Wednesday, 9 September 2015

Sports Direct, unions, capitalism and client relations

Sports Direct had its annual general meeting today. Coverage of the AGM has been dominated by criticism of the company's governance, its remuneration policy and its employment practices. A quick google shows how much criticisms of employment practices like the use of zero hours contracts are embedded in media reporting of this meeting. Unite has done a fantastic job there.

Unions also got in on the AGM action by running a Vote No campaign on chairman chairman Keith Hellawell. This was run by Trade Union Share Owners, the collaborative group set up by the TUC, Unison and Unite in 2013 (and which the ITF joined earlier this year). The TUSO campaign was focused on both the crappy governance of the company and infamous working practices. There is a good background explainer to this here.

We drew blood this time - the company received large votes against from independent shareholders on several resolutions. Hellawell saw almost 30% vote against or abstain on his re-election, up from about 20% last year. And the remuneration policy resolution looks to have received the support of less than 50% of the free float. So another AGM dominated by a scrap with shareholders, and we know that some of them have followed up with the company on the issues raised by unions.

Not everyone is happy. An anonymous (aren't they always?) "top 10" investor in Sports Direct has accused unions of a "fundamental illiteracy of capitalism". The mystery asset managers says that:

  • "unions and capitalism are not a natural fit" 
  • the company "has not broken any laws"
  • companies that tick the right governance boxes "are also the most cumbersome"
  • the Sports Direct team is "under-remunerated" (you could just say paid too little) compared to its peer group

To state the obvious, this is a crock of shit. It also encapsulates why initiatives like TUSO are necessary. We simply cannot trust asset managers who are paid with our money to manage our money to act in our interests.

First there is the worrying lack of knowledge on display here. To claim unions and capitalism are not a natural fit says far more about the ignorance of some in the asset management industry of the world around them than anything else. Unions have co-existed with capitalism for a very long time - they have certainly been around a lot longer than the professional asset management industry in the UK which only really emerged in the 1970s (for example Warburgs tried to sell their asset management business, which became Mercury Asset Management, to Flemings for £1 in 1979 because they saw no future in it). Unions exist because capitalism on its own generates unacceptable outcomes for workers and therefore out of self-interest those workers combine to bargain for a better deal. One creates the conditions for the other to exist. I read about this in books...

Second, lets look at whats being said here about the company. To state that the company hasn't broken any laws is to imply that how Sports Direct employs and pays its employees is basically OK. You might not like it, but it's not illegal. Leave that for and a moment and look too at what they say about the board - it may be under-paid compared to its peer group. Put those two things together and it becomes clear that what our asset manager sees when they look at Sports Direct is a company where the bigger problem is not that thousands of workers are treated poorly, but that the management team isn't paid enough. What the actual fuck. Again this says a great deal about the warped perspective on real people's lives that working in the City can create. I have little doubt they will consider their own views rational and reasonable.

Remember this asset manager only has a job because millions of workers deferred their wages, thus creating pools of capital that are investable. The mystery manager almost certainly manages workers' capital right now in the shape of pension fund mandates. And look at the sort of crap they come out with about one of the most notorious employers in the UK. To use a phrase from the corp gov microcosm - there is simply no alignment of interests. After all, we know from NAPF research that scheme members are more interested in seeing engagement on pay and conditions for employees than exec pay.

At the least we are going to have to increase accountability for voting and engagement activity in these cases where employment issues are front and centre, and if we don't like what we see we need to direct more of it. I would certainly urge trustees of other union pension funds to get them to join TUSO so we can maximise our impact. But in the wider world its important that employee trustees follow up on cases like this. Otherwise we will continue to see workers' capital used to advocate for poor employment conditions and higher executive pay.

No comments: