CORPORATE GOVERNANCE

Sports Direct International Plc

ACCA Reg# 2872016

Part 3 – Results, analysis, conclusions, and recommendations

Introduction – Corporate Governance

Corporate governance is the system by which organizations are configured, coordinated, and
controlled. https://www.icaew.com/technical/corporate-governance/principles/principles-
articles/does-corporate-governance-matter This usually involves the characteristics of
leadership, the structures, particularly at board level, to help facilitate desirable outcomes, and
the behaviors of senior management in the pursuit of those outcomes. Traditional corporate
governance concepts are limited and focus on legal arrangements between management and
shareholders. https://www.jstor.org/stable/jcorpciti.31.31?seq=1 Agency relationships underpin
any governance situation, in which there is a separation of ownership and control of an
organization. The agency involves two parties: Principal and Agent. In most situations, the
agency is the director responsibility for performance of the organization, and this party reports to
the principal in fiduciary relationship. https://efinancemanagement.com/financial-
management/agency-theory Agency problem: https://www.intelligenteconomist.com/principal-
agent-problem/ Agents are granted both expressed and implied authority to deal with third
parties on behalf of their principal, and they are held accountable under corporate governance
for their actions and outcomes.

Introduction – UK Corporate Governance Code

The code extends to all premium listing companies, whether established in the UK or abroad.
FRC released the revised UK code of corporate governance on 16 July
2018.https://www.iod.com/news/news/articles/UK-Corporate-Governance-Code-July-2018 This
code consists of five components: https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-
95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.PDF Board leadership and
company purpose, Division of responsibilities, Composition, Succession, and Evaluation. Audit,
Risk, and Internal control, And Remuneration.

Board leadership and company purpose: Board will set mission, principles, and policy of
the organization and be confident that they are consistent with the
culture.https://www.contexis.com/frc-board-leadership-fact-sheet-2018/ Provisions: Board will
assess culture and track it. Within annual report it will explain how prospects and challenges
were considered and discussed for potential growth of the company.

Division of responsibilities: The chair ensures directors are presented with reliable, timely,
and consistent facts. Committee will have a good blend of executive and non-executive
members.https://www.genelenergy.com/about-us/corporate-governance/board-responsibilities/
Provisions: Chair and Chief executive positions can not be held by same person.
https://corpgov.law.harvard.edu/2011/09/01/separation-of-chair-and-ceo-roles/ At least part of
board will be non-executive members, except the chair.
Composition, Succession, and Evaluation: Appointments and succession planning
should be based on both competence and intent. https://www.iasplus.com/en-
gb/standards/corporate-governance/uk-corporate-governance-code Provisions: Board should
set up Nomination committee to lead appointment
process.https://kfknowledgebank.kaplan.co.uk/risk-ethics-and-governance/governance/the-
board-of-directors Majority of committee members will be non-executive directors. Board’s
results, its boards, Chair, and individual directors will be systematically and rigorously reviewed
annually.

Audit, Risk, and Internal control: Board will develop clear and consistent processes and
procedures to ensure that internal and external audit roles are autonomous and efficient. Board
will develop risk control procedures. https://www.icas.com/professional-resources/audit-and-
assurance/internal-audit/internal-audit-and-its-role-in-corporate-governance Provisions: Board
would set up independent non-executive audit committee and board chair would not be a
member.

Remuneration: Remuneration strategies and procedures should be structured to help policy

and promote sustainable long-term progress. No director will be interested in deciding the
outcome of their remuneration. https://www.iasplus.com/en-gb/standards/corporate-
governance/uk-corporate-governance-code Provisions: Board should establish a remuneration
committee of independent non-executive directors.

Comply or explain: When, for whatever reason, a company is unable to comply in detail with
every provision of a code, the listing role state that company must explain, usually in its annual
report, exactly where it fails to comply and the reason why it is unable to comply.
https://www.frc.org.uk/getattachment/06870154-78a0-44f5-a1c5-48b42f860049/FRC-
Essays_Comply-or-Explain.pdf Shareholders, then judge for themselves the seriousness of
breach.

