Sports Direct – now Ashley faces revolt by investors
Shareholders in plot to bypass boss and shame chairman into quitting
SPORTS Direct investors are poised to invoke new Financial Conduct Authority rules for the first time next week in an attempt to unseat the firm’s chairman Keith Hellawell as part of an unprecedented revolt.
The rules, designed to ‘shame’ unpopular non-executive directors, would mean shareholders could sidestep founder and deputy chairman Mike Ashley’s majority 55 per cent voting stake in the business to have their views heard.
Sports Direct has been condemned by MPs for working practices akin to ‘a Victorian workhouse’.
The new rules mean City shareholders can formally protest against individual non-executive directors by asking for Ashley’s block vote to be split out. They have been drawn up to avoid investors’ concerns being brushed aside by influential executives and the ‘abuse of the position of power by a controlling shareholder’, according to FCA consultation documents.
So if a majority of shareholders other than Ashley vote against re-electing Hellawell at the company’s annual meeting on September 7 then a 90-day consultation process will be triggered when the firm must publicly justify its reasons for going against the wishes of independent investors.
The rules came into force last year but are so far untested. In the event of a successful rebellion by outside shareholders, Hellawell, the former Chief Constable of West Yorkshire, would not be automatically ejected but City sources believe it could make his future position untenable.
One said: ‘This is unprecedented. A lot depends on the reaction of the individual. In most cases, you would have thought that if the individual wasn’t doing their job properly – which is representing the needs of the independent shareholders – then they would probably resign.’
Sports Direct will open its annual meeting at its headquarters in Shirebrook, Derbyshire, to the public for the first time, amid a growing chorus of criticism.
Ashley, the owner of Newcastle United Football Club, is under fire from both the City and unions after a series of public relations disasters, a grilling by a parliamentary committee and his use of ‘zero hours’ contracts, offering little security of employment for thousands of staff.
Unions want to see more evidence of improvements in employment contracts and the treatment of staff while City sources have demanded an independent review of corporate governance, executive positions and non-executive representation.
A flurry of investors emerged last week to criticise the running of the firm and the composition of its board, making a successful revolt against Hellawell by non-affiliated shareholders look increasingly likely.
Major shareholders, including Legal & General and Aberdeen Asset Management, are also expected to vote against Ashley himself, chief executive Dave Forsey, acting finance director Matt Pearson and other directors.
‘There has been a continuing tightening of protection for minority shareholders and this may become the test case for the new rules,’ said Simon Fraser at the Investor Forum, which represents 27 per cent of Sports Direct’s City shareholders, including Legal & General, Standard Life and Aviva.
‘The frustration is, though Sports Direct acknowledges some suggestions we make on specific issues, very little actually happens. Or it has been a bit of a disappointment when they’ve actually come back with a formal response,’ he said.
Fraser’s organisation, which represents the interests of funds worth £14trillion, said the lack of activity after Ashley’s grilling by MPs in June was ‘the last straw’ and fund managers should now consider their support for the board. But he added: ‘There’s a chance here to rebuild relationships and trust. It’s in Mike Ashley’s interest as a shareholder.’
Investors are unhappy that Sports Direct’s share price has plummeted from more than 800p a year ago to close at 305p on Friday.
Unions, too, are stepping up their campaigns. The Trades Union Congress, Unite and the Trade Union Share Owners group have tabled a resolution demanding an independent review of its labour practices.
Janet Williamson, chairwoman of TUSO, which represents the TUC staff pension fund and union affiliated funds, said: ‘We call on all shareholders, including Ashley, to support the resolution, and stop the firm’s reputation sliding further. Workers and investors deserve better.’
Mike Ashley was not available for comment and Hellawell declined to comment. But it is understood he intends to chair the meeting and face investor ire, though he rarely speaks to the press or appears in public on the firm’s behalf.