Sports Direct Slammed as Investors Snap Over Governanceby
Shareholders call for independent review of board governance
Review necessary “for rebuilding company’s reputation”
A leading U.K. shareholder group publicly criticized Sports Direct International Plc over its corporate governance practices after running out of patience with the embattled British sporting-goods retailer and its billionaire founder Mike Ashley.
The Investor Forum, whose 40 members manage assets worth more than 14 trillion pounds ($18.5 trillion), called on the company to start an independent review of its entire corporate governance structure after failing to reach a satisfactory outcome in more than a year of conversations with Sports Direct’s board.
“It is highly unusual for the Investor Forum to consider it necessary to make public their concerns and recommendations in this way,” Andy Griffiths, executive director, said in an e-mailed statement. “We still have not received an appropriate level of commitment to respond to investor concerns and, as a result, the usual options have been exhausted.”
The investor group’s public rebuke ratchets up the pressure on Sports Direct ahead of its annual general meeting on Sept. 7, when the retailer has said it will also host an open day in an effort to stave off criticism over its labor practices. Ashley was admonished by U.K. lawmakers in July for presiding over “appalling” working conditions in Sports Direct’s warehouses. The company has spent two years without a permanent finance director, adding to shareholder concerns over corporate governance.
“A FTSE 100 company without a finance director for nearly two years is alarming,” Phineas Glover, a senior adviser to the Investor Forum, said by phone. “Sports Direct are in a pernicious spiral. The more their reputation is called into question, the more difficult it is to appoint new directors. They need a fresh start.”
A Sports Direct spokesman said the company has already committed to an external evaluation of the board. This measure “fails to reflect the breadth and magnitude of reform that is required,” the forum said. Sports Direct shares fell 1.7 percent in London, extending their annual decline to 47 percent.
Sports Direct is controlled by Ashley, who owns about 55 percent of the shares and has seen his net worth plunge with the company’s stock price. The Investor Forum said its members represent about 27 percent of independent shareholders and include Legal & General, Aviva, Fidelity International and Standard Life.
Governance failings are “clearly resulting in declines in operating performance and long-term shareholder value,” the forum said. A wide-reaching review of practices is now “a necessary step for rebuilding the company’s reputation,” according to the investor group.
“We have been pointing these issues out to the board on a regular basis,” Simon Fraser, chairman of the Investor Forum, said in a phone interview. “They have said they will correct them, but they’ve dragged their feet, made excuses or not delivered.”