Institutional shareholders rarely wash their dirty linen in public. If they have an issue with a company, they prefer the quiet word to the banner headline. So it says something about the state of Sports Direct that the Investor Forum – whose 40 members own just less than half of the FTSE all-share index – has chosen to air its grievances so openly.
The Investor Forum’s list of complaints is a long one. It thinks corporate governance at Sports Direct leaves a lot to be desired, with a dearth of truly independent directors and a lack of oversight of the company’s founder, Mike Ashley.
The group is concerned about the employment practices highlighted by a Guardian investigation into the company’s warehouse in Shirebrook, Derbyshire, and objects to the fact that the review announced by Ashley into some of the abuses uncovered is being overseen by solicitors employed by Sports Direct. It is worried about the company’s acquisition strategy and its relationships with key suppliers, who are proving reluctant to sell their top-of-the-range kit to Sports Direct because of the company’s poor image.
Don’t be fooled. The big institutions that make up the Investor Forum are not making a stand for altruistic reasons. They are doing so because they fear for their investments. “Governance failings are clearly resulting in declines in operating performance and long-term shareholder value,” said the statement from the group.
For bluntness that was matched only by the comment from Sacha Sadan, director of corporate governance at Legal & General Investment Management, who said there would be opposition to the re-election of Keith Hellawell as chairman for the third successive year. “We first voted against the chairman in 2014, when the share price performance was still strong, trading at around £7.00. Today it is trading at around £3.08,” he said.
But, in the end, the motivation for the shareholder activism is irrelevant. Ashley now has the unions, MPs and investors all openly lined up against him. He has offered concessions, such as paying £1m in back pay to those of his workers who were not paid the legal minimum wage, and by inviting the public to the company’s annual shareholder meeting on 7 September.
It has all been too little, too late. Ashley should order a review into working practices at Shirebrook that is unquestionably impartial, and welcome the appointment of non-executive directors to Sports Direct considered truly independent by investors. If he is tempted to defy the wishes of shareholders, he should remember what Denis Healey said about holes. If you are in one, stop digging.
