Sports Direct International (SDI) was relegated from the FTSE 100 index of the London Stock Exchange earlier this month, after a 45 percent slump in its share price since the start of December. The leading British sports retailer and wholesaler joined the blue chip index in 2013 but the exchange's quarterly review determined that it should be dropped out from March 21.
SDI's market capitalization currently stands at around £2.3 billion (€2.9bn-$3.3bn), meaning that more than £2 billion has been wiped off its value since the start of December. The sharp drop came amid allegations regarding employment practices at SDI, reported unease about governance at the company and a profit warning issued in January due to deteriorating trading conditions in Britain and unfavorable weather in Europe.
SDI's governance is of particular concern for some shareholders. They have been complaining that the company is informally run by Mike Ashley, its founder and majority shareholder, although he is officially deputy chairman. Another complaint is that Ashley is insufficiently challenged by the board and its chairman, Keith Hellawell.
Some have also been irked by attempts to award large share bonuses to Ashley based on SDI's performance, the use of SDI funds to acquire stakes in other retail groups, and the group's failure to appoint a permanent finance director for two years. An unnamed investor described SDI in The Financial Times as a “running sore in corporate governance terms.”
In an apparent gesture to appease criticism, SDI said earlier this month it would quit using money loaned by Ashley, and increase its borrowing through revolving credit facilities with banks. The company said in a statement that the change would entail an increase in borrowing costs but it wanted to “avoid further criticism.”
While there has been recurrent unease about the abundant use of zero-hour contracts at SDI in recent years, the latest questions focus on working conditions at the company's warehouse in Shirebrook, after an investigation by The Guardian alleging that thousands of workers were effectively getting less than the minimum hourly wage. While denying this, SDI announced a pay raise for its staff and a review of agency staff terms and conditions, to be supervised by Ashley himself. It's unclear when the review is to be completed.
A business, innovation and skills select committee appointed by the British Parliament is still waiting for Ashley to answer questions about the treatment of workers at SDI. The committee's chairman, Iain Wright, wrote in a letter to Ashley, which was made public last week, that he risked being in contempt of Parliament if he didn't agree to attend a hearing before the start of June. It appears that Ashley had not responded to the committee's request until then, nor agreed in principle to attend. Wright has given him until March 21 to reply.
The Times reports that Ashley hit back with a letter to Wright in which he wrote that he was “disgusted” to learn of the “deliberately antagonistic” stance adopted by the committee's chairman. Ashley had previously offered to meet British members of parliament at the group's head office in Shirebrook. Wright's letter indicates that, for reasons of transparency, the committee wants Ashley to turn up at Westminster instead. But in his reply, Ashley reportedly wrote that he believes the committee is “abusing parliamentary procedure in an attempt to create a media circus at Westminster.”
Ashley was already asked to appear before the Scottish affairs select committee about the closure of a warehouse in Scotland last year, but he explained that he was busy and Hellawell attended instead. If Ashley refuses to give evidence, the select committee could seek the support of the Commons for an order to attend, akin to a summons. Sports Direct did not respond to inquiries.
