Sports Direct Bows to Investor Fury With Governance Review

Updated on
  • Retailer promises review one day ahead of shareholder meeting
  • Royal London Asset Management has demanded chairman to resign

Sports Direct International Plc said it will look into its corporate governance as part of a wider review of labor practices, bowing to investor concerns after Chairman Keith Hellawell faced a call to resign.

Sports Direct said it deeply regrets “serious shortcomings” in warehouse labor practices and issued an apology in a statement Tuesday, the day before what is likely to be a highly charged annual general meeting. The review will take place over the next 12 months.

The company is trying to assuage concerns of investors, who are running out of patience with the embattled company and its billionaire founder Mike Ashley. On Monday, Royal London Asset Management called for Hellawell to resign, saying that it will again oppose the reappointment of the company’s non-executive directors. That followed public criticism by a group speaking for more than a quarter of independent shareholders.

Tuesday’s statement goes further than an announcement last month that the retailer was planning an external evaluation of the board for later this year. Sports Direct will speak with shareholders to obtain their views, it said.

“It is good news that Sports Direct is responding to public and investor pressure to reform working practices,” said Oliver Parry, head of corporate governance at the U.K.’s Institute of Directors. “It’s certainly better late than never, but this is only the first step towards restoring shareholder and employee trust in the management and board. A radical overhaul of their corporate governance arrangements needs to be the next step.”

The shares rose as much as 6.9 percent to 355.3 pence in London. Before today, they had dropped 57 percent in the past year.

Guaranteed Hours

The widened review will be conducted by law firm RPC, which this week presented the company with the findings of an initial report into working practices following criticism from U.K. lawmakers. That’s unlikely to appease The Investor Forum, which said last month that RPC’s role as an adviser to Sports Direct meant a review wouldn’t be independent.

In response to RPC’s initial report, Sports Direct said it will now offer retail workers the option of taking a contract with at least 12 guaranteed hours a week, in addition to the so-called zero-hours contract that most are employed under, offering no promise of work.

That doesn’t apply to most staff at the Shirebrook warehouse in central England, who are supplied by employment agencies. The retailer said it’s considering a trial aimed at transferring 10 warehouse workers a month from those agencies to direct employment. Agencies will be asked to suspend a disciplinary policy where staff could be dismissed for “six strikes” such as getting a drink of water outside set break times.

“The balance of the evidence from the staff we interviewed was that the system was one of the major negatives for the warehouse staff,” RPC said in its review. “It is a blunt instrument that can leave too much subjectivity in the hands of a few -- contributing at times to a hierarchical and potentially oppressive model.”

Sports Direct also pledged to ensure that all staff at the distribution center are paid above the U.K. minimum wage after admitting past failings that it said were unintentional.

In addition to holding its AGM on Wednesday, the retailer is also hosting an open day at its base in Shirebrook, in an effort to stave off criticism over its labor practices. A U.K. parliamentary committee this year heard evidence that the company’s methods resembled those of a Victorian workhouse.

The measures announced on Tuesday “set the bar quite low,” said Ashley Hamilton Claxton, corporate governance manager at Royal London. “The chairman’s position remains untenable and the review needs to be conducted under the leadership of a new chairman, otherwise we are unlikely to see change.”