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Hermes calls for substantive changes at Sports Direct

Home / Press Centre / Hermes calls for substantive changes at Sports Direct

05 September 2016

Hermes Investment Management (Hermes), the £26 billion manager focused on delivering superior, sustainable, risk adjusted returns to its clients – responsibly and its engagement team, Hermes EOS, comment on the Sports Direct board, poor corporate governance and unacceptable working practices.

Hermes EOS has engaged intensively with the Sports Direct board and management team regarding the company’s corporate governance since 2007.  The specific focus of this has been on the ability of the board to exercise independent oversight of management, including founder Mike Ashley, and adequately represent the interests of the company’s minority shareholders. However, further cause for serious concern with Sports Direct has arisen off the back of the treatment of employees by the business. The Business, Innovation and Skills Committee’s recent inquiry into employment practices was unequivocal in its criticism of working conditions, pay and contract terms. It also revealed failings in management oversight of these issues.

As a result of the deep concerns regarding Sports Direct’s corporate governance and its response to date to allegations concerning poor working practices, Hermes EOS has recommended its clients vote against the re-election of Chairman Keith Hellawell; two non-executive directors, Simon Bentley and Dave Singleton; and two executives, CEO Dave Forsey and interim CFO Matt Pearson. Further to this, Hermes EOS has also recommended support for Unite’s shareholder proposal which calls for the board to commission an independent review of the company’s human capital management strategy, reporting to shareholders on the outcome.

Leon Kamhi, Head of Responsibility, Hermes Investment Management, said: “We welcome the move towards an independent review on working practices initiated by the company and look forward to a set of practical, time-bound recommendations to comprehensively address improvements required in the company’s labour relations.

“However, we share BIS’ assessment that ‘corporate governance goes to the heart of the issues that have been raised’. We strongly support the Investor Forum’s call for the company to undertake an independent review of its corporate governance including the composition of the board and its oversight of key strategic decisions, such as investments made in other companies.

“The chairman, Keith Hellawell, together with independent directors Simon Bentley and David Singleton, have lost the confidence of many of Sports Direct’s minority shareholders and should step down from the board. An external, independent successor to the chair role should be appointed as soon as possible, followed by additional independent directors. Moreover, it is our view that a CEO and permanent CFO with robust credentials who can build the trust of shareholders are appointed.”

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