Home-grown success

TESCO is already Britain's most admired company, chief executive Sir Terry Leahy picked up another management award last week and its half-year profits a few weeks ago confirmed it is Europe's second-largest retailer.

What Tesco does seems to work, but it does not fit easily into conventional forms of corporate governance.

Leahy joined the business after a two-year spell as a trainee manager with the Co-op when he was in his early 20s, so he has spent virtually all his working life there. He was spotted by then chief executive Lord MacLaurin after launching Tesco Clubcard and, though barely 40, got the top job.

There have been no corporate headhunters scouring the world for the best talent. Tesco recruits and grows its own. Even current chairman David Reid is a long-server. He came up through the financial side, became finance director then worked on the group's international expansion. He slotted in as chairman earlier this year - a move permissible in terms of the corporate governance code because he had never been chief executive.

It is an interesting model. Most chairmen who come in from outside struggle to understand the detail of the business and rarely develop that extra feel for what is going on. They are therefore seldom in a position to challenge the chief executive. But Reid has been in the business as long as his chief executive and therefore understands it in depth.

Purists may say that makes him too close to be genuinely independent, but the company solves that problem by having a very powerful independent deputy chairman from outside who can be relied on to raise the alarm if things get too incestuous.

We spend a huge amount of time and effort on corporate governance in this country yet, when we have a world-beating company, we ignore the fact it does not follow the rules. Rationally, we should look at what works for it in practice and copy it. Instead, we appoint committees to decide what might work in theory and then forcibly apply it. It's not surprising, therefore, that we get the results we do.

BAE's battle

BAE Systems is one of Britain's most important companies, but you would never guess it.

To be its chairman or chief executive ought to be one of the most prized jobs in British industry but, for the past 15 years, the company has struggled to fill either role. It has had a succession of chairmen but few have had the clout one would expect.

In addition, BAE has had great difficulty in recent times in attracting candidates from outside the industry.

Similarly, since long-time chief executive Sir Richard Evans moved out of that role, no one has looked comfortable or credible in it. Current chairman Dick Olver appears to have come from BP in the nick of time.

Perhaps because it has been so inward-looking, BAE has allowed relations with the Government - its major customer - to deteriorate to such an extent that both brief against each other far too often for the health of either party and Government takes almost perverse delight in awarding defence contracts to BAE's foreign competitors.

Surely, no other country would tolerate a position where the relationship between customer and contractor verged on the dysfunctional.

Olver, who arrived earlier this year, is now reported to be considering recruiting a new crop of non-executive directors who will give some strategic direction to the business, have a closer understanding of the US, where the group generates a fifth of its sales, and provide more challenge for the executive team.

To make room round the table, boardroom figures such as Michael Portillo and Lord Hesketh may soon be heading for the exit. Whether that will be enough to restore BAE's fortunes and reputation is a moot point, but at least it is a start.

Dead end

THE combination of Al Gore, the failed US Presidential candidate in 2000, and David Blood, an alumnus of Goldman Sachs, has received more than its fair share of publicity, particularly as they don't seem to have much idea how to deliver on the hype, which is to combine conventional equity analysis with long-term judgments about sustainability.

It seems to me it will work only if the customers have the same time horizons - and the evidence is they don't, perhaps because they are well aware that, as the economist John Maynard Keynes put it 70 years ago, 'in the long term we are all dead'.

But the launch did give rise to some amusing one-liners, including a suggestion that the best name for the business was Blood and Gore.