Opinion | Tesco fiasco highlights the perils of executive luxury during hard times

How many corporate jets do you think a company needs? Should a company have swanky offices in the priciest part of town? In other words, how much is enough to look after the management?

These questions are currently plaguing Britain's biggest retailer, Tesco, which is suffering a sales downturn. Meanwhile, the company has acquired an office for its executives in Mayfair, one of London's priciest districts, and is operating four corporate jets.

This is a far cry from the days when Tesco was run by its founder Jack Cohen, who was famous for parsimony and kept head-office costs down to a minimum. Cohen is long gone and, as happens in most very large listed companies (in Britain at any rate), Tesco has been run by a succession of chief executives who, it can be argued, are good managers but lack his kind of entrepreneurial spirit.

The brewing row among Tesco shareholders raises some interesting issues about what companies need to spend on to be successful.

A common pattern in business is that company founders keep a very careful eye on costs and in some cases take parsimony to extreme lengths that damage prospects for growth. For example, they are often reluctant to hire expensive executives with the kind of expertise required to grow the business. Moreover, they can be mean in spending money on premises, which has an impact on staff morale and thus on the ability to retain the services of valuable employees.

Once the founder has gone, purse strings tend to be loosened, not least because those doing the loosening have less of a memory of just how hard it was to acquire the cash in the first place. Once companies pass from the privately owned to the publicly owned domain, the temptation to use shareholders' money to enhance the lifestyle of the executives tends to accelerate.

In Hong Kong, company founders tend to hang on to the overwhelming majority of the equity and they are also likely to hand their businesses over to their sons as opposed to professional managers from outside the family. While they are in charge, the founders tend to treat their publicly owned companies in much the same fashion as private entities. Moreover, as they obtain the bulk of their remuneration from dividends, they keep a careful eye on costs and are not tempted to be lavish in unnecessary expenditure.