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Sports Direct's corporate governance criticised by major investor group Sports Direct's corporate governance criticised by major investor group
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An influential investor group with combined assets of £14.5tn has ratcheted up the pressure on Sports Direct by publicly criticising the retailer’s corporate governance failings. Two major fund management firms have backed an influential shareholder group in publicly criticising corporate governance at Sports Direct and demanding change at the top of the retail group.
It is the first time that the Investor Forum, set up two years ago, has aired concerns about a company in public. The group has 40 members and represents 27% of Sports Direct’s independent shareholders, including Legal & General, Aviva, Standard Life and Fidelity. Legal & General Investment Management said it would be voting against the re-election of all Sports Direct’s non-executive directors including the chairman, Keith Hellawell, who it has also voted against for the last two years.
“Governance failings are clearly resulting in declines in operating performance and long-term shareholder value,” said the Investor Forum (pdf), deploring the lack of progress. It called for a clear plan of action to begin rebuilding the confidence of shareholders and others. Aberdeen Asset Management said it would also be voting against the reappointment of Hellawell as well as chief executive Dave Forsey and acting chief financial officer Matt Pearson.
Both shareholder groups said they would be supporting a trade union backed resolution which calls for an independent review of labour practices at the retail group in the wake of a highly critical parliamentary report and an investigation by The Guardian.
L&G’s move comes after the Investor Forum, a shareholder group with combined assets of £14.5tn, ratcheted up pressure on Sports Direct by publicly criticising the retailer’s corporate governance failings.
It is the first time that the group, set up two years ago, has aired concerns about a company in public. Investor Forum has 40 members and represents 27% of Sports Direct’s independent shareholders, including Legal & General, Aviva, Standard Life and Fidelity.
“Governance failings are clearly resulting in declines in operating performance and long-term shareholder value,” said the Investor Forum, deploring the lack of progress. It called for a clear plan of action to begin rebuilding the confidence of shareholders and others.
Shareholders will have to consider how they vote at the retailer’s annual general meeting on 7 September “with great care”, the investor group said, after the sportswear chain was hit by a series of damaging revelations about the treatment of workers and its business practices.Shareholders will have to consider how they vote at the retailer’s annual general meeting on 7 September “with great care”, the investor group said, after the sportswear chain was hit by a series of damaging revelations about the treatment of workers and its business practices.
The statement comes a day after Sports Direct announced that it would open its doors to the public at the company’s AGM in Shirebrook, Derbyshire. Sacha Sadan, director of corporate governance at Legal & General Investment Management which holds a 1% stake in Sports Direct, said it supported the Investor Forum stance and that “all shareholders should send a strong signal to Sports Direct calling for change.”
Andy Griffiths, the executive director of the Investor Forum, said: “We do not take this step lightly and whilst we welcome Sports Direct’s move to hold an open day, we still have not received an appropriate level of commitment to respond to investor concerns and, as a result, the usual options have been exhausted.” “We will be voting against the re-election of all non-executive directors as we believe that Sports Direct needs a stronger body of independent non-executive directors to ensure the business is run in the interest of all shareholders. We are disappointed that there have been no new non-executive board appointments in the last five years.”
Aberdeen Asset Management, which owns less than 0.5% of the retailer’s stock, said in a statement: “Like many investors we have been in dialogue with Sports Direct for some time. Its [annual meeting] is the latest formal interaction, and offers an opportunity again to press for constructive change.
“The company’s well chronicled problems and [Mike Ashley’s] comments to the BIS Select Committee have highlighted the need to upgrade the senior management team. Sports Direct is a multi-million pound business that would benefit from an injection of new talent with the skill sets required to run an enterprise of its size and complexity.”
For the first time this year independent shareholders will hold real sway at Sports Direct’s annual meeting under new regulatory rules governing companies that have a controlling shareholder with a stake of 30% or more. In the past, founder and executive deputy chairman Mike Ashley, who owns a 55% stake, was able to out vote any detractors. But for the first time this year the election of non-executive directors must be approved separately by minority shareholders.
In an effort to win over its critics, Sports Direct announced earlier this week that it would open its doors to the public on the day of the company’s annual shareholder meeting held on 7 September in Shirebrook, Derbyshire.
But Andy Griffiths, the executive director of the Investor Forum, said: “We do not take this step lightly and whilst we welcome Sports Direct’s move to hold an open day, we still have not received an appropriate level of commitment to respond to investor concerns and, as a result, the usual options have been exhausted.”
In July, it was announced that thousands of warehouse workers would receive back pay totalling about £1m after the retailer admitted breaking the law by not paying the national minimum wage. A Guardian investigation last year exposed the fact that Sports Direct workers were being paid less than the legal requirement. The company and its employment agencies face fines of up to £2m.In July, it was announced that thousands of warehouse workers would receive back pay totalling about £1m after the retailer admitted breaking the law by not paying the national minimum wage. A Guardian investigation last year exposed the fact that Sports Direct workers were being paid less than the legal requirement. The company and its employment agencies face fines of up to £2m.
The Investor Forum called on the retailer to carry out a “wide-reaching independent review of the entire governance practices at the company”, as recommended by a select committee, not just its employment practices. Other areas include corporate governance and board oversight and effectiveness, acquisition strategy and associated due diligence, and oversight of key supplier relationships and the management of the store portfolio.The Investor Forum called on the retailer to carry out a “wide-reaching independent review of the entire governance practices at the company”, as recommended by a select committee, not just its employment practices. Other areas include corporate governance and board oversight and effectiveness, acquisition strategy and associated due diligence, and oversight of key supplier relationships and the management of the store portfolio.
The group said it did not regard the review of employment practices being carried out by RPC, Sports Direct’s lawyers, as independent, echoing the views of other shareholders. The recently announced external board evaluation “fails to reflect the breadth and magnitude of reform that is required”, it said.The group said it did not regard the review of employment practices being carried out by RPC, Sports Direct’s lawyers, as independent, echoing the views of other shareholders. The recently announced external board evaluation “fails to reflect the breadth and magnitude of reform that is required”, it said.
On Monday, it emerged that Sports Direct pays a company owned by the brother of its majority owner, Mike Ashley, to deliver online purchases to customers outside the UK.On Monday, it emerged that Sports Direct pays a company owned by the brother of its majority owner, Mike Ashley, to deliver online purchases to customers outside the UK.
Britain’s largest union, Unite, called on Sports Direct to tackle “endemic abuses” within its employment agencies and move longstanding agency workers on to direct, permanent contracts. Unite, which has been leading a campaign against “Victorian” work practices at Sports Direct, is urging shareholders to back a resolution at the AGM for an independent review into work practices.Britain’s largest union, Unite, called on Sports Direct to tackle “endemic abuses” within its employment agencies and move longstanding agency workers on to direct, permanent contracts. Unite, which has been leading a campaign against “Victorian” work practices at Sports Direct, is urging shareholders to back a resolution at the AGM for an independent review into work practices.
The Unite assistant general secretary Steve Turner said: “Sports Direct has achieved a rare feat in uniting the City, politicians and Unite in the need to address deep-seated problems with its work practices and corporate governance.”The Unite assistant general secretary Steve Turner said: “Sports Direct has achieved a rare feat in uniting the City, politicians and Unite in the need to address deep-seated problems with its work practices and corporate governance.”