This week in retail: Sports Direct poised for crunch match

The controversial Mike Ashley-controlled firm is still firmly in the spotlight for its treatment of workers and lack of corporate governance in the wake of July’s stinging report from MPs. 

This year’s AGM will be unusual because Sports Direct is opening its doors to the public in an effort to be more transparent. Anyone who wants, including the media,  will be treated to a tour of the retailer’s Shirebrook warehouse at its Derbyshire headquarters on Wednesday.

Here we examine some of the key questions the retailer will face: 

How will corporate governance be improved? 

Sports Direct is regarded as Mike Ashley’s baby, which is understandable given that its founder has a majority stake in the business.

However Ashley’s confession to MPs on the Business, Innovation and Skills Committee that the company has outgrown him to become an out-of-control oil tanker will have raised the heckles of critics.

”Aberdeen Asset Management has called for an ‘injection of new talent’ among the senior management team”

James Wilmore, news editor

After clashes at previous AGMs, investors have again been lining up to criticise how the retailer is run. Their ire has been intensified of late because Sports Direct’s share price has tumbled in the last year amid tough trading.

Aberdeen Asset Management has called for an “injection of new talent” among the senior management team.

L&G Investment Management has urged a stronger body of independent non-executives and bemoaned the fact there has been no new non-exec appointments in the last five years.

Meanwhile, the larger-than-life Ashley has done himself no favours by appointing his daughter’s twentysomething boyfriend to run Sports Direct’s property arm.

On top of that, the retailer has not had a permanent finance boss since December 2013, when Bob Mellors stood down. It took 18 months to find a replacement. Although Matt Pearson was then appointed, he is still only acting chief financial officer.

Sports Direct chairman and former policeman, Keith Hellawell, also remains a controversial figure. Aberdeen Asset Management has said it will vote against his reappointment, as well as that of Pearson and chief executive Dave Forsey. Specialist investment advisor Pirc has also advised shareholders to oppose the re-election to the board of Ashley himself.

How Sports Direct’s board responds to the criticisms this year will be interesting. Can they survive a controversial AGM?

Veteran retail analyst Nick Bubb says: “The rally in the share price implies that the City feels that the glasnost of the open day after the AGM may lead to some change, but nothing will change if Mike Ashley just shrugs off another AGM revolt.”

How will the treatment of workers be improved?

MPs did not hold back in their criticism of Sport Direct’s working practices in their report. The BIS committee said the retailer’s model involved treating workers “as commodities rather than as human beings”.

Sports Direct has promised to publish the results of an independent inquiry ahead of the AGM. The retailer has already pledged to give workers back-pay totalling £1m after Ashley’s admission that they had been paid below the minimum wage.

After multiple media exposés of the way it treats workers, investors will wanting to see words put into action to satisfy their concerns. 

Why has it taken so long for Sports Direct to tackle its issues?

For too long, the retailer appears to have had its head in the sand over the criticisms it has faced.

Only since Ashley’s acknowledgment to MPs that it effectively paid staff below the minimum wage, because of time taken over stringent security checks at the end of shifts, has the retailer really tried to address its reputation.

He also admitted that things had happened at the retailer that were “unacceptable” and had come as “an unpleasant surprise”. That perhaps hinted at why its Shirebrook facility in Derbyshire is reportedly known locally as “the gulag”, in reference to Soviet forced labour camps. 

However only last year, Forsey claimed in an exclusive interview with Retail Week that Sports Direct’s image problem was a failure in PR, rather than anything wrong that the company was doing.

Investors will hope that Ashley’s acknowledgment of problems will mark a more transparent approach.

Will Mike Ashley take Sports Direct private?

Since Sports Direct’s problems have piled up, observers have considered whether Ashley may decide to take the company back into private ownership.

The share price has been battered in the last year followong some some poor trading figures and the failure to tackle its public image.

However, Bubb believes the chance of Sports Direct going private is relatively slim. “Up until now he [Ashley] clearly feels that the advantages of being a quoted company outweigh the many disadvantages and, having come so far and put up with so much hassle, it not clear’s why he would change his mind.”