Was Tesco's Terry Leahy really such a great leader?

In the last few years, even under Terry Leahy, the evidence suggests that Tesco has been in the grip of its venal, compulsive and unprincipled side, which has become intoxicated by greed and success.

Under Terry Leahy's leadership Tesco went from strength to strength between 1997 and 2011. The company, and Leahy, were widely admired and feted.

Unfortunately the company's current meltdown has been a car crash waiting to happen for a long time, and Leahy bears significant responsibility.

Understanding what's happened at Tesco, specifically why, and how it could have been avoided offers vital and sobering lessons for everyone in business whose minds and ears are open.

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From 1997 to 2011 Terry (later Sir Terry) Leahy led Tesco through a remarkable period of growth of more than 400% in sales and profits. When he retired it had become the world’s second largest retailer after Walmart.

Tesco and Leahy won numerous accolades for good business practice and were widely admired. There is no question that Leahy was an outstandingly gifted and exceptional leader, who understood and applied much of the formula needed to create Top 1% iconic businesses.

If we judge Tesco’s stature by its financial performance during Leahy’s tenure then it qualifies as a Top 1% business – class leading sales and profits for a period of more than 10 years.

However, if we apply the criteria from Jim Collins’ and Jerry I Porras’s ‘Built to Last: Successful Habits of Visionary Companies’ (1994, Harper Business Books) then the jury is out about Tesco, and Leahy’s credentials as a Top 1% leader look much weaker.

Top 1% organisations contain the DNA to endure and prosper long beyond the tenure of an individual CEO. They demonstrate enormous resilience and the ability to bounce back from often severe adversity, which many of them face at different times in their prolonged history. We cannot yet know whether Tesco will overcome its current deep crisis. It is clear however that:

• The seeds of Tesco’s current malaise were sown during Leahy’s tenure as CEO and the decline began before he retired

• Unlike true Top 1% leaders Leahy failed to prepare Tesco adequately to survive and prosper without him. Top 1% leaders grow leaders, create teams and build mechanisms that will enable their organisations to be great performers long after they have gone.

What Terry Leahy got right

Terry Leahy fully understood the power of core ideology and was apparently very successful at inculcating his – the primacy of the customer – into Tesco. During his 14 years as CEO Tesco became well known for its strategic ‘Steering Wheel’, divided into five radial slices - Customer, Community, Operations, People and Finance. Each slice is subdivided into specific objectives – for example the ‘Customer’ slice contains ‘Earn Lifetime Loyalty’, ‘The Aisles Are Clear’, ‘I Can Get What I Want’, ‘The Prices Are Good’, ‘I Don’t Queue’ and ‘The Staff Are Great’.

Leahy joined Tesco in 1979 as a Marketing Executive and was appointed to the Board in 1992, aged just 36. He was passionate about the customer and, upon his appointment as CEO in 1997, he quickly instituted a strategy whereby Tesco would in future seek to lead the market by acquiring superior customer knowledge, rather than to respond to competitors’ first moves as it had done traditionally. Tesco pioneered the consumer loyalty market in the UK with its extremely successful Clubcard programme. As a marketing man Leahy led from the front, infusing Tesco with a passion for the customer, and for giving the customer good value to earn their lifetime loyalty. In simple terms it was this focus that above all drove Tesco’s phenomenal growth.

What Terry Leahy may have got wrong

Leahy was the perfect brand ambassador as CEO of Tesco because his humble personal origins combined with his fierce ambition reflected the company’s longstanding values of thrift and value-for-money for ordinary working people of limited means who wanted to ‘get on’ in life. The evidence also imples that he studied the performance of great companies and knew how to emulate them – his book ‘Management in 10 Words’ (2013, Random House) suggests he knows a thing or two about the Top 1% formula for success.

He was highly credible when seeking to enthuse Tesco's workforce with the core ideology, though anecdotal evidence suggests that too many managers within Tesco paid lip service to it and I suspect its delivery was too 'top down' and did not take root sufficiently.

It may be that Leahy, a relatively shy and certainly not charismatic individual, was nevertheless just a little too intoxicated by the fame and fortune that his position brought, and the hubris surrounding him and Tesco. It would be tempting for anyone to have had their head turned by it, but this is one of the absolutely crucial distinctions between Top 1% leaders, who eschew publicity, and the rest.

Skilled at delegation, I suspect also that in some ways Leahy was too hands-off and others who did not share the core ideology, in particular his then deputy Philip Clarke who eventually replaced him as CEO, started to become too powerful. Maybe Leahy trusted Clarke and others too much to begin with? Or maybe he found Clarke too difficult and so left him to get on with his side of things, as Prime Minister Tony Blair infamously did with his Big Beast Chancellor (Finance Minister), Gordon Brown, who was destined one day to replace him with strikingly similar, catastrophic consequences!

Whether with Leahy's tacit acceptance or not the evidence suggests that during the last few years of his tenure Tesco believed it could run with the hare and the hounds. This compromised attitude in fact made the company's recent malaise more likely, because the message that got translated to its managers was that you could have your 'cake' (appear to be relentlessly focused on customer value) whilst 'eating it' (aggressively pursuing profit) . The wedge on the Tesco Steering Wheel titled 'Maximise Profit' progressively suffocated all else and the previously balanced approach was lost.

In the final analysis I think Leahy failed to do enough to shift Tesco's culture irrevocably away from selfishness towards a purpose beyond profit, something which all Top 1% companies have. Such a purpose need not be altogether altruistic, but it must inspire and enthuse the vast majority of the company's employees and it must be genuine and sincere.

One lesson is crystal clear from history - you cannot play fast and loose with corporate values. If you do it will eventually come back to bite you. Customers, employees and suppliers are intelligent enough to see through spin and if they start to believe they've been conned they will turn on you!

I believe that there has been, and is, a battle going on in the hearts and minds of Tesco executives for the soul of the company. Like most companies and individuals Tesco has different, in many ways contradictory personalities. Unfortunately for Tesco two of them are very strong and are currently in mutual conflict, whereas for most of Terry Leahy’s tenure and before that they were in equilibrium and worked effectively together.

In the last few years, even under Terry Leahy, the evidence suggests that Tesco has been in the grip of its venal, compulsive and unprincipled side, which has become intoxicated by greed and success. Sadly this personality has the potential for self-harm and self-destruction, and Tesco seems to have suffered a form of collective nervous breakdown. Recovery will not be easy when facing the intense challenge of the hard discounters, Aldi and Lidl, to which Tesco's traditional competitors Asda, Morrisons and Sainsbury's are also responding fiercely.

There's never a good time for a meltdown, but this is a particularly bad one!

(For further insights into what Tesco's current crisis teaches us about the tried and tested principles of the Top 1% see my other blogs, How to make your company more resilient and Stop your company's demons coming back to haunt you)

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If this blog is particularly relevant to you, your organisation, or to someone else you know, I may be able to help or advise. I strive to be a smart giver – Adam Grant’s excellent book “Give and Take” (2013) explains why smart givers are the highest 25% of achievers in all walks of life. They go out of their way to help others, intelligently, without allowing themselves to be widely exploited. In this way they inspire higher performance and create sustained new value through collaborative exchange.

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Mark Ashton