Tesco 2011 Annual Report Download - page 56

52 — TESCO PLC Annual Report and Financial Statements 2011
BUSINESS REVIEW
Principal risks and uncertainties
Principal risks Key controls and mitigating factors
REPUTATION, OPERATIONS AND PEOPLE CONTINUED
Operational threats and performance risk in the business
Risk that business units fail to achieve targets and our business fails
to meet the stated strategy in full, particularly since, like all retailers,
the business is susceptible to economic downturn that could affect
consumer spending
• Board, Executive Committee and various operational committees meet
regularly to review operational threats
• All business units have stretching targets based on the Steering Wheel;
performance against budgets and KPIs monitored continually and
reported regularly to Board
• Clear goals and objectives set for subsidiary CEOs, with high level of
reward based on achievement
• Diversification strategy minimises impact of changes in economic
climate
Property
Continuing acquisition and development of property sites carries
inherent risk; stretching targets to deliver new space in all our markets
may not be achieved; challenges may arise in relation to finding suitable
sites, obtaining planning or other consents and compliance with varying
country design and construction standards
• Property Acquisition and related committees closely control all aspects
of property acquisition, planning and construction processes to ensure
standards are met and risks are minimised
• Group and country Compliance Committees monitor legal and
regulatory compliance in all property activities
• China Property Company Board closely monitors property matters in China
• Mall management systems in place to assist tenant management
IT systems and infrastructure
Any significant failure in the IT processes of our retail operations would
impact our ability to trade
• Extensive controls and reviews to maintain integrity and efficiency of
IT infrastructure and data
• Processes to deal with significant IT security incidents
• Sharing of systems across international operations to ensure consistency
of delivery
• Investment in IT systems and innovations to improve business
efficiency and customers’ shopping experience
People
Failure to attract, retain, develop and motivate the best people with the
right capabilities at all levels could limit our ability to succeed
• Significant investment in training, development and incentives,
including Talent Planning, Leadership Development and succession
planning for future needs of the business
• Clear processes to understand and respond to employees’ needs
through our People Matters Group, staff surveys, regular performance
reviews, involvement of trade unions in relevant markets and regular
communication of business developments
• Pay, pension and share plan arrangements help us to attract and retain
good people
REGULATION AND EXTERNAL ENVIRONMENT
Product safety
Failures could damage customer trust and confidence, impacting our
customer base and therefore financial results
• Detailed, established procedures to ensure product integrity
• Strict trading law and technical safety testing regime with regular
reporting; Group Compliance Committee reviews compliance with
laws and policies
• Partnering with suppliers for mutual understanding of required standards
• Monitoring of developments to respond to changing customer trends
and legislation such as labelling and dietary responsibilities
• Clear crisis management processes
Health and safety
Failure to provide safe environments for our staff and customers could
lead to injuries or loss of life
• Operation of stringent processes that reflect best practice; policies are
monitored and audited regularly
• KPIs across the business help prevent incidents with quarterly
reporting of performance against KPIs
• Group Compliance Committee and business unit Compliance
Committees regularly monitor compliance with laws and internal policies
Fraud, compliance and internal controls
As the business grows in size and geographical scope, the potential
for fraud and dishonest activity by our suppliers, customers and
employees increases
• Appropriate procedures and controls set out and audited across the
business to reduce fraud risks; Internal Audit and Loss Prevention &
Security undertake detailed investigations into all business areas and
report their findings to the Audit Committee
• Clear behavioural guidance given to employees through Tesco Values
and the Group Code of Business Conduct
• Compliance Committee formulates and monitors implementation of,
and compliance with, relevant policies and procedures; annual
governance returns completed by each business unit
• External Audit rotational coverage of areas and assessment of controls
• Updated policies and procedures for Bribery Act compliance