Sports Direct - Mike Ashley's declining popularity

Perhaps others spotted this at the time, but I just realised that Mike Ashley saw a very sizeable vote against his re-election at the most recent Sports Direct AGM.

On the headline vote he walked it with a vote against of just under 10%, or 44m shares. But obviously he's the controlling shareholder so a lot of those votes are his. So if we look at the votes on independent directors (where his holding is stripped out) the total number of minority shareholder votes cast is 120m. So the minority shareholder vote against his re-election was 36.6%. There can't be that many votes against chief execs that are that high. What is more I can see some interesting names voting against him - like M&G.

It's also up from a roughly 20% minority shareholder vote against in 2017, 20% against in 2016 (though including abstentions takes total not in favour to 27%) and 11.5% in 2015.

Obviously there is no chance of him being ousted, but it again shows you how unusual Sports Direct is in governance terms.

Adolf Berle on Sports Direct

Adolf Berle, of Berle and Means fame, continued to write interesting things about corporate power and control long after The Modern Corporation and Private Property. The excerpt below is from Power Without Property: A New Development in American Political Economy from 1959. I think it applies well, almost 60 years later, to what happened at Sports Direct last week.

"In effect, the position of the institutional managers is that they will not exercise their voting power to affect the choice or the policies of corporate managements. The individuals for who the institutions are fiduciaries, holders of rights in pension trusts, of shares in mutual funds, or of insurance policies, have surrendered their voting power. The institutional managers, therefore, by their policy of non-intervention, merely insulate the corporate managements from any possible action by or influence of the ultimate, beneficial "owners" of the stock. A policy of non action by the institutional managers means that the directors and managements of the corporation whose stock they hold become increasingly self-appointed and unchallengeable; while it continues it freezes absolute power in the corporate managements."

Sports Direct chairman scrapes through

Today was the Sports Direct AGM and, once again, chairman Keith Hellawell was in the firing line. He had previously said he would stand down if he failed to get the support of a majority of independent shareholders.

Ahead of the AGM Unite has flagged up numerous ongoing problems at the company, and its complete failure to deliver on previous pledges.  Major investors like Fidelity, Aberdeen, Hermes and Royal London all publicly announced they were voting against. Trade Union Share Owners members also voted against and called for other shareholders to do likewise. All the voting agencies also recommended a vote against.

However, Hellawell squeaked through. According the company's AGM statement he received the support of 55% of the independent vote. In raw scores, he got 63.3m in favour, whilst 55.6m voted against. Inexplicably one or more major shareholder seems to have abstained on this vote, with 6.4m abstentions. But even of they had been shifted to the against column, though the margin would have been wafer thin, Hellawell would have been OK.

I suspect there is going to be a lot of scrutiny go how individual institutions cast their votes. We know that Phoenix was voting in favour, and the likelihood is that Odey did too, but that still leaves a lot of votes unaccounted for. (Ladies and gentlemen, start your spreadsheets....)

Sports Direct AGM: Vote FOR resolution 19

I've blogged quite a bit about Sports Direct previously, now it's your chance to do something about it.

The Sports Direct AGM takes place on 7th September, and the company has just issued its notice of meeting. Resolution 19 has been filed by Unite and Trade Union Share Owners in response to the appalling workplace practices that have been exposed at the company's ShireBrook facility.

The resolution calls for the company to undertake a genuinely independent review of its workforce practices, using an organisation or person acceptable to both the board and workforce. This review should look at issues such as the Living Wage, secure employment (the split between temporary & permanent), training and development and union recognition.  

Given everything that has happened at Sports Direct over the past year there is nothing at all controversial in what is being asked for. This is a sensible resolution, with a clear and reasonable ask at a company which has demonstrably failed to manage its workforce properly. Any responsible shareholder should Vote FOR Resolution 19.

If you are a trustee, you need to ask your asset managers how they intend to vote on the resolution NOW. And if you don't like what they say you should instruct them how to vote.

To all colleagues in the labour movement please do all you can to raise awareness of the vote, and to encourage those who are shareholders to make sure they vote in favour.

Vote FOR resolution 19

Sports Direct: investors now have to act or lose legitimacy

About a year ago, the group I'm involved in - Trade Union Share Owners (TUSO) - wrote out to major Sports Direct shareholders calling on them to challenge the company. Specifically we recommended that other shareholders join TUSO in signalling concerns about both corporate governance and workplace practices by voting against the chairman.

The background to this was that numerous cases of poor treatment of workers had been exposed by Unite whilst at the same time investors were concerned by various long-standing corporate governance issues. These issues were brought together vividly when Keith Hellawell gave evidence to the Scottish Affairs committee and admitted he had been in the dark about the collapse of Sports Direct subsidiary USC.

TUSO held a briefing for investors on precarious work last summer, at which Sports Direct had been featured as an example. Many large shareholders who were/are major Sports Direct investors attended. It is fair to say, then, that investors have been told the inside story about this company directly.

At the September AGM abut a third of the non-Ashley vote went against Keith Hellawell. In a normal company that would be getting close to fatal, but this is Sports Direct we're talking about. But perhaps what was more surprising was that two thirds of independent shareholders apparently thought Hellawell was doing a good job.

What's more, one of the company's major investors told the Telegraph (anonymously) that unions were basically thick and didn't get capitalism, that Sports Direct wasn't doing anything wrong, that corporate governance reforms were a waste of time, and that the board were under-paid. No, I'm not joking -

“Unions and capitalism are not a natural fit but it is important to remember that Sport Direct has not broken any laws... If you look at those companies who have impeccable corporate governance and have ticked all the boxes, they are also those who are the most cumbersome... Mike Ashley is a ferociously effective entrepreneur who, as a major shareholder, is aligned with the success of the company. You can chastise Sports Direct for all of its quirks but if you compare the board’s remuneration and its share performance to other listed companies, then Sports Direct’s team is under-remunerated.”

