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Conflicts of interest, human capital and investor confidence concerns dog Sports Direct

In a surprise change of PR last Friday, (26 August 2016) Sports Direct announced that it would hold a public open day to coincide with its AGM on 7th September  at its premises in Shirebrook. The event is said to “enable the board to engage with as many people as possible in an open discussion about the business.” In an unprecedented move the AGM is also being opened up to non-shareholders – previous AGMs have previously been tightly restricted to shareholders only with all press excluded.

According to Manifest’s analysis, SDI does not retain the services of a specialist investor relations agency to manage its stockmarket disclosures. Instead it uses an advisor listed as “Keith Bishop Associates” (KBA). KBA’s website describes the firm as “experts in crisis management” with a client list including Newcastle United and Rangers’ FC.  On 12 August 2016 Rangers FC announced it was launching legal action against against a number of the club’s former directors as well as Mike Ashley. From 2012 to 2014 Derek Llambias served as a director of Keith Bishop Public Relations Ltd, during which time Llambias was also a director of Rangers FC.

Despite the seeming independence, KBA, it is in fact, the former registered name of Keith Bishop Public Relations Ltd (KBPRL). KBPRL is majority owned by SportsDirect.com Media Ltd (SDML) whose directors include Dave Forsey, Group CEO of SDI.  SDML is, in turn, controlled by SportsDirect.com Retail Ltd, where both Dave Forsey and Mike Ashley are listed as a directors

After a long period track record of poor governance standards, SDI is now facing almost daily criticism of its shortcomings. The company is still only operating with an “interim” Chief Financial Officer, insider Matt Pearson, and it was recently revealed by the FT (£) that SDI’s international shipping operations, Barlin Delivery Ltd, is being managed by Mike Ashley’s brother, John Ashley – a fact which was not disclosed to minority shareholders. According to SDI, the non-disclosure was approved by auditors Grant Thornton. Manifest’s analysis of regulatory filings shows that Grant Thornton is also the auditor to Mike Ashley’s investment holding firms, MASH Beta Ltd, and MASH Alpha Ltd.

The Investor Forum (IF), which acts on behalf of a number of institutional investors, has now added to calls for an independent governance review. The IF’s move comes after the Trades Union Share Owners Group (TUSO), which represents £1bn of pension fund investors, tabled a shareholder holder resolution requesting an independent review of the firms human capital management strategy.

Sports Direct has retained law firm RPC to conducted a review into the company’s working practices which is due to be published on 5th September. However, this investigation has been widely criticised  for lacking independence, furthermore the company has not agreed to a wider governance review which the MPs also recommended. Concerns about the lack of independence of the review certainly seem justified; according to Manifest’s research two RPC trainee solicitors were seconded to SDI in the period 2009-2014. RPC also acted for Ashley over the demise of USC and the Scottish Affairs Committee’s request that Ashley appear before them to answer questions in connection with the closure.

IF members representing approximately 12% of the issued share capital or 27% of independent shareholders, have requested that SDI’s board commit to an independent and comprehensive governance review. In a statement the Forum said that it had been engaging with Sports Direct’s board on behalf of and alongside its members since July 2015, but that recent developments demonstrated continued reluctance on the part of the company’s board to act in line with the views of independent shareholders. The IF’s intervention comes after both Royal London Asset Management and Standard Life publicly disclosed their concerns about SDI’s culture ahead of the 2014 AGM.

What do you think?