UK investors take second swing at Sports Direct ahead of AGM

Asset managers and investor groups come out against director of troubled sportswear company

Sports Direct, the UK leisurewear company, faces another corporate governance fight next week after the Trade Union Share Owners (TUSO) investor group, representing some £2bn in assets, wrote to fellow shareholders urging them to vote against the re-election of Keith Hellawell as a Director at the company’s AGM on September 6, because of what it claims is a whitewash investigation into the company’s employment practices and governance.
The company has continued to be in the headlines over a number of legal cases involving its controversial founder, Mike Ashley.
Last year, its labour and management travails – including serious reports over the treatment of employees – battered its share price, leading to it dropping out of the FTSE 100 index.
Back then, RI revealed that TUSO had kicked off what became a major investor revolt involving scores of fund managers including Royal London, Hermes, Legal & General and Aberdeen Asset Management, and the powerful UK Investor Forum, with proposals that included removing the firm’s board of directors and Chairman Hellawell, a former senior police officer.
At the 2016 AGM, a majority of independent shareholders voted for the TUSO-backed resolution number 19, requiring the board to commission an independent review of its human capital management strategy and report back to shareholders within six months.
TUSO continues to have serious concerns about the company’s employment practices, including workplace conditions in its warehouses and the use of zero-hours contracts in its stores, and is mounting another campaign. It says the review being carried out by RPC, a London-based law firm, is inadequate and not impartial.
In the letter to shareholders it urges them to vote against Resolution 3 on the AGM ballot, which calls for the re-election of Hellawell. It says this would send a message to management about poor employment practices and weak governance, for which, it argues, the Chair must take responsibility.
In September 2016, Sports Direct said it had decided to switch the ’360-degree’ review of working practices and corporate governance away from RPC to an independent party.
It subsequently reversed that decision.TUSO says RPC is not a specialist employment law firm, has no expertise in the area of corporate governance and has an existing relationship with the company.
It says Sports Direct has also given no commitment to the findings of the report being made public or given to shareholders. TUSO Chair Janet Williamson said: “We do not have confidence in a review carried out by an organisation that is not fully independent of the company and we are aware that other shareholders share our concern. It is essential that the individual or organisation appointed to undertake the review is mutually acceptable to both the company and Sports Direct workers and their representatives.
“A fully independent review is the only way to make sure that in future Sports Direct delivers fairness for staff, and decent returns for shareholders.”
Commenting ahead of Sports Direct’s AGM, Ashley Hamilton Claxton, Corporate Governance Manager at Royal London Asset Management (RLAM), said: “In a year where some companies have made meaningful progress towards improving their corporate governance, Sports Direct continues to show a serious disregard for shareholders’ views about the governance and management of the company. We have no confidence in the ability of the firm’s Chairman and non-executive directors to provide effective oversight and protect the interests of minority investors. For this reason, we will be voting against the firm’s CEO, Chairman of the Board and the Lead Independent Director.
“Pension savers like our clients, that are forced to own Sports Direct through passive holdings in index trackers, deserve better standards of governance than this. At the end of the day, it is their life savings that are at risk.”
RLAM holds 0.19% of the outstanding shares in Sports Direct International through index tracking funds, worth approximately £4m. Overall, RLAM manages £106bn of assets, including £20bn in UK-listed equities.
A spokesperson for Sports Direct told RI: “Our Notice of AGM makes it clear that Keith Hellawell has the full support of his fellow Directors. The Board recommends that independent shareholders vote in favour of Keith’s re-election, as Mike Ashley and the other Directors intend to do in respect of their own shareholdings.”

Additional reporting by Paul Verney