This was in September 2015, when Sports Direct was a FTSE100 company and its shares were worth about £8.

Not even a year later and the picture is very different. Sports Direct shares closed on Friday at £2.57 a pop, about a third of where they were at when Mr "unions are too thick to understand capitalism" was mouthing off in the Telegraph. The company is now in the FTSE250. Mike Ashley admitted in front of the BIS committee that the company had broken the law by paying less than the minimum wage in some cases, and an HMRC investigation is ongoing. Chief exec Dave Forsey is subject to an investigation into the collapse of USC. Sports Direct has been repeatedly in the news because of the continuing exposure of inhumane treatment of workers at its Shirebrook site. Unite's excellent campaigning has drawn the veil from the reality of precarious work in Britain in the 21st century, and it looks ugly.

This week the BIS committee reported on Sports Direct and knocked lumps out of it:

"Whistleblowers, parts of the media and a trade union shone a light on work practices at Sports Direct and what they revealed was extremely disturbing. The evidence we heard points to a business whose working practices are closer to that of a Victorian workhouse than that of a modern, reputable High Street retailer. For this to occur in the UK in 2016 is a serious indictment of the management at Sports Direct and Mike Ashley, as the face of Sports Direct, must be held accountable for these failings."    

The BIS committee report says Sports Direct needs to have an independent review of its corporate governance alongside making significant changes to its workplace practices.

Corporate governance is there to ensure that in running companies, boards balance the interests of the many different stakeholders, including the employees and workers. In a well-run company, widespread evidence of poor working practices would be detected at an early stage, reported to the board and properly addressed. This did not happen. We recommend that Mr Ashley should complement his working practices review with an independent review of his corporate governance arrangements. We believe that such a review would improve the running, and hence performance of his company, as well improving the reputation of Sports Direct amongst stakeholders and investors. (Paragraph 74)

There is no way any major shareholder in Sports Direct can have missed any of this, not even those that think unions don't understand the maverick entrepreneurial genius of turning £8 shares into £2.57 ones that Mike Ashley brings to the party.

Sports Direct's AGM takes place on 7th September, about 6 weeks away. Shareholders have various way that they can hold the board accountable, and make sure that the company fundamentally overhauls how it treats its staff, and its corporate governance. This company is the poster boy of poor practice, and it has cost asset managers' clients a lot of money to leave these problems unaddressed. Therefore it is vital that investors act, and are seen to do so.

Shareholders have been granted ever greater powers in the UK in order to enable them to facilitate effective oversight of companies. They have been repeatedly encouraged by governments of various stripes to actively engage with companies, particularly when performance is weak and there are practical steps investors could take to seek to address this. There is no better target than Sports Direct.

So investors really need to act quickly, to do so with real intent, and to do it in a way where there is a very clear signal to both the board and to Sports Direct workers that enough is enough and that real change is needed.

Otherwise we may have to count this as your sixth strike.    

Sports Direct chief exec faces criminal charge over USC collapse

Even since I blogged earlier things have got worse for Sports Direct. The Grauniad broke the news that the company's chief executive Dave Forsey is facing a criminal charge over the USC collapse.

David Forsey, the chief executive of Sports Direct, has been charged with a criminal offence relating to the collapse of its fashion retailer USC.
The 49-year-old businessman is accused of failing to notify authorities of plans to lay off warehouse staff in Scotland, around 200 of whom were given just 15 minutes notice by USC’s administrator in January that they were losing their jobs. Forsey was sent his summons in July and his case is scheduled to be heard at Chesterfield magistrates’ court next week.
The UK Insolvency Service said: “We can confirm that criminal proceedings have been commenced against David Michael Forsey. He is charged with an offence contrary to section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992.
“The investigation into the conduct of the directors is ongoing. The inquiries are at an early stage and given the criminal proceedings it is not possible nor would it be appropriate to comment any further.”

This also reminded me of these comments from one of Sports Direct's major investors shortly before last month's AGM.

[A] top ten Sports Direct institutional shareholder has privately accused the retailer’s critics of having a “fundamental illiteracy of capitalism”.
“Unions and capitalism are not a natural fit but it is important to remember that Sport Direct has not broken any laws," the City investor, speaking on the condition of anonymity, told The Telegraph.

Well, now it looks like Sports Direct may have broken the law. What is more, I can't believe that anyone who has followed this company can be surprised by this development. The warning signs have been there for a long time, was simply a question of when they would trip up. In fact, the entire commentary from the mystery investor in that Telegraph piece is worth reading just to remind yourself of the education job people in the labour movement working on capital stewardship have to do. Some of these asset managers just don't seem to understand capitalism...

Sports Direct: you can't say you weren't warned

Sports Direct is back in the news, for all the wrong reasons. This week alone we have seen the following:

• A BBC documentary revealed that ambulances were called to Shirebrook dozens of times in 2013 and 2014 because of employee illness. Some of these were clearly life threatening.
• A couple who supplied workers to Sports Direct - at Shirebrook again - have gone on trial accused of modern slavery.
• A group of former workers at Sports Direct's USC business have been awarded a protective award of 90 days pay after they were fired with 15 minutes notice. The parter representing them attacked Sports Direct for "disgraceful and unlawful employment practices".    

Sports Direct is a FTSE100 company, meaning that it's almost certainly sitting in your pension fund's investment portfolio. There are warning lights blinking here - both on employment practices and corporate governance - so Sports Direct's shareholders have a real responsibility to tackle it. No-one can claim they haven't been warned.