By Neil Fletcher, senior lecturer in finance and accounting at Sheffield Hallam University.
The eyes of the business media will once again be on the owner of Sports Direct, Mike Ashley, when the company publishes its annual results on Thursday, July 7.
And, if predictions that they will record a loss in underlying profit are realised it could be another bad day at the office for him. Since floating on the stock exchange in 2007, revenue at Sports Direct has increased every year and operating profit has grown annually since 2010.
The annual results are not expected to contain all bad news. The interim results suggest that overall gross margins within the business may continue to be robust, despite issues within the wholesale division. Store expansion continues apace in the UK and Europe.
However, Ashley has not had the best year. His beloved football team Newcastle United, which he has owned since 2007, was relegated from the Premier League in May; share prices in Sports Direct have plummeted to their lowest in four years and last month he faced a grilling from MPs during a commons select committee hearing into employment practices at the company.
That interrogation shone a light on working conditions at Sports Direct’s national distribution centre in Shirebrook and many people were shocked, if not surprised, at what they heard.
One of the committee members asking the questions was Sheffield Central MP Paul Blomfield. He “tried to ask honest and straightforward questions” about the facility, just over the border in Derbyshire, which has been claimed to be “a workhouse not a warehouse.”
Blomfield asked twelve questions of Ashley that focussed upon why such a high proportion of workers at Shirebrook were employed as agency staff, and did not enjoy the benefits of a permanent full time contract. The Sheffield MP provoked some candid and strong responses.
“I have to accept…Sports Direct has made some mistakes,” conceded Ashley, “it is impossible to be perfect.”
“I fear coming to things like this,” admitted Ashley.
While Blomfield explored the ethics of zero hours contracts the billionaire stated: “I cannot be house trained.”
Ashley is the Executive Deputy Chairman of Sports Direct, and is therefore a board member and a statutory director of the company. It is difficult to harmonise such an admission with the legal requirement that all company directors should act with the “care, skill and diligence that would be exercised by a reasonably diligent person”.
The Select Committee was an example of democratic stakeholder governance in action. Although having no direct regulatory power the transparency created by the public hearing may influence the way Sports Direct behaves in the future.
In theory, publically listed company boards comprising of executive directors and independent non-executive directors should be able to avoid the difficulties that Sports Direct has run into. However, the unique nature of the board level governance at Sports Direct is probably one of the major factors behind the problems that prompted the select committee convening.
Mike Ashley is the main shareholder of Sports Direct, owning 55 per cent of the company, which is currently valued at just over £2 billion. He is also a board member, occupying the curiously entitled position of executive deputy chairman.
The company’s latest Corporate Governance Report states that “no one director exercises a disproportionate influence (within the Sports Direct board)”. How this claim fits with Ashley’s select committee comments is difficult to ascertain. “Ultimately, I am always responsible for Sports Direct. I am aware of that,” was how Ashley explained his connection with Sports Direct, which should be led and guided by the entire board of directors.
During the public hearing Ashley wore a Newcastle United tie for all to see. Regarding working practices and governance issues the select committee was able to reveal some things, but not everything. Whether or not the witness was wearing Newcastle socks was not made public.
One thing is transparently clear. In Ashley’s own words: “Sports Direct has to pull its socks up. It is as simple as that.”