Introduction – Sports Direct International Plc

Sports Direct International Plc was founded in 1982 and is now UKs largest sports goods
retailer by revenue, operating a diverse portfolio of sports, fitness, fashion, and lifestyle fascias
and brands. https://www.sportsdirectplc.com/about-us/at-a-glance.aspx The group runs a
diverse range of fascia activities, wellness, apparel, and lifestyle in over 20 countries. It has
workforce of about 29,400 across six businesses. In 2007 it is listed on London Stock
exchange. https://www.zoominfo.com/c/Sportsdirect-inc/69828774 It reported sales of about 3.7
billion British pounds. https://beta.companieshouse.gov.uk/company/06035106 In 2019 Sports
Direct changed their name to Frasers Group Plc.

Corporate Governance: Company established 3 committees, Nomination committee,

Remuneration committee and Audit
committee.https://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_SPD_2019.pd
f Company has a Remuneration committee comprising all the independent Non-executive
directors and the Chair of Board. Company has Audit committee comprising entirely of
independent non-executive directors and chaired by Senior independent non-executive
director. Company also has Nomination committee comprising entirely of non-executive
directors and chaired by Chair of the board. https://www.marketscreener.com/SPORTS-
DIRECT-INTERNATION-9590226/company/ Board consists of Non-executive Chair, David
Dally, Chief Executive, Mike Ashley, Chief Financial Officer, and three independent Non-
executive Directors and a Non-executive Workforce Director.

Noncompliance with Principles of Corporate Governance:

Main principles of good corporate governance: https://smallbusiness.chron.com/core-principles-
good-corporate-governance-72364.html Accountability, Transparency, Policies and Procedures,
And Sound Decision Making.
Accountability and Responsibility: Critics have attacked the global auditing and consultancy
firm grant Thornton for its Sports Direct Accounting
role.https://www.consultancy.uk/news/20384/grant-thornton-comes-under-scrutiny-for-sports-
direct-role Company was supposed to stand down, following an inquiry by the UK’s competition
watchdog; but with The Big Four unable to stand in at the notorious retailer, Grant Thornton
remains in its job at the moment despite facing an FRC probe on matter. It was announced in
autumn of 2018 that the long-time auditor of Sports Direct, Grant Thornton, was expected to
step aside because of competition laws. Accountability means companies must be willing to be
held accountable for their actions so they must accept responsibility for the roles entrusted to
them. https://www.pinsentmasons.com/out-law/guides/the-audit-committee--the-uk-corporate-
governance-code It is audit committee responsibility to recommend appointment of external
auditors.
As Big Four did not respond, and Grant Thornton is till in its job. It looks like audit committee
does not have succession plan for rotation of external auditor. So they should be held
responsible for this matter.
Lack of Scrutiny and Transparency: FRC announced that it would launch an inquiry into
Grant Thornton’s audits of Mike Ashely’s Sports Direct for the financial year ended April 2016.
https://www.consultancy.uk/news/20384/grant-thornton-comes-under-scrutiny-for-sports-direct-
role During the meantime, Sports Direct has allegedly used Barlin Distribution to deliver goods
to its clients , paying substantial secret fees to distribution firm owned by Sports Direct owner’s
brother. The accounting watchdog reported that it would investigate Grant Thornton over the
failure to report the Sports Direct – Barlin
partnership.https://www.independent.co.uk/news/business/comment/sports-direct-the-
controversies-continue-as-it-emerges-ashleys-brother-handles-overseas-deliveries-
a7203716.html In the interests of external shareholders, non-executive directors are expected to
criticize and keep executives to account. Where future conflicts of interest exist – such as in
jobs of family members or use of their assets- they are expected to play a part in their
management.
Because Sports Direct did not disclose the fees to distribution firm, so its clear breach of
transparency, which means companies should disclose all material information to shareholders.
And this breach also put question on independency of NEDs.
Independent Review: According to Code, Composition, Succession, and Evaluation –
Provision 21, https://library.croneri.co.uk/miscukcgcode18v#toc-4The Chair will consider
undertaking a routine, externally facilitated board review. In FTSE 350 companies at least every
three years external review should happen. Within the annual report, the external evaluator will
be identified, and a comment made on some other contact that he has with the company or
directors. https://www.ft.com/content/7271756a-d9bb-11e6-944b-e7eb37a6aa8eIn 2016 Sports
Direct retained the longstanding law firm RPC to conduct an "independent" corporate
governance review, months after promising investors that it would rather call an outsider.
Objectivity is quality that implies detachment, lack of bias, not influenced by personal feelings,
prejudices or emotions. https://www.accaglobal.com/uk/en/student/exam-support-
resources/professional-exams-study-resources/strategic-business-leader/technical-
articles/independence-as-a-concept-in-corporate-governance.htmlAll those in a position of
monitoring should be independent of those/what they are monitoring. For example External
auditors should be independent of the company, especially its accounting department and
processes.
But in Sports Direct situation, RPC is already longstanding client of Sports Direct and it could
affect procedures of review and Sports Direct is breaking its promise with their shareholders
because they said earlier that they are going to review their processes independently. That
could hurt Sports Direct Reputation.

