Tag Archives: Jonathan Lloyd

February 6, 2015 · 00:14

A basket full of trash

Have you ever had this? I am not talking about the Christmas or the hospital basket. No, I am talking about those ‘greeting’ baskets you get. One of these: ‘welcome new member’ baskets. You accept them with a smile, whilst you know you are getting a bag full of goodies that have value that is close to zero. Now we get these baskets from book clubs and other longer term commitment places, none of this is a big mystery to many people, because at some point, we all get confronted with this basket. Now, let’s change the game a little, now we consider the same basket, but in this case we don’t look at some two bit online retail vendor, now we look at Price Waterhouse Coopers.

That part is seen in the Guardian as per today. Let me refresh you on some of the facts, for that I will take you back to my blog from October 25^th 2014 called ‘Price Waterfall Blooper‘. In there I wrote the following “Consider that PwC had (a reported by the Guardian in an earlier blog) last year; PwC was paid £10.4m by Tesco for its auditing services and a further £3.6m for other consultancy work (a newer version at http://www.theguardian.com/commentisfree/2014/oct/23/guardian-view-tesco-auditing-debacle-pwc-systemic-shambles)“. Now when we add today’s information, information I quite honestly never considered: “The Groceries Code Adjudicator, Christine Tacon, announced the move, saying she had formed a “reasonable suspicion” that the retailer has breached the Groceries Supply Code of Practice“. Now, let’s take a quick look at this so called ‘code of practice’. First of all, the information is found here: https://www.gov.uk/government/publications/groceries-supply-code-of-practice. The fact that this is on a dot Gov dot UK site should indicate that this is the serious stuff. So this code of conduct states at 4.1 PART 4—PRICES AND PAYMENTS, the following: 5. No delay in Payments and at 9. We see Limited circumstances for Payments as a condition of being a Supplier. This is just two of a long list of a code of conduct. The reason to mention these two is the question that follows. ‘How come the auditor was not aware of these facts?’. These are not just simple facts, they are codes of conduct, and can someone please explain to me how this is not raised by the firm charging close to 14 million pounds for one year of work? There are two other parties who are about to see the limelight. Party one is the Press. You see, I was following part of this since last year October, yet, I do not remember seeing the press being awake on these facts. I have a decent excuse living on the other side of the planet and the fact that these elements are not part of my Master of Intellectual Property education, yet the press, Pricewaterhouse Coopers as well as whatever legal aid is out there in UK farmland, it seems to me that too many people were not paying attention at all. There is actually a third side to this. I missed it initially, but when you look at the Guardian on October 23rd (at http://www.theguardian.com/business/2014/oct/23/tesco-black-day-profits-down-92), we see the following: “Tesco claimed that the rogue accounting practices – which relate to how the supermarket banks payments from suppliers – dated back at least two years“. Now consider again the government side that states ‘Guidance Groceries Supply Code of Practice, Published 4 August 2009’, so the statement and the fact that there was a code of conduct out for half a decade, did no one consider that there were additional issues that might rise?

Who on earth is running PwC in London? More important, what on earth is mentoring these wannabe’s? I have good right to speak in this manner. This took me 5 minutes to figure out when I got wind of this small fact, the fact that PwC, the Press and others were not all over this from day one is a little too weird for words. Consider the people that quickly left Tesco when the water got slightly too uncomfortable. Should they have known? I’ll let you answer this question for yourself, but now also consider that the auditors did not make mention in reports on some of these parts, they DEFINITELY should have known about the codes of conduct for the simple reason that part of this is linked to the pesky rules regarding payments and so on. What else did these people miss? More important, consider the date I mentioned (October 23^rd), now consider the Deloitte report, was this part in that report? If not, consider that they had to check on these ‘miscalculations’, as we see the mention ‘rogue accounting practices‘ and ‘payments from suppliers‘, did no one consider looking under rock number two? Granted that Deloitte did not get much time, but as we see that suppliers were part of the mix, did no one mention the question ‘What about the Groceries Supply Code of Practice? Do we need to consider any issues there?‘ Did that question seriously not come up?

