Wm Morrison’s takeover of the Safeway chain in 2004 has proved more problematic than initially expected, raising concerns over the group’s ability to integrate such a large acquisition. Finance director Martin Ackroyd is the victim of a boardroom shakeup that should see the supermarket group’s management thrust into line with accepted corporate governance standards.
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Martin Ackroyd lost credibility in the City when Morrison was forced into issuing a second profit warning last week. Issues with Safeway accounting systems, particularly incorrect estimates of supplier balances, have been blamed for the shortfall while differences in supplier handling were behind the first profit warning back in July. Analysts are shocked and shareholders outraged that such an astounding warning should come just one week before the company’s final results.
Such an error seems characteristic of the undersized and outdated management style of the Morrison group. Until its buyout of Safeway, Morrison was the only FTSE100 company without any non-executive directors on its board. It was a tightly-controlled business, run by its long-standing executive chairman, Ken Morrison, who believed non-executives were a waste of money. However, after pressure from investors, Morrison grudgingly accepted two non-execs onto the board. Although a step in the right direction, executive directors still outnumbered non-executives by seven to two, at odds with corporate norms.
The latest profit warning illustrates the drastic need for the chain to escape the regional small business mindset and embrace corporate governance tenets, particularly as the Safeway acquisition has more than tripled its size, adding 375 outlets to its 127 stores. Bob Stott has been appointed the company’s first chief executive, and a non-executive has been appointed deputy chairman, though more independent directors must be brought in to ensure greater focus, long-term vision and management transparency. Morrison would also be wise to broaden the geographical background of its management board to reflect its expanded multi regional footprint.
The chairman must relinquish some control over the company if it is to successfully integrate Safeway. The problem of assimilating two distinct companies with two separate cultures and two different consumer bases is arduous enough without the added task of trying to run a large business using a small business model.
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