Corporate Governance Scandals in Sports Direct:

Failed to pay more than 10,000 workers minimum wage: High street retailer Sports Direct
failed to pay the universal minimum wage to nearly 10,000 employees, The UK Government
reported. And Sports Direct did not pay £167,036.12 to 383 employees. "It is about the recent
condition in our facility, which was highly reported in 2016, and which we apologized at the
time," a Sports Direct spokesperson said. https://www.businessinsider.com/primark-sports-
direct-failed-to-pay-minimum-wage-2017-12 "We have cooperated entirely with HMRC in
providing compensation available to affected Sports Direct workers. We are committed to
treating all our employees with fairness and respect, we pay above the National Minimum
Wage."
Retail, hairdressing, and hospitality businesses were among the top culprits. The Department of
Business said that as result of not paying them for travelling between jobs, and deducting
money from wages for uniforms, all of the employers in question have underpaid their
employees. Other did not pay for the overtime,
either.https://www.independent.co.uk/news/business/news/sports-direct-primark-pay-below-
national-minimum-wage-government-list-named-and-shamed-companies-uk-a8099206.html
Business minister Margot James said there was "no reason" not to pay the minimum wage for
the workers. “The Government will come down hard on businesses that break the rules,” she
said.
Still, how did it come to this? Recalling that, Mr. Ashley received faced strong backlash from the
inquiry of the Guardian Newspaper at the end of
2015,https://www.theguardian.com/business/2015/dec/09/how-sports-direct-effectively-pays-
below-minimum-wage-pay uncovering claims that his business was: Failed to pay the minimum
wage for its workers; Engaged a large proportion of jobs by zero hour contracts and short term
job arrangements with agencies; It developed an atmosphere of terror due to excessive and
obsolete administrative procedures in its workplace; and Conducted regular Physical security
checks of workers of employees.https://www.fgsolicitors.co.uk/news/sports-direct-the-use-of-
zero-hours-contracts-a-business-model-with-exploitation-at-its-heart/ Reports reveal that nearly
80% of employees at Sports Direct are not workers, but are staff working by Zero-hour
contracts. During the Select Committee’s evidence session on 7 June 2016, Steve Turner, the
Assistant General Secretary of the Unite Union, remarked that this trend has developed a
“business model that has exploitation at its heart.”
Zero-hour contracts are contracts between a company and a worker and/or an employee which
state that the company is not obligated to give any guaranteed working hours to the worker or
employees and that the company only pays for the work done. https://www.gov.uk/contract-
types-and-employer-responsibilities/zero-hour-contracts Likewise, there is no duty for the
worker or contractor to accept all of the hours given to them.
When you do not pay the minimum wage for your workers, you are breaking the law, even if it is
a mistake or accidental act. Earlier, Sports Direct has been in the spotlight recently about its
failure to pay national minimum salaries, and among other working practices. Sports Direct did
not pay the national minimum wages to its staff due to mandatory unpaid searches which were
uncovered back at the end of the 2015. https://www.meadeking.co.uk/insight/sports-direct-
minimum-wage-and-your-business/These searches left workers queuing to be checked which
also brought another hour and 15 minutes onto the average worker’s week. Additionally,
despite being just 1 minute late , Sports Direct docked its workers 15 minutes of pay. Each of
these exercises forced below the National Minimum Wage the salary of the staff.
This is clear breach of principles of corporate
governance,https://financialmarketsjournal.co.za/oldsite/8thedition/printedarticles/corporategove
rnance.htm Fairness: It suggests that a business respects the rights and views of all
stakeholders with legitimate interests. To be fair is to recognize many interests and to weigh
each one against others in an equitable and transparent way.
This article examines arguments for the claim that employees have a right to strong forms of
participation in decision-making. It considers objections to employee participation based on
ownership rights of shareholders and argues that those objections are flawed. Specifically, it
