Sports Direct crisis grows as MPs and investors question business
The crisis at Sports Direct escalated once again on Monday as the retailer was rounded on by MPs during an urgent parliamentary debate and the company was deserted by some of its leading City cheerleaders.
Former shadow business minister, Chuka Umunna, branded the retailer as “a bad advert for British business” and said it had “a culture of fear in the workplace that we would not wish to see repeated elsewhere”.
At the same time, City hedge fund boss Crispin Odey, a leading Sports Direct investor who had previously called the retailer’s founder Mike Ashley a genius, also turned on the billionaire. Odey said Ashley was “difficult to house train” and described his authority over other Sports Direct directors as “dangerous”.
HM Revenue and Customs is facing increasing pressure to launch an inquiry into the sportswear retailer following a Guardian investigation that revealed how thousands of Sports Direct workers were receiving hourly rates of pay effectivelybelow the minimum wage.
Undercover reporters found how thousands of the retailer’s warehouse workersare subjected to an extraordinary regime of searches and surveillance, while localprimary schoolteachers also told the Guardian that pupils can remain in school while ill – and return home to empty houses – as parents working at Sports Direct are too frightened to take time off work.
Around £600m has been wiped off the value of the company in the last four trading days as the shares have tumbled 16%. With a 55% stake in the company the value of Ashley’s personal fortune has taken a hit of £330m.
In another difficult day for the company, which was last week described as a “scar on British business” by the Institute of Directors:
The business minister, Nick Boles, praised the Guardian’s reporting and then added to the pressure on HMRC by telling parliament that tax officials have the power to proactively investigate companies like Sports Direct if there is general concern about practices in the sector;
Major Sports Direct shareholders said they would meet this week in a bid to put pressure on the company to beef up its boardroom.
Boles was called to a parliamentary debate on the retailer’s conduct after Umunnafiled an urgent question asking why the tax authorities were not actively investigating the revelations in the Guardian’s undercover report last week.
Umunna said a request for an investigation has been made by Unite, but HMRChad told the union it was unable to act without direct complaints from workers, who are refusing to come forward for fear of losing their jobs.
“We know enough about the practices at Sports Direct Plc to conclude this company is a bad advert for British business and one with a culture of fear in the workplace which we would not want to see repeated elsewhere,” Umunna said. “Why cannot HMRC go ahead and carry out an investigation in this case?”
In response, Boles said HMRC can act proactively where there is a sector of concern and does not need necessarily to wait for a specific complaint.
He also praised the Guardian’s reporting, which uncovered the harsh working conditions at Sports Direct, saying: “In general, I don’t often welcome an investigation by the Guardian newspaper, but in this case, I think it is absolutely vitally important that media organisations to investigate these things because the government is never going to be able to investigate every employer in the country. And if they can uncover things, then I can promise you the government will be sure to review their findings and enforce the law where necessary.”
Boles said he could not give an “absolute pronouncement” about some practices associated with Sports Direct but stressed that “anything that counts as work must be compensated at least at the level of the minimum wage”.
In what appeared to be a pointed warning to Sports Direct and Ashley, Boles added: “I don’t care how famous an employer is. I don’t care how well connected they are. I don’t care, frankly, how much money they have made. They need to obey the law. If they don’t obey the law, we will find them and disqualify directors if necessary.”
A sport Direct official said: “Sports Direct believes it’s in compliance with minimum wage regulations and takes its responsibilities extremely seriously.” Temporary workers at its Shirebrook warehouse are mostly hired through agencies, which technically employ the staff.
The Commons debate came on an afternoon when more of the retailer’s shareholders broke ranks.
Odey, a City grandee who had once been a major supporter of the company, said: “I have every sympathy for [the Guardian’s] exposés. In the fund I manage, I have personally reduced our holding substantially over the course of this year. That is partly because of the company’s problems in Austria and partly because Mike is a difficult animal to house train.
“I think he should address these issues, I really do. It’s that old question of citizen versus subject. Do you have any obligation to your people and to the community in which you operate? In a strange way, Amazon is no different – they have more technology and use fewer people – but they don’t do anything for the greater good. They are all part and parcel of the new capitalism, which is quite cut-throat in the way it does business.”
Odey said some responsibility for the working conditions at Sports Direct must lie with consumers: “We have to recognise consumers’ desire for cheap shoes is how you end up with these problems. Shoppers need to understand that these prices are only possible because every cost has been analysed and reduced as far as it will go.”
He said that Ashley was very difficult to deal with and warned that investors should now be wary of the business: “It is very difficult as a shareholder to understand half the decisions Mike makes. He is not under any authority and that is dangerous. My experience with Ashley is that is quite hard to change him. I don’t think anybody has any influence on Mike apart from Mike. All that happens is that he gets angrier if he comes under pressure and thus you end up with a board of people who are very loyal to him. I don’t think there is anyone there who says, ‘Mike you can’t do that,’ and thus as a shareholder you have to make sure your exposure is not too big.”
Odey’s views were reiterated by other major shareholders in Sports Direct, who indicated that they had begun talks to oust directors from the company’s board.
A source at one large holder of Sports Direct shares said: “They certainly need new non-executives and better non-executives … There are lots of discussions going on in the background [between shareholders] and there will be discussions and we will see where they land. We talk to each other about very concerning situations and this certainly qualifies as one.”
The source said shareholders who had turned a blind eye to Sports Direct’s governance problems when performance looked good were now starting to pay attention after the Guardian’s revelations coincided with disappointing financial results and new doubts about Ashley’s strategy.
“Last week’s results made it harder not to be bothered,” the shareholder said. “When the numbers go the other way, people spot problems that have been there all along. The shareholder said investors would prefer to apply pressure behind the scenes but that they could try to force existing directors out by going public.
“It’s Ashley’s business so it depends on the level of embarrassment that non-executive directors are willing to face. Maybe they are happy with that but I suspect some of them won’t be.”
A source at another large fund manager said. “The board needs refreshment from the chairman down. The role of the chairman is going to be a focus for most investors.”