Tesco PLC Is Changing For The Better With A Management Clearout

Tesco (LSE: TSCO) has now been struggling for years to turn its core business around and return to growth, without much success. 

But after reporting a £260m profit overstatement earlier this year, Tesco has been forced to make some drastic changes. These changes are not just limited to Tesco’s customer offering.

Under the stewardship of the retailer’s new CEO, Dave Lewis, Tesco is restructuring its management team, removing the old guard and bringing in a new team with new ideas. 

Out with the old

Last week it was revealed that Tesco had removed at least three of the senior executives, who were asked to step aside in September when it discovered that first-half profits had been overstated. The directors heading for the door in this case were Kevin Grace, group commercial director, Carl Rogberg, UK finance director, and John Scouler, UK food commercial director. 

Then, at the beginning of this week, it was announced that Chris Bush, managing director of the UK business, and another one of the eight senior managers asked to step aside in the wake of the accounting scandal, had both been asked to leave the company. However, Matt Simister, who had initially been asked to step aside, was brought back after co-operating with management to resolve accounting issues. 

The executives leaving the company will be replaced by insiders. Dave Lewis himself will take over as head of the Tesco’s domestic business. 

What’s more, the roles of chief creative officer, group business planning and strategy director have been eliminated. Executives in these positions are now set to leave the retailer. 

Gearing for growth 

Tesco’s management reshuffle is great news, for me. The company has cleared out much of the old guard and eliminated some layers of management, which should help reduce costs and increase efficiency. Further, Tesco’s new management team should be able to bring new ideas to the table, something the old management team failed to do. 

Indeed, one of the executive replacements is Robin Terrell, the head of online, who has now been placed in the position of marketing director. As e-commerce and digital marketing becomes increasingly important for supermarkets, Mr Terrell should be able to draw on his online sales experience to boost the Tesco’s online presence.

Moreover, Dave Lewis’ self-appointment as head of Tesco’s UK business should help focus the CEO’s attention on the most important part of the group. According to some analysts, Tesco’s domestic UK business has been neglected for years and is in serious need of regeneration.

The bottom line 

Overall, Tesco’s drastic management changes should clear out the old guard and bring in new faces with new ideas. The company has also slimmed down its management structure, which should help reduce costs and increase efficiency.

So, Tesco's recovery is starting to take shape but the group's turnaround won't happen overnight.

Still, Tesco's most attractive qualities is the company's dividend payout. While the company may have slashed this year's payout, City analysts still expect the company to offer a yield of 2.8% next year. Reinvesting this payout will turbocharge your returns when Tesco's recovery finally gets under way. 

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Rupert Hargreaves owns shares of Tesco. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.