Congratulations to Royal London Asset Management for leading the campaign for better boardroom governance at Sports Direct. Somebody needed to step up. Voting against the re-election of Mike Ashley, the company’s founder, deputy chairman and 55% owner, is obviously a doomed cause. But it may draw attention to the many failings of the non-executive directors. Here are a few lowlights from a long list:
First, allowing the company to punt on Tesco shares via a put-option agreement with Goldman Sachs. Ashley should risk his own cash, not shareholders’, on such adventures. The risible explanation was that Sports Direct, which operates a few shops within Tesco stores, wished to reflect its “growing relationship” with the supermarket chain. Nonsense. Tesco couldn’t give a damn about the bet.
Second, the board’s failure to appoint a finance director for 18 months. Even hedge fund Odey, a long-term shareholder, reckoned the vacuum put too much power in Ashley’s hands. When it finally acted, Sports Direct turned to the 35-year-old financial controller on an “acting” basis.
Third, the current cheeky attempt to change the bonus targets. The original hurdle for top-line profits for 2016 was £480m but this has been deemed “unreasonably challenging” and £420m proposed instead. Whatever the board says about the failure of acquisitions to materialise, this looks a blatant attempt to move the goalposts – “unacceptable by UK standards,” says Royal London, rightly.
Fourth, chairman Keith Hellawell’s confession to a parliamentary inquiry that he was unaware of two months of negotiations over the future of a subsidiary that ended up being placed in administration. If the chairman is in the dark on such matters, what’s he doing there?
The best way for the managers of our pensions to tell Sports Direct’s board to improve its game is to follow Royal London’s other lead by voting against the non-executive directors. New voting rules, introduced in the past year, are designed to give minority shareholders greater powers of protest. The regulatory reform is terribly modest – but if fund managers won’t use them at Sports Direct today, why bother at all?
Quids in?
You thought investment bankers were a rapacious bunch who can’t see further than their next fat fee? Nonsense, they’re public-spirited folk who happily work for the government for less than the price of a London bus ticket.
“A rather extraordinary arrangement,” concluded Andrew Tyrie, chairman of the Treasury select committee, on learning that Goldman Sachs and UBS have been charging a pound a time to help sell chunks of the part-privatised banks. It turns out the state has paid £15 when, for a different client, the bill might have been £38m.
Tyrie should do more than arch his eyebrow. The practice of charging below-par fees to government is well established but it’s far from clear what the investment banks hope to gain in return. We can guess, however. It may be designed to discourage Westminster from probing too deeply into the City’s gouging of commercial clients. Underwriting of rights issues, for example, is an exercise in charging princely sums for shouldering minimal risk. There’s a subject worthy of another look.
Costa Coffee froth
The “national living wage” represents a “substantial” cost increase, says Whitbread, owner of Costa Coffee and Premier Inn. Really? The estimated £15m-£20m works out at just 0.95% of Whitbread’s group operating costs last year of £2.1bn; in terms of the wage bill, it’s 3%. Chief executive Andy Harrison can apply “selective” price increases if he wishes but, please, after a year in which Costa made a return on capital of 46%, don’t expect the customers to be sympathetic.
