Sports Direct chairman, Keith Hellawell, is expected to come under renewed pressure to step down from the retailer’s board at its annual meeting next week as a result of new rules giving increased rights to minority shareholders.
New guidance from the Financial Conduct Authority, the financial watchdog, means that for the first time, Sports Direct’s executive deputy chairman, Mike Ashley, who owns a 55% stake in the company he founded, can be challenged by other investors.
Before the vote on 9 September, some key shareholder advisory groups are calling on investors to vote against Hellawell, 73, who admitted last year that Ashley ran the business with three or four key executives and had informed the board of some key decisions only at the last moment.
The Trade Union Share Owners (TUSO) group, a coalition of pension funds for trade unions including the TUC, Unite and Unison, has written to the top 20 investors in the company, which employs thousands of workers on controversial zero-hours contracts, urging them to vote out Hellawell.
It says Hellawell has failed to tackle bad employment practices at Sports Direct.
It also criticises Hellawell for a lack of knowledge and oversight of the collapse of part of USC, a subsidiary of Sports Direct, where 200 workers were laid off at the start of this year with just 15 minutes notice. At a select committee inquiry last year, MPs accused Sports Direct of behaving like a “backstreet outfit” in its treatment of suppliers and staff.
In the wake of that meeting, the Institute of Directors warned that Sports Direct’s board was “dysfunctional” and does not provide a sufficient check on Ashley’s powers.
Hellawell, who was previously chief constable of West Yorkshire police and was the Tony Blair government’s drugs tsar, became chairman of Sports Direct in 2009.
PIRC, the shareholder advisory group, is also advising investors to vote against the re-election of Hellawell. It warns of a lack of communication among members of Sports Direct’s board “which puts into question the competency of the board as whole”.
“We are concerned that the chair’s responsibilities have been poorly managed,” PIRC said.
It recommends shareholders oppose the re-election of Ashley as executive deputy chair and abstain on the re-election of the senior independent director, Simon Bentley. It also raises concerns about changes to a company-wide share bonus scheme, which would lower the profit target for the current financial year by £60m.
Frances O’Grady, general secretary of the TUC, said: “Shareholders and workers both have an interest in reform at Sports Direct. We all want to see a successful business, but this success needs to be built on strong governance and good employment practices, not zero-hours contracts.”
Glass Lewis, the influential investment adviser, says shareholders should re-elect Hellawell. However, it advises investors vote against all the other non-executive directors – Bentley, Dave Singleton and Claire Jenkins – because of concerns over excessive non-audit fees. It said the firm’s auditor, Grant Thornton, was paid more for non-audit services than in auditing fees and that “raises concerns about the objectivity”.
The new FCA rules, which govern companies that have a controlling shareholder with a stake of 30% or more, mean the election of non-executive directors must be approved separately by minority shareholders. The rules came into force in May 2014 but did not affect Sports Direct’s last annual shareholder meeting because companies were given six months to comply.
Last year, just 16% of independent shareholders did not back Hellawell although some major investors are understood to have privately expressed disquiet at his continued presence.
If the majority of independent shareholders vote against Hellawell’s re-election, or that of other non-executives, Sports Direct will have the option of calling a special shareholder meeting at which all investors’ votes will be counted together. That would enable Ashley to push through their re-election.
Paul Hewitt at Manifest, the shareholder advisory service, said: “These rules may not ultimately prevent a company from barrelling through with what they want, but they do make it more expensive and complicated, and they will have to do so in the public eye. It increases accountability and transparency.”
He said the new rules made it clearer who was backing directors.
Fashion empire
Sports Direct has bought a 25% stake in Four Marketing, the company which distributes fashionable brands including Orla Kiely, 7 For All Mankind and Stone Island in the UK.
The investment is not unusual for Mike Ashley’s empire, which has moved beyond its discount sportswear heartland to open more than 103 premium fashion stores under the Flannels, Cruise, USC and Van Mildert names.
Over the years, it has also snapped up an array of sports and fashion brands including Dunlop, Slazenger, Kangol and Firetrap as it bids to secure access to attractive labels for its stores.
Industry insiders told trade journal Drapers that Sports Direct might help Four Marketing expand its new retail format.
