Concerns over working practices and corporate governance at embattled UK retailer Sports Direct have galvanised a show of what one pension fund investor called “strong stewardship”, as several large investors voted against the board’s recommendations.
Sports Direct, a FTSE 350 company, has been in the spotlight in the UK due to concerns over working practices, such as the use of zero-hour contracts and paying below the legal minimum wage, and corporate governance at the company.
Its founder, Mike Ashley, owns 55% of the company.
Frustration over the failure of engagement with the company to bring about positive change has led several investors to vote against the election of board members and the pay report, and to back calls for an independent review into working practices and corporate governance.
RPMI Railpen, the £22bn (€26.3bn) in-house manager for the UK’s Railway Pension Scheme, is one such investor.
Its chief executive, Chris Hitchen, said: “As an asset owner, we are very encouraged by the strong stewardship efforts of many of our fellow shareholders to address these issues.”
In addition to the mandatory AGM voting items, Sports Direct investors had the opportunity to cast a vote on a shareholder resolution filed by the Unite trade union, which called for an independent review of working practices at the company.
The company’s board has urged investors to vote against the shareholder resolution.
It recently commissioned a review by its lawyers and committed to having a worker representative on the board, pointing to these steps to illustrate the lack of need for a shareholder resolution.
The Investor Forum, a body representing investors with around £850bn invested in UK equities, has also been calling for an independent review of the company’s entire governance framework.
Its executive director said it was “highly unusual” for it to make its concerns public.
Railpen voted against the entire board – “a serious decision”, said Hitchen – and also backed the call from the Investor Forum, of which it is a member; Hitchen is on the body’s board.
He said the issues at Sports Direct “go beyond” the single company.
“They relate to the integrity of the UK stock market and the behaviours we expect of all companies to which we provide the capital of our beneficiaries,” he said.
Shareholder group the Local Authority Pension Fund Forum (LAPFF) and asset managers Legal & General Investment Management and Standard Life Investments also said they would back the call for the independent review.
Kieran Quinn, chairman at the LAPFF, said: “The LAPFF’s hope is that an independent human-capital strategy review will rectify any workplace practices deemed inappropriate and help Sports Direct to move forward from the reputational and financial damage it has suffered.”
Standard Life Investments, which owns 5.8% of the issued share capital, voted against the pay report and the reappointment of all the non-executive directors.
It also called on the company to carry out a “full and independent” review of governance.
Sports Direct announced the results of the 2016 AGM shortly before the time of publication:
The shareholder resolution for an independent review of working practices was rejected, with 79% of votes cast against.
A majority of the company’s independent shareholders did not support the re-election of the company’s chairman, Keith Hellawell.
Legal & General Investment Management called for him to step down immediately.
Sacha Sadan, director of corporate governance at LGIM, said: “Following Sports Direct’s recent report on its own shortcomings, as well as the large independent shareholder vote against the chairman’s re-election, it is clear the board needs to enact significant change to earn back shareholder trust.
“At absolute minimum, the current chairman should step down immediately and an external, independent appointment made to oversee management and protect the interests of all stakeholders – including employees, suppliers and shareholders.”
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