The acquisition of luxury department store Harrods by the sovereign wealth fund of Qatar, the Qatar Investment Authority, for £1.5bn in 2010, is now under scrutiny with regards to the alleged sexual abuse by former boss Mohamed Al Fayed. The claims were brought to light by a recent BBC investigation. Experts believe that Qatar overlooked or played down information that was already known about Al Fayed prior to the purchase of Harrods. In particular, a 2008 police investigation into the alleged assault of a 15-year-old girl took place in a Harrods boardroom. Harrods has apologised to the victims and has stated that it is “utterly appalled” by the allegations. The scandal is expected to be very costly to the company and its owner, even running into millions in the future.
Due diligence is an essential process that a company has to go through while buying another company. It seeks to uncover any potential issues or problems that may arise following the acquisition. Typically, buyers will engage advisers, who will ask the seller’s advisers specific questions about any problems they may have encountered; they may also perform independent research. Lee Welling, a partner at law firm CM Murray, states that when a buyer buys a company such as Harrods, the buyer’s due diligence would extend to asking detailed questions about the number of complaints, the number of claims, the nature of the complaints involved, the value of any settlements, and the number of non-disclosure agreements. However, lawyers believe that Qatar’s due diligence process was either inadequate or knowingly ignored key information.
Furthermore, due to the recent allegations against Harrods, the company could face millions of pounds in compensation payouts. Each individual claim could cost the company hundreds of thousands of pounds, with the total payout running into millions of pounds. The firm has already accepted vicarious liability for some of the claims, which means that it accepts ultimate responsibility for Al Fayed’s alleged actions. The company is also potentially liable for failing as an employer and for failing to provide a safe working environment. Thus, the total cost of compensation is expected to be enormous.
Finally, Harrods’ reputation is likely to take the most significant hit. The impact of the scandal on the company’s reputation is expected to be tremendous. Customers are likely to be very put off by the serious allegations that have come to light. Virginia Albert, a former marketing professor, says that customers will be very disgruntled and dismayed. She believes that Harrods will survive due to the loyalty of its long-time shoppers but warns that a push from shoppers for action rather than words is necessary to ensure the company recovers. Protests and boycotts are likely, and casual shoppers may choose not to purchase from the company due to its treatment of women
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