Sir Terry Leahy interview part two: From boardroom exodus to Tesco's new dawn

Philip Clarke’s management style and public criticism of the Tesco business created dismay among the footsoldiers on the grocer’s shopfloor, but that disillusionment also spread into the boardroom.

Leahy had always had a strong team operating around him, but in a short space of time after Clarke took over, they were gone.

People such as David Potts, the former supply chain and Asia director now running Morrisons, Richard Brasher, the UK boss now in charge of Pick n Pay in South Africa, Tim Mason, the marketing mastermind who went to the States to run Fresh & Easy, and Andy Higginson, of course.

Company veteran and chairman David Reid also left and was replaced by Sir Richard Broadbent.

Leahy says: “Tesco has always been led by a team, not by one person.

“I think Phil made a mistake to let that team go and so much experience was lost. Andy, Tim, Richard. You can’t replace people with that experience.”

For Higginson – who admits of Clarke, “I couldn’t stand him and he couldn’t stand me” – the loss of such experience and commitment to the company was unforgivable.

The effects were felt strategically as a board with limited retail expertise presided over Tesco’s travails.

In 2011, Tesco’s board comprised seven executive directors and the same number of non-executives. By the time of the 2014 annual report, there were only two executive directors left – Clarke and chief financial officer Laurie McIlwee, who was to depart in 2014.

Chairman Broadbent wrote in that annual report: “It is important to view these changes in the context of management development generally, and in particular the development of a strong executive committee under Philip Clarke, the individual members of which generally attend board discussions of matters relating to their responsibilities.

“This allows the board to operate as a smaller group, supporting real, robust and penetrating debate while ensuring continued contact with a range of senior business executives.”

Corporate vandalism

But Higginson is withering in his verdict on how effective that board was.

He says: “What happened was an extraordinary act of corporate vandalism. I’m not just talking about the board, there were layers and layers of people underneath who didn’t want to be managed by a bully and were talented enough to go off and get jobs somewhere else and they did. You see them all over the industry now.”

“On people and strategy, the PLC board were completely absent in terms of stepping in and saying, ‘why are we losing all this talent? What is going on that is so badly wrong?’

“As is now apparent, the chairman was utterly clueless. He’d been completely marginalised by building an office on Jermyn Street. Tesco had never had a London office, and suddenly they build a trendy office on Jermyn Street. It was really a shameful period in the company history.”

“What happened was an extraordinary act of corporate vandalism.”

Andy Higginson

The differences between Leahy and Clarke were marked during these difficult times, according to Higginson.

He describes Leahy as “one of those exceptional people in a generation” with “an amazing ability to go from big strategy to detail” and a prodigious work ethic.

Higginson says: “He spent a lot of time thinking about what a good chief executive would do in any particular situation.

“A chief executive in many ways doesn’t ‘do’ that much, but what they take an interest in, what they’re all over, shapes what the organisation does.

“He would spend a lot of time thinking about the right areas to be focused on and was very able to get that balance between what’s important and not important.

“He wouldn’t fret about things that other people might worry about, because they weren’t that important. He was very good at focusing on the bigger picture.

“There was no question among the team about who was the leader. And he didn’t need to shout at people or bang the table – we all just respected him being smarter than we were.”

Bullying behaviour

Clarke, it turned out, was not much of a people person.

Bruno Monteyne says: “Terry knew what he was really good at. He didn’t pretend to know more about the supply chain than David Potts, or more about finance than the finance director. Phil Clarke ‘knew’ more than the experts. He was not able to get his team to contribute.”

Higginson says: “Phil’s problems were always – how can I put it? – personal character flaws really. The whole belief, I think, was that in getting the top job he would somehow resolve some of those issues, which might have led to a bit more maturity in the way he responded. But, unfortunately, it made him worse.

“Phil was a bully – I don’t think there’s any secret in that. I think he was very much the stick, rather than the carrot and stick, and he was terribly insecure.

In contrast to Leahy, who was able to work alongside a wide variety of people, Clarke “didn’t want anyone around him who challenged him or somehow in his head undermined his position”.

So, while Clarke inherited a senior management team of, in Higginson’s words, “quite strongminded individuals who were used to having ding-dong debates at meetings and then leaving the room as friends”, the new chief executive “wasn’t in that place at all”.

Higginson concludes: “I remember one or two people saying to me after I’d gone, when things were going a bit wrong, ‘it is hard for him, isn’t it, because he’s got all these problems that he’s facing’.

“I said, ‘he might have, but he’s the fucking chief exec of Tesco’. I mean, how bad is life? It’s a great job to have. We’d all have loved to have that job.”

Inspector Clouseau

The loss of experienced executives left the inexperience of the main board exposed. Higginson says: “They just lost all sense of perspective. They were focused on all the wrong things, and meanwhile the ship was going down.

“It was almost like those Clouseau films where he’s ‘have you got a licence for this minkey?’ and there’s an armed robbery going on in the background.

“The business is burning to the ground behind them and they’re hosting analysts and journalists in Digital Roundabout at Blinkbox.”

Ed Matthews says: “Phil’s biggest mistake was managerial. He got rid of anyone who disagreed with him. He loved the trappings of being CEO, but he was an insecure guy.”

So how did Clarke end up getting the role? Leahy says if the board had known that Clarke would quickly part company with so many talented team members, “they’d never have appointed him”.

He acknowledges: “He had been a successful part of that team and there was broad support for his appointment, but you never know how somebody will do when they get the chief executive’s job in truly competitive circumstances.

“It’s normal to promote from within and I think I would have found it difficult to cope within that environment without my team, and I’d been in it for 14 years.”

Higginson says: “I think Terry might, might, admit the selection of Phil as chief exec was not the finest moment really. I don’t think there’s anything you can say other than ‘fair point’.

Rebuilding Tesco

Four years on from Clarke’s exit, Tesco has regained prowess under the leadership of Dave Lewis. The core business has been growing and new opportunities are on the horizon following the acquisition of Booker.

Leahy says: “I would say that the [grocery] industry is finding its way back to where it should always have been, which is always prepared to change in the direction of travel of customers.

“That’s because of the work that David Potts has done at Morrisons; it’s what Dave Lewis is beginning to do with increasing confidence at Tesco.

“Booker is a front-foot move, back to that thing about confidence and leadership that’s a huge boost to morale in the business.”

Sir Terry Leahy

“The fundamental thing is he’s rebuilt the price list, he’s reintroduced discount brands – the Farm brands. He’s changed the Price Promise to Brand Guarantee, which you can compare across retailers.

“I think the Tesco-Booker tie-up is a good move. Booker is a front-foot move, back to that thing about confidence and leadership that’s a huge boost to morale in the business. It’s taking things to other people, asking questions of the industry. That’s very powerful.

“Doing it with Booker, who have expertise, limits the risk. I think it’s good that Charles Wilson is joining because you begin to see a strong team emerging there.”

“It needs to be executed, but that’s always been retailing – you can have an idea, but you need to execute it.”

During Leahy’s time in charge, Tesco typically did that well. If Lewis continues in a similar vein – and he has consistently improved the business since being parachuted in – then Tesco may be able look forward to a further golden era.

• Retail Week was unable to contact Phil Clarke for comment. Sir Richard Broadbent did not reply to a request for comment.