperforming hypermarkets;
- Should parts of the business be spun off?
- Empowering and inspiring management;
- Unlocking value tied up in property;
- Cutting the dividend?
Pain before gain
That last point underlines another inevitable feature of new CEO appointments: the ‘kitchen-sinking’ that sets a (softer) baseline against which a turnaround will be judged. Cutting the dividend would be the most painful of such measures, but also one an incoming CEO would be reluctant to fall back on. Hopefully enough spare capital could be gained from judicious property transactions and asset sales to provide the financial room for manoeuvre to fund the most radical restructuring.
Of course, I’m not suggesting I have the answers to Tesco’s problems. The purpose of the list above is simply to demonstrate that an outsider coming into the business would have plenty of scope to make radical change, as well as the mandate from shareholders to do so. It isn’t necessary to view Tesco as merely a passive victim of a changing industry. If investors’ confidence in Mr Clarke continues to wane, it’s an encouraging thought.