A fiasco for shareholders

POOR governance in private companies is bad enough, as the BHS disaster clearly demonstrated. It has done immeasurable harm to the retailer’s 11,000 employees, the 21,000 members of retirement schemes, suppliers, the High Street and the reputation of business.

None of this is acceptable. Nevertheless, because BHS was part of a personal fiefdom, not owned by the public through their pension funds and savings, it is possible to argue that management has more latitude to act in its own selfish, if horribly disagreeable, fashion.

The same cannot be said for public companies. In the 1970s Lonrho was the first UK company to be described in the Commons as the ‘unacceptable face of capitalism’ because its chief executive, the late ‘Tiny’ Rowland, sprayed company funds around to friends, family and politicians as if they belonged personally to him rather than shareholders.

The danger of untrammelled power in the boardrooms of public companies was demonstrated again in the 1990s with the collapse of Maxwell Communications Corporation after its top executive Robert Maxwell drowned after falling off his yacht.

In more recent times we saw the madness which can descend on out of control chief executives in the forlorn shape of Fred Goodwin at the Royal Bank of Scotland.

So why all of this history? It sometimes seems that the City investment banks, the auditors and the institutional shareholders never learn from their mistakes. Mike Ashley, the deputy chairman, founder and main powerbroker of Sports Direct may be a retail genius and personally a generous figure.

But when it comes to running a responsible public company that adheres to the best standards of governance and treats all of its employees with respect he has been a disaster.

The outrageous human resources practices at his Shirebrook warehouse in Derbyshire have been fully exposed both in the media and by the Business Committee in the Commons.

Far too little attention has been paid to the shortcomings of the company’s governance. The company has a weak board, headed by a former policeman in Keith Hellawell who has none of the qualifications required of a chairman of a public company. One might have thought that the company’s advisers Goldman Sachs might have addressed this problem some time ago. After all, as advisers to Sir Philip Green’s sprawling retail empire and to the late Robert Maxwell, the firm has no shortage of experience of dealing with rogue behaviour. Indeed, Goldman ought to be experts by now and pressing for change.

The latest outrage to be exposed at Sports Direct is the failure of the company accounts to record the business relationship between Ashley and Barlin Delivery, a Cleethorpes based distribution firm run by his brother.

There is nothing wrong with awarding contracts to members of the family providing there is open competition and details of those arrangements with connected parties are fully disclosed to investors in the accounts. Connoisseurs of corporate scandals will know that such arrangements are only hidden if they are likely to cause huge embarrassment.

Hanson’s bid for ICI in the early 1990s was largely defeated on disclosure that the company was secretly running a bloodstock stable controlled by its American chairman Sir Gordon White, a great buddy of Lord Hanson.

We should not be too surprised that Ashley has been able to escape full disclosure of the commercial dealings with his brother. Auditors to Sports Direct are Grant Thornton, one of the few second division accounting firms with aspirations to join the elite of the industry. Its chances of doing so are looking less likely than at the start of the year.

This was the same accounting firm that did the financial due diligence on BHS for thrice bankrupt Dominic Chappell when he bought defunct stores group. Tut-tut.