Sports Direct CEO Dave Forsey resigned last week. While nothing was said in the press release, this might be some implicit recognition of responsibility for the abysmal working practices at the firm, since Forsey has spent his entire working life there and has been CEO since 2007 and managing director of its predecessor firm since 2001.

Unfortunately, Sports Direct founder Mike Ashley—deemed by the House of Commons enquiry as an integral part of the problem at the company—has taken over as CEO. How such a move would change employment practices at the company remains to be seen. In the announcement, Ashley said: "I feel like I have lost my right arm, but I do hope to have the opportunity to work with Dave again in the future." In fact, at its 7 September annual general meeting (AGM), 53 percent of independent shareholders voted against the reelection of the chairman, Keith Hellawell, so it appears that investors would rather Ashley had lost his left arm as well as his right. Ashley owns 55 percent of Sports Direct, and it is a requirement of U.K. Company Law that the election of directors, among a number of other issues, must be approved by the majority of independent shareholders.

There is no real sign of Hellawell resigning as yet, despite independent shareholders voting in large numbers against his re-election as chairman for three years in a row; though this year was the first that a majority opposed him. Hellawell has been chairman for almost seven years and, ironically, given some of the more blatantly illegal treatment of Sports Direct workers by management, was the former chief constable of two British police forces. Hellawell did offer to resign but was asked to stay on. In a statement at the time the results were announced, Hellawell said: “I take this clear message from our independent shareholders seriously, and I will do my best to address their concerns and earn their confidence over the next year. I have confirmed today that should I not receive the support of a majority of our independent shareholders at next year's AGM, I will step down at that time with immediate effect.”

“For the third consecutive year we will be voting against the re-election of the Chairman at Sports Direct.”

Sacha Sadan, Director of Corporate Governance, LGIM


But there are some positive changes. Sports Direct announced on 6 September: “that the selection process for the Workers' Representative on the board of Sports Direct (as also announced on 6 September 2016) shall be via democratic staff elections, in which it is anticipated that all staff directly engaged or employed by Sports Direct may vote, further details of which will be announced at a later date.” Of course, as is well known, Sports Direct does not have very many directly employed staff, so the democratic nature of this election is called into question even before it has happened. Indeed, the trade union Unite’s Assistant General Secretary Steve Turner said in August: “We therefore call on Sports Direct to reconsider its proposal to only move 10 agency workers a month onto direct, permanent contracts. At that rate it will take over 340 months or 28 years for the whole of the agency workforce at Shirebrook to be moved onto secure, direct contracts.”

Other positive changes included permission for non-shareholders to attend the AGM. Prior to this year, non-shareholders, especially journalists and union representatives, were not allowed to attend, but in a surprise move, Sports Direct held an Open Day on the same day as the AGM to “enable the board to engage with as many people as possible in an open discussion about the business.”

However, in addition to the opposition to the chairman at the recent AGM, a shareholder resolution put forward by the Trade Union Share Owners (TUSO) group and Islington Council, calling for an independent investigation into how the company treats its workers, was also supported by a majority of independent shareholders. Following this, the company’s board met with a number of its major shareholders in a meeting chaired by the Investor Forum—an independent shareholder engagement firm—during which the need for an independent inquiry was repeated. The board has not made any statement about the nature and timing of the inquiry. Sports Direct’s legal advisers, RPC, has already published a report into working practices at the notorious Shirebrook facility, raising issues about the poor practices there, which the company has said it will address. Unfortunately, as was disclosed by proxy research firm Manifest in August this year, RPC was not in a position to conduct an independent enquiry into Sports Direct because of conflicts of interest.