argues that the rights of employee participation are based on the same values as property
rights. https://www.jstor.org/stable/3857877?seq=1The article suggests that the best way to
resolve the conflict between these two competing claims for rights is to limit the scope of
corporate property rights and recognize a strong right of employees to co-determine corporate
decisions.
Data Breach: Sports retailer ‘Sports Direct’ has been a target of Cyber Attack, which leaked
confidential information of its 30,000 employees. The most disturbing part of this cyber tragedy
is that the sporting store giant’s employees were left in the dark over data theft that occurred
late September 2016. https://www.helpnetsecurity.com/2017/02/09/sports-direct-hacked/The
leaked data contains mobile number, email address, contact information, name, and home
addresses of the retail giant’s 30k staff members, as per the information accessible to media.
https://www.cybersecurity-insiders.com/cyber-attack-on-sports-direct-leaks-critical-details-of-its-
30k-employees/ Sports Direct officials discovered earlier in 2017 about the attack when one of
the hackers posted a note on the company’s internal website urging bosses to make contact.
Dr. Jamie Graves CEO at ZoneFox, cyber security specialist, questioned Sports Direct’s values
for how it treated the hack. “The manner in which Sports Direct treated Data breach last year is
a prime example of how not to deal with cyber-attack. It is absolutely unreasonable to have their
30,000-strong workforce in the dark for more than a year,” he
said.https://www.hso.co.uk/leased-lines/technology-news/data-security-news/sports-direct-
%E2%80%98victim-of-huge-cyber-attack%E2%80%99 With looming EU GDPR regulations
stating companies are required to declare a data breach within 72 hours or face severe fines,
businesses need to learn a lot about how to deal with a breach.
David Emm, Kaspersky Lab’s principal security researcher, was also suitably
unimpressed.https://www.silicon.co.uk/security/sports-direct-hack-205214 “This breach
underscores the need for regulation once again. It is to be hoped that GDPR (General Data
Protection Regulation), which enters into effect in May 2018, will motivate companies to take
steps, firstly, to protect the consumer data that they keep, and secondly, to alert the ICO of
violations in a timely manner,” he said, though leaving the EU may mean Britain is not subject
for long to the GDPR in its current form.
Jason Allaway, VP UK & Ireland at RES said: https://www.informationsecuritybuzz.com/expert-
comments/sports-direct-data-breach/ “Sports Direct is another example of how no organization
is safe from a potential security breach regardless of its size or the industry in which it operates.
Sports Direct, the UK’s biggest sporting retailer, has been ruined by unpatched software used
for its staff portal. For company of its size to keep sensitive personnel details behind an
unprotected network is a daunting thought. We expect every organization to keep its security
up-to-date and we expect it even further from high street giants with thousands of employees.
Not downloading the new patches will leave you vulnerable to these problems – patches are
developed for a reason, and cyber criminals are still innovating to remain one step ahead. This
is a stark reminder not only to Sports Direct but every company that vigilance should be
implemented as gospel. https://www.infosecurity-magazine.com/news/sports-direct-failed-to-tell-
staff/ Every organization, they should always assume that they are infiltrated. As such,
penetration tests should be carried out regularly. It is even worth getting friendly hackers to
expose any existing vulnerabilities – and then patch them up – before they can be exploited.
Sports Direct should treat this episode as a valuable lesson and an incentive to speed up the
processes of security. It is another lesson for other businesses that you cannot conceal a
violation from your staff, let alone everyone else.”
Internal controls are the practical elements of corporate governance. These are the rules and
practices a corporation employs to ensure that it complies with its own moral code. The target of
internal controls on corporate governance generally includes: https://bizfluent.com/info-
8186913-seven-principles-internal-control.html Safeguarding assets, Minimizing errors,
