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.
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, whom it has voted against for the past two years.
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 that 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 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 L&G, 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.
Sacha Sadan, director of corporate governance at L&G 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”.
“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 [AGM] 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 select committee have highlighted the need to upgrade the senior management team. Sports Direct is a multimillion-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 AGM, 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 outvote any detractors. But now the election of non-executive directors must be approved separately by minority shareholders. To go against their wishes, Sports Direct would be forced to hold another vote between three and six months later. While he could out-vote minority shareholders at that point, such a move would be highly contentious.
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 AGM, held in Shirebrook, Derbyshire.
Andy Griffiths, the executive director of the Investor Forum, welcomed the plan for an open day but said the group had not received an “appropriate level of commitment to respond to investor concerns and, as a result, the usual options have been exhausted.” “We do not take this step lightly,” he said.
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 parliamentary select committee, not just its employment practices. It also called on Sports Direct to review corporate governance and board oversight and effectiveness, acquisition strategy and associated due diligence, and the oversight of key supplier relationships and the management of its 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.
On Monday, it emerged that Sports Direct pays a company owned by the brother of 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 the AGM resolution 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.”