Now consider my blog from October 13^th called ‘A matter of Jurisprudence‘, there I wrote the following “company secretary Jonathan Lloyd, who advises the board on legal and governance issues, had resigned and was serving out his notice until March 2015”, the second one “Ken Hanna, chairman of Tesco’s audit committee, is also set to step aside as a non-executive director as the company’s chairman reshuffles his management team”, which was shown from several sources. Now consider the fact that we see Jonathan on legal issues and Ken as part of the audit committee, they should have known about the ‘Groceries Supply Code of Practice’, which now gives an entirely different light into their departures. So was PwC completely in the dark about this? If the answer is yes, then my next question should be ‘why are they allowed to be auditors?’ Is that such a weird question to ask? It is a code of practice, not a fraternity paper on how to score, so I reckon, especially as it has financial sides, the auditors should have taken a look, moreover, Deloitte should (they might) have reported on this. The fact that the press is only now revealing these events calls for additional questions, but their fumbling is not part of this article, the fumbling of accountancy firms a lot more, for the mere reason that the code states at 5. “A Retailer must pay a Supplier for Groceries delivered to that Retailer’s specification in accordance with the relevant Supply Agreement, and, in any case, within a reasonable time after the date of the Supplier’s invoice“, which should have been part of the financial checks, can we all agree on that part?

And as we take a better look at this basket (have you figured it out yet), we see that the players were in a lot deeper than initially suggested. This cesto, has harboured information, misinformation and above all else, a lack of illumination of the facts as is. First there is Tesco themselves, the latest information shines a harsh light on several members who have vacated their office, in addition there is the case I made on October 13^th in my blog ‘A matter of Jurisprudence‘, where I mentioned one person (Rebecca Shelley) who would have been at the centre. The mention on the Birchwood Knight site was “As part of her corporate affairs role, Rebecca will be responsible for government and media relations, investor relations, internal communications and corporate social responsibility“. Rebecca’s job hits ‘government relations’ and ‘social responsibility’. How come that this ‘Groceries Supply Code of Practice’ remained so below the radar?

So when we see months of reporting and we see the lack of mention of this so called ‘code of practice’ we also see the mention in today’s article “Business secretary Vince Cable said: “This is an historic day for the groceries code adjudicator and shows we have created a regulator that has real teeth“. Who is this Vince Cable catering for? You see, if this statement had been given before December 1^st 2014, then there might have been a case, at present the act of mentioning it months after going live is just another presentation of a sad story on how some people could be seen by many others as some parties remaining silent hoping to make a bundle down the track.

So I reckon that Tesco will have to sweat the small stuff for some time to come, however, the more we get to see at present, the less clean the image of PwC seems to be. In the case of PwC it will become a case that is worrying on several levels. Not only are the looking for hardship over what was done, as per now it seems that PwC will be scrutinised for the things they did not do, not properly oversee or missed altogether, as per today it sucks to be the senior account holder of the Tesco account, because the fallout will continue for a decently long time to come.

So as we see the basket (also known as a cesto) filled with the trash of information, wrongful acts and none acts, can we all agree that we got a whole lot of nothing, an act that will have severe repercussions and not just legal ones! Does anyone remember this Warren Buffett fellow and how he lost 2 billion in value? If we combine what we have seen so far and add the part that I discussed in October regarding the Chadbourne papers, I can repeat that quote: “that directors of companies must make certain disclosure statements in the directors’ reports. This applies not only to information which the officer actually knew of but also information he would have known about if he had conducted a reasonable enquiry. However, the provision goes further and requires the director to confirm that, so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware”. This now brings an entirely different light to the Groceries Supply Code of Practice, moreover, it could be suggested that Warren Buffett now has a clear case in legally reclaiming his losses, consider that the US has the Sarbanes–Oxley Act, after Enron, which took care of the power players real fast. The UK has the Corporate Governance Code. I reckon that it is not too far-fetched that Mr Warren Buffett could be offered a deal for his lost two billion. If so Warren, remember this poor blogger and I feel so much better getting to work in a new Jaguar XK, in British racing green of course.

