Sports Direct's reputation won't be saved by better jobs alone

The City wants reassurance that Mike Ashley's retail empire is run properly.

by Jack Torrance
Last Updated: 07 Sep 2016

Sports Direct’s fall from grace has been bruising. After a prolonged surge in sales and profits growth that pushed it into the FTSE 100 and made its founder Mike Ashley one of Britain’s richest self-made men, things came off the boil towards the end of last year.

An undercover Guardian investigation exposed questionable employment practices in the retailer’s massive dystopian warehouse and its stores, leading to acres of hostile press coverage and this summer’s select committee show trial. Poor performance and a plunging share price have added to Ashley’s pain and it’s no wonder the City has started to raise heckles over the way the company is managed.

But the company seems determined to sanitise its name. After Ashley himself led a review of working conditions in the company’s warehouse it also commissioned an ‘independent’ report, out today, that looked at what it was doing wrong and hot it can improve. The report, by Reynolds Porter Chamberlain LLP, is far from a whitewash. It identifies ‘serious shortcomings identified in working practices,’ and communication failures. It says that Sports Direct will now let casual staff in its stores have guaranteed hours instead of zero hours contracts (if they want them) and request the agencies that populate its warehouse drop their controversial ‘six strikes and you’re out’ policy.

The company is certainly making the right kind of noises, even if it is still some way behind on Ashley’s pledge to make it ‘high street retail’s number one employer after John Lewis.’ No longer forcing (some) people to work on zero hours contracts will certainly win it some good headlines, even if some in the press remain unconvinced. But even if Sports Direct can put all of these employment problems behind it, Ashley will still have a lot of work to do to convince the company’s investors the company is on track.

It’s striking how much Sports Direct’s share price has fallen since the Guardian’s revelations but that’s as much, if not more, about the company’s financial performance. Revenues were almost flat in the six months to last October. In January the company announced a profit warning. And its full-year results, published in July, vindicated that warning, showing an 8.4% slump in underlying pre-tax profits. Its share price has continued to plummet. The company’s finances and its reputation as an employer are unlikely to be closely linked. With its prices so low, Sports Direct’s target market is unlikely to be put off by a few zero hours contracts and minimum wage allegations.

That doesn’t mean the City doesn’t care about the scandal. But it surely sees the poor employment practices as a symptom of a wider problem with the company’s governance. Ashley admitted as much in his select committee hearing, saying he ‘I can’t control everything all the time’ and comparing himself to a sailor who set out one day on a dinghy but suddenly found himself at the helm of an oil tanker.

The company has a pretty bizarre board structure. While it has a non-executive chairman and CEO, Ashley sits on it as an ‘executive deputy chairman’ a Frankenstein’s Monster of a job title, but the sort of thing shareholders might tolerate when a company is going gangbusters. Now it isn’t, the City is rightly raising its voice. There are also concerns about the suitability of its chairman, Keith Hellawell. To be fair, Sports Direct and the report do acknowledge its shortcomings. But the issue is being kicked into the long grass for now, to be reviewed as part of a more thorough investigation to be concluded next year. 

Sports Direct’s penitence is certainly a good thing. That’s reflected in its shares, which are up more than 5% today at time of writing. But they’re still worth less than half of what they were this time last year. It will take a lot more than a ban on compulsory zero hours contracts to get Mike Ashley’s outfit back on track.


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