Tesco 2009 Annual Report Download - page 41

Tesco PLC Annual Report and Financial Statements 2009
39
REPORT OF THE DIRECTORS
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We engage with stakeholders in every sphere to take into account their
views and we try to ensure our strategy reflects them. The launch of the
Community Plan in 2006 has demonstrated our commitment to tackling
a wide range of societal and environmental issues. We have high level
committees, including the Executive Committee, Corporate Responsibility
Committee and Compliance Committee, to help guide and monitor
our policies.
Environmental risks Our key environmental risks are related to
minimising energy usage in stores and transportation, waste management
and our ability to respond to consumer concerns in this area. We develop
environmental policy through engaging with key stakeholders and experts
in this field to achieve sustainable growth and minimise our environmental
impacts. The Group’s approach is brought together in a consistent manner
by the Corporate Responsibility Committee.
Policy is reviewed regularly by the Compliance Committee and Corporate
Responsibility Committee. We recognise the opportunities for competitive
advantage through energy efficiency and look for continuous
improvement through innovations and better ways to help customers act
responsibly towards the environment.
Product safety The safety and quality of our products is of paramount
importance to Tesco as well as being essential for maintaining customer
trust and confidence. A breach in confidence could affect the size of our
customer base and hence financial results.
We have detailed and established procedures for ensuring product
integrity at all times, especially for our own-label products. There are
strict product safety processes and regular management reports. We
work in partnership with suppliers to ensure mutual understanding of
the standards required. We also monitor developments in areas such as
health, safety and nutrition in order to respond appropriately to changing
customer trends and new legislation. We have clear processes for crisis
management, pulling together expert teams should we need to respond
quickly on issues.
Health and safety risks While the safety of our staff and customers is of
the utmost importance to us, if we are unable to provide safe environments
for our staff and customers this could lead to injuries or loss of life.
We operate stringent health and safety processes in line with best practice
in our stores, distribution centres and offices, which are monitored and
audited regularly. KPIs for preventing health and safety incidents form an
intrinsic part of our Steering Wheels across the business, and performance
against these KPIs is reported quarterly. Our Group Compliance
Committee and the compliance committees in our international businesses
monitor the level of compliance with health and safety laws and our
internal policies on a regular basis.
Ethical risks in the supply chain Millions of people around the world
work for direct suppliers to Tesco and the supply chain is made of complex
relationships – from individual farmers and growers through to processors,
manufacturers and distributors. At the heart of our Values is our belief that
we should treat people as we like to be treated and we have a responsibility
to help workers in our supply chain enjoy fair labour standards. We
therefore require our suppliers to meet strict criteria on labour standards,
and as a founder member of the Ethical Trading Initiative (ETI) we expect
all our suppliers to follow the ETI base code and guarantee their workers
the rights set out within it. There is, however, a risk that any part of the
supply chain might not adhere to these high standards.
To minimise this risk we only work with suppliers who can demonstrate
that they are committed to the ETI code and share our values. We use
Supplier Ethical Data Exchange (SEDEX) to carry out risk assessment of all
our direct suppliers and all medium and high-risk suppliers must undergo
an extensive, independent ethical audit. We continue to operate a
comprehensive programme of audit improvements, including more
unannounced audits, a Trading Fairly strategy and an industry-leading
Auditor Recognition programme. We have also sought to involve more
multi-stakeholder representatives on our audits to improve workforce
engagement and enable activists to see and feedback on our approach.
We work with suppliers to identify any problems and, where they exist,
support them in taking action to improve standards for their workers.
We have also invested heavily in building the labour standards capabilities
of our suppliers and our own commercial teams in the last year, including
rolling out extensive training, to help them identify and avoid issues before
they arise. We also work with businesses, governments, non-governmental
organisations (NGOs) and others to tackle complex and systemic problems
that we cannot solve on our own. As well as having a key role in the ETI we
also work closely with the Global Social Compliance Programme and other
groups in specific industries or regions.
Fraud and compliance As the business grows in size and geographical
spread, the risk of occurrence of fraudulent behaviour by our employees
increases. Whilst the vast majority of our staff are completely honest, there
remains the potential for fraud and other dishonest activity at all levels of
the business from the shop floor to senior management.
The Group takes extensive steps to reduce this risk. Relevant accounting
and other procedures and controls at all levels are clearly set out and
audited across the business to reduce the risk of fraud. The Group gives
clear guidance on behaviour to employees through the Tesco Values and
the Code of Ethics. Internal Audit undertakes detailed investigations into
all areas of the business and highlights its findings to the Audit Committee.
The Compliance Committee formulates and monitors the implementation
of, and compliance with appropriate policies on key areas of ethical
behaviour, including fraud.
Property We have stretching targets for delivering new space in the
UK and overseas, and may face challenges in finding suitable sites and
obtaining planning or other consents to enable sites to be acquired and
developed. The complexity of many of our property developments is
increasing, especially the growing number of mixed-use schemes.
We also have to comply with design and construction standards which
vary significantly from country to country.
Our Property Acquisition Committees and other related committees in
the UK, Europe, Asia and the US closely control all aspects of the property
acquisition, planning and construction processes, to ensure that applicable
standards are met and financial risks are minimised. Our Group and
country compliance committees also monitor compliance with applicable
legal and regulatory requirements in all aspects of our property activities.
Non-food risks As the proportion of our business represented by
non-food products increases, there is a risk that a downturn in consumer
confidence may affect the level of demand for products which consumers
may regard as non-essential.
We make every effort to ensure that our non-food products are
competitively priced to offer a broad range of products ranging from
value to the luxury end of the market, in order to cater for the needs
of as wide a range of customers as possible.
IT systems and infrastructure The business is dependent on efficient
information technology (IT) systems. Any significant failure in the IT
processes of our retail operations (e.g. barcode scanning or supply chain
logistics) would impact our ability to trade. We recognise the essential role
that IT plays across our operations in allowing us to trade efficiently and
so that we can achieve commercial advantage through implementing
IT innovations that improve the shopping trip for customers and make life
easier for employees. We have extensive controls in place to maintain the
integrity and efficiency of our IT infrastructure and we share systems from
across our international operations to ensure consistency of delivery.