A matter of Jurisprudence

Another morning, another moment we see another round of iterated news. Just now I noticed another article placed 5 hours ago (5 hours after my previous blog) on how 2 more senior directors are moving out. The first one “company secretary Jonathan Lloyd, who advises the board on legal and governance issues, had resigned and was serving out his notice until March 2015“, the second one “Ken Hanna, chairman of Tesco’s audit committee, is also set to step aside as a non-executive director as the company’s chairman reshuffles his management team“. The news was in more than just one source. The quote “‘His resignation is not connected to the current investigation. It’s his own choice; he’s got a new job with another listed company,’ a Tesco spokesman said“. All this might be true, but let us be fair, if it was not HIS choice, would we hear this from either Jonathan Lloyd or Tesco?

This got me looking into another area. I got the impulse after seeing a PDF (at http://www.chadbourne.com/files/upload/dandoliability.pdf).

In there we see the following under the title ‘General Duties of Directors under the Act‘, “To promote the success of the company for the benefit of its members having consideration to: (a) the likely consequences of any decision in the long term” as well as what we see at 3.5 under Common Law Duties, where we see “At common law, a director is obliged to exercise a reasonable degree of skill and care in carrying out his/her duties. The standard of care involves both an objective and subjective element”. In other words, the director is required to exercise that degree of skill which might be expected from someone having both: ‘his own particular knowledge and experience‘ as well as ‘the general knowledge and experience which might be expected of a person carrying out the same functions as those carried out by that particular director‘.

For those who kept their eyes on my blog articles on Tesco, are you seeing the issues that are now in my mind?

I talked about negligence on several moments, I iterated parts of these and wondered about several questions, especially the fact that the press has been lacking in digging into these matters. Now a simple Google search led me to the PDF by Chadbourne & Parke. The Guardian could have had decent insight a mere 23 minutes by bus away (a little over 3 miles), so why does it take a non-journalist from the other side of the planet to connect the dots?

The PDF is a mere information piece, perhaps a little advertisement and it states that you needs proper legal advice, yet, not one paper has been digging into that pile have they? I did not get my law degree in the UK, yet I do get the gist of it, more important, the deeper I dig, the clearer the view seems to become that others are ignoring it. So, are these all just imaginations of conspiracy theory by me the blogger? This is clearly a question the reader might ask themselves. Yet, am I accusing of issues being covered up? I am to some degree, yet at the foundation I am questioning the information I read and I wonder why others, those who should be asking and digging on ‘issues’ are not doing that.

Yet the jewel was in 5.1, where we see “To a large extent, these mainly relate to duties of internal management, e.g. the keeping of accounting records; the preparation of annual accounts; the filing of documents with the Registrar of Companies and the keeping of the statutory books of the company. Failure to perform these duties or to ensure that they are performed may result in fines both for the company and the defaulting directors. Directors may also be subject to imprisonment“, so when we see this does it not seem interesting on how quickly some are leaving the field for a ‘better’ option?

This all brought me to Re D’Jan of London Ltd [1994] 1 BCLC 561. It is a UK Law case and quite the one at that became the main precedent which is now codified under s174 of the Companies Act 2006. “He did not show reasonable diligence when he signed the form. He was therefore in breach of his duty to the company“, how does this relate?

Is it about filling in a form? No, but when we regard s214(4) of the Insolvency Act 1986, we see the same approach as we see in a mere PDF by Chadbourne at 5.1, there is a visible need for “general knowledge, skill and experience“, but how do we see the term general knowledge? You see, the Tesco issues are stated in regards to ‘specific knowledge’, as we see the changes as they had been pushed through before the Dave Lewis change. This all gets me back to Rebecca Shelley at Tesco. First of all, there is no accusation here, there is no indication that she did anything wrong. So why does she pop up on my radar, because she is a woman? No! Tesco has several, some even in higher places then Rebecca. Let’s take a look that I saw on the Birchwood Knight site (at http://www.birchwoodknight.co.uk/news-article/tesco-hires-rebecca-shelley-for-group-director-of-corporate-affairs-role-151).

Here we see the following quote “As part of her corporate affairs role, Rebecca will be responsible for government and media relations, investor relations, internal communications and corporate social responsibility (the legal affairs and other elements of Lucy Neville-Rolfe’s brief are being split into another role)“, am I reading too much into this?

