UK trades union activist investment group plans Sports Direct AGM fight on governance and labour issues

Company share price has slid by approximately 30% since September 2015 AGM.

Trade Union Share Owners (TUSO), the activist investor group launched two years ago by the UK Trades Union Congress (TUC) and its two largest affiliated unions, Unite and UNISON are planning to file a shareholder resolution – a rare occurrence in UK corporate governance disputes – at this year’s annual general meeting (AGM) of Sports Direct, the FTSE100-listed retailer that has been mired in labour and corporate governance trouble.
TUSO, which represents over £1bn of assets, is “currently exploring” options around the shareholder resolution, which would seek support from the City’s biggest fund managers to force the company to take action to clear up corporate governance and labour concerns.
Alex Flynn, Head of Media & Campaigns at Unite, told RI that TUSO was finalising the details but that the deadline for lodging a resolution at the Sports Direct AGM was fast approaching and that it would have to submit shortly.
Sports Direct’s AGM is not until September, but the UK Companies Act 2006 stipulates that a resolution and supporting statement be received before the end of the financial year preceding the AGM to oblige the company to pay for circulating them to shareholders.
Resolutions in the UK are complicated to get off the ground, requiring the support of investors representing 5% of voting rights, or at least 100 shareholders with nominal holdings of not less than £100.
During 2015, Sports Direct was hit by television and newspaper exposés and political criticism over labour practices at its major UK storage depot in Shirebrook, northern England. Sports Direct has refuted the claims. One issue concerned unpaid staff searches at the end of shifts, leading to criticisms that employees were effectively earning below the UK National Minimum Wage, and potentially leaving the company open to legal challenge.
Sports Direct announced to the London Stock Exchange on December 31 that it would pay directly employed UK employees and directly engaged casual workers above the minimum wage from the start of this year at an extra cost of £10m per annum to the business.Unite said the extra money should not distract from what it dubbed “Victorian” work practices at Shirebrook. It said the company should be investigated for the possible non-payment of the minimum wage to thousands of agency staff who work at the site.
The company has also faced heavy investor questioning on corporate governance issues including executive pay proposals – notably for company founder, Mike Ashley, who owns a controlling stake in the company – treasury investment in other companies, and senior management and finance appointments. Investors told RI that Sports Direct had serious corporate governance problems and poor investor relations functions.
Since its last AGM in September 2015, the Sports Direct share price has slid by approximately 30%, wiping hundreds of millions of pounds from its value.
Fund managers, including Royal London Asset Management (RLAM), voted against management on governance issues at that meeting, with RLAM saying at the time that it had “lost confidence in the board”. Dutch giant PGGM voted against the re-election of Ashley as a director, saying he had attended less than 75% of the board meetings during the year with “no plausible explanations” provided.
Investor concerns were compounded by half-year profits reported in December that came below analyst expectations. A broker note on Sports Direct last year by Morgan Stanley cautioned that governance concerns were deterring institutional investors from buying the stock. Other brokers have been heavily cutting their valuation recommendations on the company in recent months.
RLAM reiterated its governance problems with Sports Direct in December. Ashley Hamilton Claxton, Corporate Governance Manager, said: “Until the company improves both its governance and its relationships with employees, shareholders face substantial risks. We maintain that companies, such as Sports Direct, need strong governance in place to protect the interests of minority shareholders, employees and other stakeholders. Ignoring such issues is short-sighted and runs the risk of eroding shareholder value.”
Given Sports Direct’s FTSE100 status, a huge number of UK pension funds and asset managers hold the stock in passive and active funds. Shareholders are understood to be currently engaging with the company over their governance and labour concerns. Sport’s Direct’s largest institutional shareholders include Odey Asset Management, the London-based hedge fund, Capital International and Standard Life.
Read RI’s A corporate governance Christmas Carol on Sports Direct