Promoting efficiency, Minimizing risk.
What makes cybersecurity a governance issue? https://insights.diligent.com/cyber-risk/the-
relationship-between-cybersecurity-and-corporate-governance Cyber attacks will rapidly lead to
corporate legal responsibility. Company directors have a fiduciary duty of loyalty which ensures
that they are responsible for upholding all state, federal, and local regulations through the
corporation. As part of good governance, it is duty of board members to protect their creditors,
staff and partners against legal challenges that can arise from cyber security. Board directors
are solely responsible for managing risk control, which naturally involves the monitoring of cyber
risks, Boards will track their internal controls power, which can alert the board to possible cyber-
attacks.
Poor Working Conditions: Business Select Committee says a ‘disturbing picture’ of work
practices has been presented closer to that of a Victorian workhouse than that of modern,
reputable High Street retailer. MPs have issued a damning indictment at retail giant Sports
Direct for working conditions and warned that they could become the norm across Britain.
Founder Mike Ashley was bluntly told that he was accountable for the appalling working
conditions in the shops of the firm and its warehouse in Shirebrook, Derbyshire, where workers
were treated as “commodities” rather than
people.https://www.independent.co.uk/news/business/news/sports-direct-founder-mike-ashley-
accountable-for-appalling-work-conditions-says-damning-report-a7149636.htmlThe Business
Select Committee said in a hard-hitting report that it had been confronted with a disturbing
image of the work processes during its inquiry into the firm. The report by the committee
concluded that a spotlight was placed on Sports Direct's business procedures, which are “highly
alarming.”
Committee chairman Lain Wright (Labour, Hartlepool) said: A serious indictment of the
management at Sports Direct and Mike Ashley, as the face of Sports Direct, must be held
accountable for these failures to occur in the UK in 2016. It is unbelievable that Mike Ashley,
who at least once a week tours the Shirebrook factory, was unaware of such disgusting
activities. This suggests that Mr. Ashley turned a blind eye to Sports Direct's circumstances in
order to increase revenues or that there were significant corporate governance flaws that kept
him out of the loop with all the facts. https://www.mirror.co.uk/news/uk-news/sports-direct-
working-conditions-like-8466632 This model has proved successful for Mike Ashley and there is
a risk this will become much more the norm in Britain. A modern and developed economy
focused on innovation and supporting entrepreneurialism and enterprise cannot be allowed to
operate like this. The MPs said it was irresponsible if not reckless, for Sports Direct to give £50
million to the two employment companies because they did not appear to have a clear
knowledge of employment law. https://www.parliament.uk/business/committees/committees-a-
z/commons-select/business-innovation-and-skills/news-parliament-2015/working-practices-at-
sports-direct-report-published-16-17/ The MPs said they would visit Shirebrook, asking for a
workplace health and safety review, and said the Gangmaster and Labour Abuse Authority
should look into employment practices.
The Committee heard a series of accounts of workers mistreatment, here are some shocking
statements and facts heard by the committee. Fired when off work and ill: “I was out work for a
couple of weeks due to ill health. I submitted the doctor's notes in sick. The day I was supposed
to return to work I received an email laying me off, without any justification, simply paying off
and a pay statement.” https://www.independent.co.uk/news/business/news/sports-direct-mike-
ashley-worker-conditions-minimum-wage-ian-wright-investigation-a7149971.html Humiliation:
“The pick was matched to second when I was there. When it was late to pick you got a strike.
But it is difficult to achieve because the aisles are full of other pickers. We also had to endure
embarrassment over the Tannoy, shouting out your name and so that everybody knew.” Pickers
are staff who pick products from the warehouse shelves, which then place into a metal cage.
Broken promises: “When the colliery was closed and the town started to suffer, local people
