The social licence that a business leader needs to operate is no less real for lacking a physical form and it seems that Mike Ashley, maverick founder of British sportswear retailer Sports Direct, is about to lose his permit. Investors, politicians and unions are demanding that the company changes its ways after allegations of sharp labour practices.
The latest broadside fired at Mr Ashley is from one of his oldest critics: the City of London. The Investor Forum, which represents insurers and asset managers, has called on Sports Direct to conduct an independent review of corporate governance at the company, whose shares have fallen 62 per cent in a year.
So far, so toothless. One of the few sanctions City investors can apply is to vote against the reappointment of three independent non-executive directors at Sports Direct’s annual meeting on September 7. Even then, Mr Ashley is free to deploy his 55 per cent shareholding to keep the trio on the board.
A controlling stake has permitted the burly former squash coach to thumb his nose at the stuffed shirts of the Square Mile ever since Sports Direct listed in 2007. It allows him to hold the weird title of executive deputy chairman, so he can run the company with little direct accountability.
The intervention of the Investor Forum matters, though, because the forces massing against Mr Ashley are beginning to look overwhelming. Last month, a committee of MPs likened conditions at Sports Direct’s warehouse at Shirebrook in the East Midlands to “a Victorian workhouse”. Having forced Mr Ashley into making a rare public appearance, they concluded that workers had been effectively paid below the legal minimum wage and bullied for taking short breaks or time off due to illness.
The British media is in gleeful pursuit of Mr Ashley, too. No wonder. He is a larger-than-life character. After buying Newcastle United football club he turned up on the stands among ordinary fans, swigging a pint of beer. He appointed Michael Murray, his daughter’s boyfriend, to handle property transactions for Sports Direct and once played Spoof, a bluffing game, with a banker to decide who should pay a legal bill (he lost).
Opprobrium for controversial bankers, energy bosses and manufacturing chiefs has forced them to withdraw from public life. Mr Ashley’s appearance before MPs showed how vulnerable he is. He stumbled red-faced through the hearing, admitting his knowledge of what went on in his business was often poor.
He has been cut to the quick by allegations of staff mistreatment, inviting the public to an open day at Shirebrook. What could go right with that plan?
Mr Ashley’s licence to operate depended on two bargains. First, he had to sell clothes at rock bottom prices without extreme or visible “nickel-and-diming” of workers. Second, he had to deliver a financial performance good enough for minority investors to put up with Sports Direct’s unconventional governance.
Having failed on both counts, he would be wise to step back to an advisory role at Sports Direct. He should allow the replacement of lieutenants, such as chief executive David Forsey, with people able to regularise governance and employment practices. If Mr Ashley resists reform, the UK establishment will make life hot for him indeed.
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