Yahoo News Ashley Faces Personal Revolt Over Sports Direct Leadership
Mike Ashley faces a major revolt over his leadership of Sports Direct International (Other OTC: SDIPF - news) after one of the world’s leading voting advisors urged the retailer’s investors to oppose his re-election at next month’s annual meeting.
Sky News has obtained a note produced by Institutional Shareholder Services (ISS (LSE: 0QRS.L - news) ), which produces voting recommendations ahead of company meetings, which flags the "serious operational, governance and risk oversight concerns which have come to the fore during the period in review".
ISS is usually said to exert influence over roughly 25% of a blue-chip company's independence investors, which in Sports Direct's case would equate to just over 10% of the company's issued share capital given Mr Ashley's majority shareholding.
In its report, ISS urges Sports Direct investors to vote against both Mr Ashley, the company's executive deputy chairman, and Keith Hellawell, who chairs its board.
The recommendation will represent a further humiliation to Mr Ashley, the chain's founder, who has seen its share price plunge in the last 12 months amid growing disquiet over employment, governance and performance issues.
It is unusual for ISS to recommend opposing the re-election of a the director who runs a public company, although Mr Ashley is not in any danger of being removed from the board, since he owns 55% of Sports Direct's shares.
Its report is scathing about Mr Ashley's leadership of the company, saying:
"Sports Direct faces fundamental operational questions relating to, among other matters, the working conditions at its Shirebrook warehouse.
"As the central figure of Sports Direct, it is reasonable to consider Mike Ashley to be accountable for operational issues that appear to be long-standing and serious.
"As the now-executive deputy chairman and the central figure of Sports Direct over many years, Mike Ashley is interlinked with the success but also with the operational management, governance and risk oversight of the company.
"Recent events, with a sequence of negative headlines and concerns in a number of areas, combined with an extended decline in share price, indicate material failures of governance and risk oversight."
The ISS recommendation adds another flashpoint to the growing tensions between the City and Mr Ashley, which exploded this week when Sky News revealed that the Investor Forum, whose members manage assets worth more than £14trn, would make an unprecedented public statement criticising the company.
The Forum called for an independent review of Sports Direct's governance and called on shareholders to consider carefully whether they could continue to support its non-executive directors.
Sports Direct will hold its annual general meeting on September 7, with many City institutions saying they will oppose the re-election of board members.
Legal & General Investment Management, the single-biggest investor in blue-chip UK companies, has voted against the company's chairman, Keith Hellawell, for the last two years, and said on Thursday it would do the same again next month.
The intensifying row follows months of damaging revelations about Sports Direct, including the disclosure that it was effectively paying many workers below the minimum wage, with MPs (BSE: MPSLTD.BO - news) who investigated the company accusing it of being run like a "Victorian workhouse".
Sports Direct said last week that RPC (NYSE: RES - news) , a law firm, would conclude a report on working practices at the company ahead of the AGM.
Its claim that the project was independent was greeted sceptically by investors because RPC undertakes other work for the retailer.
Shareholders will vote on a resolution tabled by a group of trade unions demanding an audit of Sports Direct's "human capital management", for which ISS urged support.
Mr Ashley, who floated Sports Direct on the stock market in 2007, has also faced intense criticism over key business relationships Sports Direct with his relatives and friends.
Reports this week alleged that a company owned by Mr Ashley's brother is involved in distributing products sold by Sports Direct, while his daughter's boyfriend has been put in charge of its vast property portfolio.
Mr Ashley cut an occasionally contrite figure when he appeared before MPs probing working practices at Sports Direct in June, but City investors are furious that he has done so little to overhaul the running of the company despite the fact that its shares have fallen by 59% over the last year.
Sports Direct now has a market value of just £1.85bn.
Under new rules, companies with controlling shareholders must win the support of a majority of independent investors in order for resolutions to be approved.
However, even if Sports Direct did see non-executive directors opposed by minority shareholders, the company could hold another meeting three months later at which Mr Ashley could vote his shares in favour of their re-election.
The company announced late on Wednesday that it was inviting members of the public to its Shirebrook headquarters on the day of its AGM in order to "enable the board to engage with as many people as possible in an open discussion about the business".
Sports Direct declined to comment.
