Supermarket Morrisons calls in KPMG for board review

Big Four professional services firm KPMG has been tapped by the UK’s fourth largest supermarket chain to help review its corporate governance. The news comes following the exit of two of Morrisons’ non-executive directors, who both raised corporate governance complaints when they resigned.

Morrisons, is the fourth largest chain of supermarkets in the United Kingdom, and is headquartered in Bradford, West Yorkshire, England. According to the latest figures from Statista, in 2019 the company was some distance behind the market share of Tesco (27%) and Sainsbury’s (15.4%), and Asda (14.9%) while recent years have seen discounters such as Aldi and Lidl mount a sustained challenge on Morison’s Big Four status. All of the top supermarkets have lost business to them, but Aldi’s 8.1% is particularly closing in on Morrisons’ 10.1%.

Amid the supermarket’s declining prospects, Morrisons has appointed KPMG to conduct a review of its corporate governance. As reported by The Financial Times, sources close to the matter stated that the grocer wants KPMG to provide an independent assessment of the board’s processes and policies.

KPMG’s appointment follows the resignation of two non-executive directors, Corporate Compliance and Responsibility Chair Neil Davidson, and Remuneration Chair Tony van Kralingen. According to previous reports, the pair raised corporate governance complaints when they resigned, including concerns about Chairman Andrew Higginson’s perceived closeness to David Potts and Trevor Strain, the Chief Executive and Chief Operating officers, respectively. The three of them had each worked together at Tesco, before holding their roles at Morrisons.

Now, KPMG will conduct an independent assessment of the board’s processes and policies. During that time, they will look at whether the roles and responsibilities between Morrisons’ CEO and board are well distributed and clear; whether the role of non-executive directors is clear; and if board members are objective and neutral.

Many at Morrisons believe Potts and Strain were instrumental in helping Morrison rebound from a low point in 2015, at a time when the company was leaking sales to Aldi and Lidl. However, the last year saw Morrisons’ market share shrink by 0.3%, and sales growth had further slowed before the Covid-19 pandemic-induced surge, indicating the turnaround was at an end.

Neither Davidson nor Van Kralingen had made formal complaints about corporate governance at Morrison before submitting their resignation letters, one source told The Financial Times. However, their March resignations came during a turbulent period for British grocers, as the coronavirus led to a surge in stockpiling. Morrison had to hire an additional 25,000 workers to cope with demand and implement safety measures – something which against flagging sales may have worsened its situation.

This led to Morrisons moving to amend its current remuneration scheme. The new scheme, which passed at the company’s annual meeting, sought to address the concerns of investors who had previously raised concerns about executive pension contributions, which are currently set higher than those for Morrison’s wider workforce.