Below, is an excerpt from Sports Direct’s independent review and workers’ representative update.
Having given careful consideration to concerns raised by independent shareholders, facilitated by the Investor Forum, Sports Direct today announces that the forthcoming '360-degree' review of working practices and corporate governance which was announced on 6 September 2016 and which was to be led by RPC will now be led by an independent party other than RPC.
The Board has made this decision after listening to shareholder feedback at the recent AGM/Open Day and during subsequent consultation with a number of the Company's long-standing shareholders via the Investor Forum.
The Board will continue constructive dialogue with the Company's independent shareholders in order to reach agreement regarding the specific nature and timing of the review.
RPC will continue to be a valued legal advisor to Sports Direct, and the Board would like to thank RPC for its work on the existing Working Practices Report, which was compiled to the highest standards.
The Company today further announces that the selection process for the Workers' Representative on the Board of Sports Direct (as also announced on 6 September 2016) shall be via democratic staff elections, in which it is anticipated that all staff directly engaged or employed by Sports Direct may vote, further details of which will be announced at a later date.
Source: Sports Direct

The investigation by Manifest showed that RPC had seconded some of its junior solicitors to Sports Direct, and it represented Ashley during the Scottish Affairs Committee investigations; these were the first official inquiries into the scandal, before the Business, Innovation and Skills Committee enquiry.

But that’s not the end of the conflicts of interest. In a further investigation, Manifest disclosed that Sports Direct does not retain the “services of a specialist investor relations agency to manage its stock market disclosures.” Rather it uses a firm called Keith Bishop Associates, whose clients include Newcastle United and Rangers’ FC. Ashley owns Newcastle and has a large stake in Rangers. However, in August this year, Rangers FC announced it was taking legal action against some of the club’s former directors, including Ashley himself. Furthermore, Manifest reports that from 2012 to 2014, “Derek Llambias served as a director of Keith Bishop Public Relations Ltd, during which time Llambias was also a director of Rangers FC.” In even more damning findings, Manifest describes a complex web of interconnected ownership: “KBA [Keith Bishop Associates], is in fact, the former registered name of Keith Bishop Public Relations Ltd (KBPRL). KBPRL is majority owned by Media (SDML) whose directors include Dave Forsey, ex-group CEO of SDI [Sports Direct]. SDML is, in turn, controlled by Retail, where both Dave Forsey and Mike Ashley are listed as directors.”

Finally, the Financial Times disclosed that Sports Direct’s shipping operator, Barlin Delivery, is being managed by Mike Ashley’s brother, John Ashley. This fact had never been disclosed to independent shareholders, and the decision to keep it secret was, according to Sports Direct, approved by its auditors, Grant Thornton.

It is hardly a surprise then that institutional investors have been attempting for some time to engage with Sports Direct about its governance practices. Several institutional shareholders, unusually, announced their opposition to Hellawell’s re-election prior to the AGM. These included Legal & General Investment Management. In a statement on 25 August, Sacha Sadan, director of corporate governance at LGIM said: “For the third consecutive year we will be voting against the re-election of the Chairman at Sports Direct. We first voted against the chairman in 2014 when the share price performance was still strong, trading at around £7.00. Today it is trading at around £3.08.” LGIM also announced that it would be voting against the re-election of all non-executive directors, especially as there had been no new appointments in the last five years. Sadan continued: “LGIM will also support the shareholder requisition resolution on an independent review of labour practices.”

Manifest also criticised the lack of board evaluation at Sports Direct as a “clear breach of the U.K. Governance Code.” But criticism was not simply that the company did not have any board evaluation but rather that it disclosed nothing about it. Poor disclosure, as we have seen, is something of a constant for Sports Direct. Manifest noted that it had graded the company an ‘E’ on its Say on Sustainability analysis scale that runs from A to F, so not quite a failing grade. Manifest said: “Barring minimum compliance with the U.K.’s strategic reporting regulations, the company’s public disclosures have little to say to shareholders about any aspect of the company’s sustainability governance.” However, in September, the company announced that it would undertake an external evaluation of the board sometime later in the financial year.

While several positive moves have been announced by Sports Direct, Ashley’s appointment as CEO, Hellawell’s continuation as chairman in the face of shareholder objections and the continued tangle of interrelated companies in this publicly listed company—even after a damning government inquiry—would suggest that Sports Direct has still some way to go to comply with even the minimum standards of governance expected in the United Kingdom.

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more