Gerry Brown: Time to act after whistle is blown on Sports Direct

Sports Direct founder Mike Ashley outside the Sports Direct headquarters in Shirebrook.
Sports Direct founder Mike Ashley outside the Sports Direct headquarters in Shirebrook.
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A DAMNING Parliamentary report describes retailer Sports Direct as a “particularly bad example of a business that exploits its workers in order to maximise its profits”.

Such criticisms don’t necessary make Mike Ashley’s company stand out from the crowd. However, after Business Select Committee chairman Iain Wright said evidence pointed to a “business whose working practices are closer to that of a Victorian workhouse than that of a modern reputable high street retailer”, Sports Direct is clearly a special case.

Iniquitous practices were legion but included workers being paid less than the minimum wage, agency labour abuses, public humiliation by managers, sexual abuse and health and safety breaches. Even visits to the toilet weren’t without interference.

Unsurprisingly, MPs concluded that “in both the warehouses at Shirebrook and in the shops across the country (Sports Direct) is treating workers as commodities rather than human beings”.

Although Mr Ashley did eventually appear in front of the committee to discuss life at Sports Direct and, doubtless sincerely, promised to make root and branch changes, the buck rightly stops with him.

This week’s report identified that he was responsible either for “not knowing about appalling working practices” or “for turning a blind eye to them”.

In addition to the appalling treatment of the workers, investors, too, have become disillusioned with the way the company is run.

A key shareholder spoke for many when he said Mr Ashley had failed to realise that “Victorian working conditions are not acceptable at a public company or any company for that matter”.

After the report’s publication, the Sports Direct share price reached a new low and is now 30 per cent of what it was a year ago.

Understandably the investors, employees and public alike (ably represented by Parliament) are rightly very angry at the way the board of Sports Direct is failing in effectively discharging its responsibilities.

Worse, the rigorous safeguards offered by the Stock Market Combined Code – supposedly guiding how public companies are run – or the supervision by current chairman Keith Hellawell and the non-executive directors are notable by their complete ineffectiveness .

The strong impression is that the board could do with more truly independent directors.

Many oversights urgently need explaining. For example, why did it take a Parliamentary investigation to disclose these working conditions of Sports Direct staff?

Shareholders and public might ask when did former West Yorkshire chief constable Mr Hellawell and/or non-executive directors last bother to visit the company to see the true state of affairs for themselves?

A very significant part of the responsibilities of the chairman and the independent directors is to hold Mr Ashley to account.

Their powers include being able to fire him for poor performance.

So, after the publication of the excoriating Parliamentary report, what exactly are they now doing about it?

I am sure shareholders, Parliamentarians and public alike would all like to know the details and the implementation timelines.

The business committee report also puts the ethical business promises of new Prime Minister Theresa May directly in the line of fire.

If Mrs May is sincere in her campaign to “get tough on irresponsible behaviour in big business” , fast but thoughtful action is required.

In case she is short of practical ideas my proposal would include:

Encourage (and, if necessary, legislate) the appointment of more genuinely ‘independent directors’ onto the boards of UK-based companies.

Ensure greater board diversity via the appointment of more women, workers and ethnic minorities.

Require company directors to be properly qualified as well as be automatically and disbarred for ethical breaches (again the Government should legislate to this effect).

Mandate that board directors should be the subject of a proper, rigorous and transparent selection process, rather just friends of the CEO or chairman.

Require that Business School curricula and qualifications place much greater emphasis and importance on education of boards and directors responsibilities.

Board directors to be much more promptly and publicly held to account with under-performers sacked.

Shareholders to be much more active in the supervision of companies in which they invest while disallowing fund block voting to immediately dismiss individual shareholder concerns.

If these protocols were in place, I venture that Sports Direct would not have been able to exploit its workers to such an extent.

Gerry Brown’s The Independent Director: The Non-Executive Director’s Guide to Effective Board Presence, is published by Palgrave Macmillan.