Consider the (former) flying parts of Tesco. When we see the need and the issues involving legal matters, was the revamping of the role as Rebecca Shelley received it a niche part of what should have been? This is where I see ‘general knowledge’ versus ‘specific knowledge’. It is my personal view that Rebecca’s role should be a lot more senior, especially in light of the revelations we see in the papers, am I that wrong? If she had the legal sides to her role, how much earlier might we have seen the overstatement, or the Gulfstream issue for that matter? These issues are in relevance towards the place I am trying to see, places the press does not seem to be looking, the place that readers as well as half a million Tesco employees should be aware of. I will go one step further, as I see the issues in play, as I see the matters of non-transparencies as well as an indicated lack of information towards the shareholders gives reasoning that they might want to evolve the role of Rebecca Shelley to the board. Especially in light of the massive changes Tesco is likely to face.

Yet, legally speaking, there are additional questions when we look at http://www.ibe.org.uk/userassets/briefings/ibe_briefing_31_tax_avoidance_as_an_ethical_issue_for_business.pdf, was the Gulfstream a form of tax avoidance? None of this is illegal, but it comes with ethical questions and as such I wonder how much the shareholders knew or should know. If tax avoidance is avoiding social obligation and as such it could damage public trust and reputation, does the link now make sense? The argument that shareholders want maximised value, which means a minimised taxable footprint, so how are choices made? More important why am I the only one who seems to be asking the questions that have relevance and am I alone digging into this?

One final step regarding the Chadbourne paper, at 6.15 we see “that directors of companies must make certain disclosure statements in the directors’ reports. This applies not only to information which the officer actually knew of but also information he would have known about if he had conducted a reasonable enquiry. However, the provision goes further and requires the director to confirm that, so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware. A director has a duty to exercise reasonable care, skill and diligence when preparing the directors’ report. In determining a director’s liability under the Act, the statutory test is that a director will commit an offence if he knew the statement was false or was reckless as to whether it was false and failed to take reasonable steps to prevent the report from being approved“, which just raises additional questions. Yet, consider the following in light of all I wrote and quoted about the issues on generic and specific tasks, the issues on “which the officer actually knew of but also information he would have known about if he had conducted a reasonable enquiry” becomes an issue when the board is so niched that reasonable inquiry is no longer an option. It would in my mind place the role of Rebecca Shelley at the centre of it all, yet with the legal part removed we would see a hindrance there too. So as you look at the events that the press wrote about, the parts I wrote about and the questions I have been asking. I mentioned in the early beginning of Tesco regarding orchestration in the article ‘The orchestration has engaged‘, yet I thought it was external, is it possible it had been internal and the involved parties are clearing the field really fast at this point?

But there is one more issue, especially if I want to remain true to the title ‘A matter of Jurisprudence’, s370 Enforcement of directors’ liabilities by shareholder action (as seen in the Companies Act 2006), we see under s370(1)(a) “in the case of a liability of a director of a company to that company, by proceedings brought under this section in the name of the company by an authorised group of its members;” there are a few other issues which give question on how enforceable this would be, yet consider the issues we have seen, what more should be looked at? Consider chapter 6 of the same act ‘Voidness of provisions protecting auditors from liability’, now consider “for exempting an auditor of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company occurring in the course of the audit of accounts”, now we get Pricewaterhouse Coopers in the mix. There is no indication at present that PwC is at fault in any way, yet when we see the issue regarding small change (read 250 million), when we regard that this inflation was not just straight through, but as I see it (a clear assumption) the fact that it required a whistle-blower, indicates that the inflation was decently buried. Was it buried well enough for PwC? That is the question. The implied extra 3 million in consultancy might have been valid, considering the size of Tesco, so where is the negligence? There might not be any at all, but consider that the Tesco executives took PwC for a ride and it was not found and it was signed off on, when THAT becomes visible, what will happen to the value of PwC, if a mere 250 million can topple a 70 billion pound company, what would be the impact on PwC for not finding it?

Perhaps that is a conspiracy theory, evolving as the facts seem to fit (or fitting the facts as they seemingly evolve), but are they? Even I question that what I find, but I will ask questions none the less, something the press has not been doing in any way, shape or form.

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