Sports Direct’s board is dysfunctional and does not provide a sufficient check on the powers of the retailer’s founder and executive director, Mike Ashley, the Institute of Directors has said.
“The board needs to think about how it becomes more transparent and, from shareholders’ perspective, how it scrutinises decisions,” said Oliver Parry, senior adviser on corporate governance at the IoD. Shareholders should use Sports Direct’s annual meeting in September to “express their concerns” and consider if a change of personnel is required.
His comments follow the admission by Keith Hellawell, Sports Direct’s chairman, to the Scottish affairs select committee last week that non-executive directors were unaware of a plan to put part of the group into administration until the day before it happened.
It emerged during the Commons hearing that chief executive Dave Forsey had been talking to the eventual administrator, Duff & Phelps, for nearly three months before about 200 workers at a Scottish warehouse lost their jobs in January.
Hellawell admitted Ashley and a handful of senior executives, including Forsey, took key decisions without any discussion at board level. Parry said: “This is a further indication of how dysfunctional the Sports Direct board is. Last year we saw the board trying to push through a huge pay plan for Mike Ashley and you don’t need to be a forensic lawyer to figure out that there isn’t a sufficient check on Ashley’s powers.”
One shareholder and Rangers fan is facing legal action from Sports Direct after he sought access to the retailer’s shareholder register to gain support for a campaign on the use of zero-hours contracts and merchandise deals with the Scottish football club.
Paul Hewitt, business development manager at Manifest, the shareholder voting research group, said it was clear from the battle over Ashley’s bonus last year that board directors were not challenging management sufficiently. “Shareholders who hadn’t factored that into their risk assessment of the company are getting a rude awakening at the moment,” Hewitt said.
He suggested that Sports Direct’s board might need strengthening with a non-executive who took particular responsibility for managing and identifying risk. Someone who could come in and who was “not afraid to ask awkward questions”.
“The question here is whether the internal control mechanisms are such that the chairman was aware of what was going on ... If I were a shareholder in this company I would be concerned to hear a senior non-executive director saying he didn’t know something or that it is was not their job,” Hewitt said.
Hellawell gave evidence to the committee after Ashley’s lawyers said he was too busy to attend before parliament dissolves this week. MPs accused Sports Direct of behaving like a “backstreet outfit” in its handling of the USC fashion chain.
Workers at USC’s warehouse in Ayrshire lost their jobs when administrators were called into West Coast Capital (USC), a Sports Direct-controlled entity that owned 28 USC stores. The shops were immediately bought out of administration by Sports Direct’s Republic division, which already owned 32 USC stores.
About 80 of the 200 employees were made redundant, with the bill picked up by taxpayers via the Insolvency Service. The rest were agency workers not entitled to redundancy pay.
“This is not just reputational damage, but there are moral and ethical issues here. About 200 workers were laid off and the board was not aware until the day before. For a FTSE 100 firm that’s not acceptable. Boards need to hold management to account,” said Parry.
Last year the IoD said there was “no check on Mike Ashley’s power” as the board sought approval for a share bonus scheme that did not clearly say how much he would receive if profit targets were met.
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