were offered 80 per cent of the jobs, but it came to less than 30 per cent, and most of the jobs
went to Eastern European workers.” Working for Free: “I have seen workers being made to
clock out, so wages are not over budget, but they were made to keep working and they were not
paying for all the hours they have been doing. https://www.cityam.com/heres-most-shocking-
testimony-workers-sports-direct/ I noticed the workers held to clean the store for an hour after
their planned finish time, including myself.” “Brainwashing”: “Working with Sports Direct is a
friendship with really love / hate. I guess you might call it a kind of brainwashing. My area
manager would send an email on Monday mornings containing a list of cumulative hours spent
the week before by each of store managers. Anyone did the least hour would get a lecture –
not committed, not engaged etc. This would not be one on one lecture, but a full-blown rant for
everyone else forwarded to see in the email. If you did not do at least 55 hours a week then you
did not do enough.”
The strike system: The BIS report outlines Sports Direct's "six strikes and you are out" policy. "A
strikehttps://www.cityam.com/four-most-jaw-dropping-working-practices-sports-direct/ may be
given to a worker under the rules if they spend too long in the toilet or chatting, or if they take
time off when they are ill or their kids are unwell," the report said. "The" six strikes and you are
out" policy is used as disciplinary measure that denigrates the Sports Direct workers and allows
the board unfair and disproportionate authority to punish or fire at will." And Workers at Sports
Direct are charged for privilege of receiving their wages. Employees were also charged for
insurance services deducted from workers employed by The Best Connection agency.
Health and safety issues: Around 1 January 2013 and 19 April 2016, total of 110 ambulances or
paramedic vehicles were sent to the postcodes of the Shirebrook factory, including 50 incidents
identified as “life-threatening,” including chest pain, breathing problems, convulsions, fitting and
strokes, including five calls from women suffering pregnancy difficulties, including one woman
who gavehttps://publications.parliament.uk/pa/cm201617/cmselect/cmbis/219/21908.htm birth in
the toilet in the warehouse. Between 1 January 2010 to 19 April 2016, there were 115 incidents
involving a finger amputation, fractured neck, a crushed hand, and hand, wrist, back and head
injuries. Twelve of the incidents were identified as “major” injuries, with 79 injuries resulting in
more than seven days absence from work.
Corporate governance is based on a series of underlying concepts for example Fairness,
Transparency, Accountability, Honesty, Decision making but Reputation is also one of core
principle of corporate governance. https://www.corpgov.deloitte.ca/en-
ca/Pages/StrategyAndRisk/Reputation.aspx Reputation concerns the perceptions with which an
organization is viewed by a range of stakeholders. A strong reputation, perhaps for service
delivery and robust governance, can be a strategic asset, whilst a weak reputation can be
strong disadvantage. Reputation is one of the important underlying principles in corporate
governance because there is a separation of ownership and control in many organizations, the
reputation which the management of an organization enjoys with its principals is important in
directors or trustees being given the license to manage the organization as they see fit, for the
long-term strategic benefit of the principals. In above situations, Sports Direct were playing with
employee's dignity and these incidents put Sports Direct's reputation at stake.
Criminal Offence: October 2015 David Forsey, Sports Direct's chief executive, was charged
with a criminal offence related to its fashion retailer USC
collapse.https://www.independent.co.uk/news/business/news/sports-direct-chief-executive-
david-forsey-charged-over-usc-administration-a6687961.html The 49-year-old businessman is
accused of failing to notify authorities of plans to lay off warehouse staff in Scotland,
https://www.standard.co.uk/business/sports-direct-boss-dave-forsey-charged-over-usc-collapse-
a3086911.html about 200 of whom were given a 15-minute notice by the administrator of USC
that their jobs were being lost. Forsey was given his summons, and his trial is scheduled to be
heard at the court of Chesterfield magistrates. The UK insolvency Service said: “We can confirm
