Sunday, 11 September 2016

Sports Direct: time for change

As you may have noticed, Sports Direct had its AGM this week, and meeting was totally dominated by how the board intends to overhaul its workforce practices. The treatment of the workforce at Sports Direct's Shirebrook warehouse has become a national story, and the company has come under pressure from the press (led by The Guardian), politicians (the BIS committee) and investors.

It was a very pleasing AGM for those of us who work on capital strategies in the UK. A resolution filed by Trade Union Share Owners (TUSO) received a majority (52%) of the vote of independent shareholders, despite the board recommending opposition. This is the first time a shareholder resolution filed by unions in the UK has received a majority of the non-insider vote. This has put TUSO on the map, and we hope this is just the start.

A majority of independent shareholders also voted against the chairman Keith Hellawell (something TUSO had called for at last year's AGM), which means that he will face re-election within 90 days. This increases pressure on him to meet the demands of investors, otherwise he could face another embarrassingly large vote against.

The Investor Forum's role has been important here. After a prolonged period of engaging behind the scenes, the Forum decided to go public with its concerns about governance and working practices. It has disclosed that it organised a meeting between the full board and major institutional investors after the AGM. The Forum has also made clear that it wants a genuinely independent review of the company's practices, rather than relying on law firm RPC. So the board is under significant ongoing pressure for real change.

It's important to restate how central trade unions have been to the Sports Direct story. If Unite were not working with the largely temporary workforce at Shirebrook then none of what has subsequently come to light would be known. We also hope that TUSO has played a useful role in making sure that these employment practices have been a central issue in engagement between the board and shareholders.

Therefore it's important that the trade union's understanding of the company is both part of the review that is undertaken, and that Unite's recommendations for change are given proper attention. For example, the abuses that Unite was able to expose are directly related to the nature of employment at Shirebrook. The vast majority of the 4,000-ish workers are on temporary contracts and employed via two agencies, rather than being direct employees. This, plus the now infamous "Six Strikes" policy makes workers much more reluctant to challenge bad behaviour.

Businesses need some flexibility, but even allowing for seasonal changes in demand the size of the workforce at Shirebrook does not seem to change that much, so there is no functional reason why Sports Direct needs to have some many temporary workers. Instead it means that Sports Direct uses precarious work to keep costs down and workers feel reluctant to speak as a result. Therefore any lasting solution to the problems at Shirebrook must involve shifting a large proportion of these workers from temporary to permanent contracts. Sports Direct should sit down with Unite and discuss how to achieve this as a matter of urgency.  

We had a great result this week. Investor pressure, political intervention and serious media scrutiny have given the company a real jolt, and a record result. Now it's important that this translates into real change.

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