Standard Life Investments goes public in leading Sports Direct shareholder revolt

Edinburgh-based Standard Life Investors, a major shareholder in leisure retail giant Sports Direct, has taken the unprecedented step of issuing an open letter to the embattled company’s board outlining its “strong stance” against it and the reasons for voting against its remuneration policy.

Sports Direct, which is owned by controversial businessman and Newcastle United owner Mike Ashley, has been mired in scandal and controversy throughout the past year, with Mr Ashley even hauled before MPs at a Parliamentry Committee where he admitted to corporate mismanagement.

Sports Direct commissioned its legal advisers Reynolds Porter Chamberlain to carry out a review after the MPs said working practices at the Shirebrook warehouse in Derbyshire were closer to “that of a Victorian workhouse than that of a modern High Street retailer”.

Chief among the causes of uproar over the company’s employment practices was offering of only zero hour contracts and paying staff less than the legal, minimum wage - as well as fining staff for being late.

SLI, the biggest shareholder after Mr Ashley, who still owns 55 per cent of the business he founded, said it had voted against the company on several issues at the meeting, including executive pay as it led a shareholder revolt at Sports Direct’s AGM today at its Shirebrook HQ in Derbyshire.

The asset manager, which represents £14.5trn worth of assets and describes itself as a “longstanding shareholder” in Sports Direct, holds 5.8 per cent of the troubled retailer’s stock.

It was joined by Royal London Asset Management and Hermes Investment Management in voting against key board appointments at the meeting.

In his open letter, SLI’s head of stewardship and ESG investing, Euan Stirling, said: “Mr. Chairman, members of the board of Sports Direct International. My name is Euan Stirling and I am Head of Stewardship and Environmental, Social and Governance Investment at Standard Life Investments. On behalf of our clients, we own 34 million shares in Sports Direct International, representing 5.8 per cent of the issued share capital.

“Today, we have voted against the company’s remuneration report and against the reappointment of all of the non-executive directors. I would like to explain why we have adopted this approach and taken such a strong stance in opposition to the board’s recommendations.

“We are longstanding shareholders in the company and have engaged with senior executives and non-executives over many years, sadly to little effect. The responses to our enquiries have been either unconvincing or non-existent. In that context, yesterday’s RPC report into working practices represents a positive step forward.

“By contrast, we do appreciate the scale and the market position of the business and its long-term value creation potential. That is why we remain fully-engaged shareholders.

“In order to achieve that potential, we increasingly believe that a structural change in the way that the company is governed is now required. In speaking to the select committee of the Department for Business, Innovation and Skills this year, Mr Ashley acknowledged as much himself, referring to the way that the business has grown in both size and complexity.

“Tight cost control can be an attractive feature of a business. However, taken too far, and with a focus on the short-term, it can and does result in the starvation of investment in talent, facilities and infrastructure which can leave a business vulnerable to its competitors and its own weaknesses.

“In order for the company’s equity value to reflect its potential, we encourage the board to bold action. We would like to see Mr Ashley with a role, title and responsibilities that reflect his influence as majority shareholder and founder of the business.

“And we would like to see that pivotal role supported, as well as challenged, by a group of talented and experienced executives. It is our opinion that even then, substantial strengthening of the non-executive members of the board will be required, particularly in the crucial role of Chairman.

“We welcome yesterday’s publication of the Working Practices Report and the positive change that is likely to bring to some of Sports Directs workers. However, the ‘Follow up’ commitment noted in Section 1.5 of the report is insufficient to realise the group’s full potential.

“In order to arrive at the correct structural conclusions, we believe that a full and independent review of governance at the company is required, along with a commitment to publish and act on the review’s conclusions and recommendations in the next twelve months.

“We would like to ask the board to commit to this course of action in order to achieve the associated objectives of structural change and long-term value creation.”