Hands up who wants to sue Tesco? If that sounds like fun, and if you were a Tesco shareholder last September, a US legal outfit called Scott + Scott wants to hear from you. It says the supermarket chain’s £263m overstatement of profits last year caused “a permanent destruction of value to shareholders”. It thinks compensation is due – lots of it. It’s talking 50p to 70p per share, which is roughly £5bn.
What a load of nonsense. Or, more politely, this intended claim is an import from American litigation culture that we could happily live without. There are at least three reasons why sensible Tesco shareholders should tell Scott + Scott to find other ways to chase fees.
First, shareholders own Tesco, so they would, in effect, be making a claim against themselves. In practice, of course, life doesn’t work so simply. One set of shareholders – the litigiously minded – would be hoping to benefit at others’ expense. That is unfair.
Second, how does one measure “a permanent destruction of value”? Tesco’s share price is 20% higher today than it was on the day the company confessed to the overstatement. Of course, it might have been higher still if profits had been stated accurately in the first place. But how can one hope to separate a permanent and a temporary loss of value? It’s impossible.
Third, the appropriate bodies to investigate a profit overstatement by a major quoted company are the Serious Fraud Office and the Financial Reporting Council. Both are on the job and their findings are awaited eagerly, not least by Tesco’s former bosses and its auditors.
In the meantime, Tesco shareholders should take a stand against litigation creep. There will be times when it is right to sue companies that have made serious accounting mistakes. This is not one.