Sports Direct AGM turmoil looms

Besieged retailer Sports Direct  has responded to further criticism of its governance practices. This time it is the  poor standard of its board evaluation procedures which Manifest’s recent AGM report has flagged as a clear breach of the UK Governance Code. Last Friday, a regulatory news bulletin announced that “an external evaluation of the board is planned for later this financial year.”

Principle B.6.1 of the UK Code asks that boards should state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted. Sports Direct has not provided meaningful disclosure on the process nor the outcome of the evaluation conducted in respect of the last three financial years as Manifest’s analysis revealed.

Source: Manifest analysis of Sports Direct annual reports 
APR 2016 APR 2015 APR 2014
Evaluation Type Internal Internal External
External Advisor No No NJMD Corporate Services Ltd
Outcome Disclosed?  No  No No
Process No disclosed No disclosed No disclosed

 

 

 

 

 

Leading investors have now publicly called for a change of board leadership – and given that the election of the four directors isn’t as straightforward as things might appear – Friday’s announcement is not surprising. Unlike the majority of quoted companies which need a simple majority vote to secure the election of directors, Sports Direct’s ownership structure subjects them to Listing Rules which require that directors must be elected by the majority of the independent shareholders as well as the controlling shareholders. In 2015 chairman Keith Hellawell attracted 28.59% dissent (Against and Abstain/Withheld votes in combination) on his re-election.

The 7th September meeting also sees another rarity in UK shareholder meetings – a shareholder-proposed resolution. A coalition of trade union funds, the Trade Union Share Owners group (TUSO), is urging shareholders to support their call for an independent review of the employment practices. The directors have used the AGM meeting notice  to urge shareholders to reject TUSO’s resolution.

The resolution follows a critical report, published last month by the House of Commons’ Business, Innovation and Skills Committee which focused on the retailer’s poor employment practices, particularly at its Shirebrook warehouse in Derbyshire, and also within its shops. The MPs’ inquiry followed an undercover investigation by the Guardian newspaper which revealed that staff – who are predominantly employed for Sports Direct by job agencies – were being paid less than the minimum wage.

The MPs stated in their report that, “The way the business model at Sports Direct is operated, in both the warehouse at Shirebrook and in the shops across the country, involves treating workers as commodities rather than as human beings with rights, responsibilities and aspirations. The low-cost products for customers, and the profits generated for the shareholders, come at the cost of maintaining contractual terms and working conditions which fall way below acceptable standards in a modern, civilised economy.”

Mike Ashley, Sport Direct’s founder and deputy chairman had informed the MPs that a review of the employment practices would take place conducted by the company’s independent legal advisers, RPC. The MPs had also criticised the company’s corporate governance suggesting its weakness at the company had contributed to the way that the retailer had operated. The MPs had urged Ashley, to review the company’s corporate governance, as well as its employment practices, but Ashley declined to do this stating that it was reviewed on an ongoing basis.

Lack of transparency is a consistent theme for Sports Direct. For the past five years Sports Direct has been graded E by Manifest’s Say on Sustainability analysis (scale range A-F). Barring minimum compliance with the UK’s strategic reporting regulations, the company’s public disclosures have little to say to shareholders about any aspect of the company’s sustainability governance.

Frances O’Grady, general secretary of TUSO coalition member the TUC, said, “It is bitterly disappointing that the board of Sports Direct has declined to back the resolution. The board’s backing would have sent out a clear public message of reassurance to shareholders that it is serious about addressing deep-seated problems with its employment practices. We do not have confidence in the independence of any review led by Sports Direct’s own legal firm. And many of the shareholders we have spoken to share our view of the importance of a fully independent review as the only way to make sure that in future Sports Direct delivers fairness for staff, and decent returns for shareholders.

“We hope that asset managers invested in Sports Direct, who manage the capital of working people, will give the board a clear signal that change is needed by voting for the resolution. And we encourage the management of Sports Direct to continue constructive dialogue with the trade union Unite to improve conditions and respect for staff.”

Meanwhile the Unite union, which forms part of the TUSO coalition along with the TUC, UNISON and the International Transport Workers Federation, has announced that thousands of employees at the Shirebrook warehouse will now receive back pay totalling an estimated £1 million for non-payment of the minimum wage. The payments, back dated to May 2012 for direct employees and agency workers, cover unpaid searches at the end of shifts and could be worth up to £1,000 for some workers, the union estimates.

Unite said that workers directly employed by Sports Direct and through the employment agency The Best Connection are expected to start receiving the back pay in full towards the end of August. However, the union said it understands that as many 1,700 Transline agency workers at the site may only initially receive half the back pay they are owed because of Transline’s refusal to honour its commitments from when it took over from Blue Arrow at Shirebrook two years ago.

Unite assistant general secretary Steve Turner said: “This is a significant victory in Unite’s ongoing campaign to secure justice and dignity at work for workers at Sports Direct and demonstrates the importance of modern trade unions in Britain today. But investors and customers alike should not be fooled into thinking that everything is now rosy at Sports Direct’s Shirebrook warehouse. Transline, one of the employment agencies involved, is disgracefully still trying to short-change workers by seeking to duck its responsibilities. Deep seated problems still remain regarding the use of agency workers with the behaviour of both Transline and The Best Connection further jeopardising Sports Direct’s battered reputation.”

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