Keith Hellawell, the embattled chairman of Sports Direct, has been rejected by independent shareholders for the second time in four months, as outside investors repeated calls for the former police chief constable to be ousted from the sportswear retailer’s board.
In a second poll, forced by independent investors under new City rules, 54% of the group’s outside shareholders voted against Hellawell’s re-election to the group’s board.
They had defeated a similar company resolution to retain Hellawell at the annual meeting in September.
However, Hellawell will remain in position after winning 81% of the vote, because of the support of Sports Direct’s founder Mike Ashley, who owns 55% of the company.
In a statement issued to the stock exchange announcing the result, Ashley said: “Keith has my full backing and will be continuing in his role on the basis that he has the unanimous support of the board. I note that many of those who voted against Keith have acknowledged that we have made positive progress since the AGM.”
At the previous vote in September, Hellawell tried to assuage disgruntlement among investors by promising to step down at the 2017 annual meeting if he did not win the support of independent investors again.
However, Ashley risked inflaming relations once again by adding: “I have spoken to Keith Hellawell this afternoon to inform him that I hope that he will reconsider his intention to stand down if he does not receive the backing of a majority of independent shareholders at the 2017 AGM.”
The company also appeared to row back on a commitment to conduct an independent review of working conditions and corporate governance, adding: “In view of continuing frustrations, the board will meet in the near future to reconsider all options in relation to its review of corporate governance.”
The additional statements prompted an immediate reaction from Aberdeen Asset Management, the City fund manager which has been among Ashley’s more vocal critics.
Paul Lee, head of corporate governance at Aberdeen, said: “The board should focus on delivering the significant governance change that is expected over the next eight months.
“That is the best way to encourage shareholders to support all resolutions at the AGM in September. If that happens, there will be no need for any discussion of Keith Hellawell standing down.”
Ashley’s majority stake did not count towards an independent resolution on Hellawell’s re-election in the first ballot at the group’s annual meeting in September, when 53% of the votes cast by investors excluding Ashley opposed the chairman’s re-election on a marginally higher turnout. That result forced Thursday’s re-election, in which Ashley’s stake counted.
Apart from Aberdeen, the City dissenters included Standard Life, Royal London and Hermes, which advises a string of investors.
Standard Life said the insurance company was concerned at the lack of progress being made by the retailer: “In particular, we are disappointed to note the lack of progress in recruiting a chairperson for the independent governance review, an initiative that we see as being fundamental to Sports Direct fulfilling its long-term value creation potential.”
Before the vote last September, Hellawell also attempted to appease disgruntled shareholders by saying he had offered to go, although the board had refused to accept his resignation.
Despite that offer seeming to acknowledge that he and the board accepted responsibility for the group’s situation, last month Hellawell criticised MPs, trade unions and the media for waging a campaign against the business as it reported a 57% drop in first-half profits.
The results represented the latest disappointing financial statement after the company’s share price halved during 2016. The group was relegated from the FTSE 100 in March.
Sarah Wilson, chief executive of the shareholder proxy voting service Manifest, said Hellawell must stand aside at the September 2017 AGM and Sports Direct had to make big changes: “They have eight months until the next AGM to get new people in. They are losing goodwill and this is an existential threat to the business, and they have to respond to do something about it.”
Other shareholder advisory bodies have also weighed into the debate. Pirc and Institutional Shareholder Services advised clients to vote against Hellawell, with the latter saying he had overseen a “catalogue of governance and operational failures”.
However, their rival Glass Lewis, which supported Hellawell at last year’s AGM when it instead recommended a vote against Ashley’s reappointment, urged its clients to back the chairman again.
The crisis at Sports Direct was triggered by a Guardian investigation in 2015, which revealed that workers at the firm’s Derbyshire warehouse were paid less than the national minimum wage.
The scandal prompted a parliamentary inquiry last year, in which MPs likened the depot to a Victorian workhouse, reigniting long-held concerns about the level of control Ashley enjoys at the company.
The newspaper reports also encouraged some investors to react after years of backing the board, including 76% of independent shareholders voting for Hellawell’s reappointment at the 2015 annual meeting.
Aberdeen, which owns 0.3% of Sports Direct, said it viewed the company as having made progress by implementing an independent review into working practices and appointing the investment banker David Brayshaw as a non-executive director.
It also views the departures of the chief executive, Dave Forsey, and acting chief financial officer, Matt Pearson, as positive moves. The company has not had a full-time, board-level finance director for more than three years.