that criminal proceedings have been commenced against David Forsey. He is charged with an
offence contrary to section 194 of the Trade Union and Labour relations (Consolidation) Act
1992. https://www.theguardian.com/business/2015/oct/09/sports-direct-chief-executive-david-
forsey-charged-usc-administration “The investigation into the conduct of the directors is
ongoing. The inquiries are at an early stage and given the criminal proceedings it is not
possible, nor would it be appropriate to comment any further.” The Insolvency Service has the
right to ban anyone from working up to 15 years as a director. Under employment law,
employees should be given at least 30 days consultation before losing their jobs. The trade
union Act states that an employer must give the Secretary of State 30 days’ notice of proposals
to make 20 or more employees redundant. Failure to do so is a chargeable offense for a fine of
up to £ 5000.
Rory McPherson, https://www.scottishfinancialnews.com/article/sport-direct-boss-to-pay-up-as-
treatment-of-scots-workers-is-branded-disgraceful-by-judge the partner in charge of Thompsons
employment law department said: “They showed courage in standing up to and beating a rich
and powerful employer like Mike Ashley who used disgraceful and unlawful employment
practices. “I am very glad this law firm was able to help the workers involved and we call on
politicians in both Holyrood and Westminster to do all they can stop employers like Mike Ashley
thinking they can ride roughshod over worker's rights.”
Criminal offence like this could surely hurts the reputation of a company, so it happened in
Sports Direct case too. Breaking the employment law and treating employees without dignity is
breach of principles of Corporate governance. https://www.iasplus.com/en-
gb/standards/corporate-governance/uk-corporate-governance-code UK corporate governance
code says: The board will support the company's long-term sustainable growth, creating value
for shareholders and contributing to a larger community. It should ensure that the purpose,
values, and the strategy of the company are aligned with corporate culture and policies and
practices relating to the workforce. So here in Sports Direct, their practices are not look like
best aligned with UK code.
Impact on Stakeholders:
In analysis, the Mendelow Matrix is often used to attempt to understand the influence that each
stakeholder has over an organization’s objectives. The idea is to establish which stakeholders
have the most influence by estimating each stakeholder’s individual power over – and interest in
– the organization’s affairs. Low interest – low power: called as minimal effort. These can be
largely ignored for example small shareholder or general public. High interest – low power:
These stakeholders can increase their overall influence by forming coalitions with other
stakeholders in order to exert a greater pressure and thereby make themselves more powerful.
https://zeritenetwork.com/mendelows-matrix/ The strategy for dealing with these stakeholders is
to keep informed. Low interest – high power: All these stakeholders need to do to become
influential is to re-awaken their interest. And so the management strategy for these stakeholders
is to keep satisfied. High interest – high power: called as key players. These stakeholders
include the directors, major shareholders, and trade unions. These stakeholders are with the
highest influence.

Shareholders: Keith Hellawell who was chaired at Sports Direct for 8 years, have accused by
shareholders for a line of the board and administration disappointments at Sports Direct and
blame him for being not able to control Mike Ashley – 61% owner and founder of Sports Direct.
2 re-election meeting was held on Sep 2016 and Jan 2017, Keith survived both. Keith endure a
vote to expel him by thin edge, https://www.reuters.com/article/us-sports-direct-agm/chairman-
of-britains-sports-direct-survives-investor-vote-idUSKCN1BH1EP he said he would leave if a
dominant part of autonomous investors casted a ballot against him for a third time. Due to
Ashley majority investment in company Keith remained to his chair at 2017 re-election. After re-
election Keith refused to take any questions from media. Due to poor management and
conflicts, https://www.businessinsider.com/sports-direct-agm-shareholders-vote-against-
chairman-keith-hellawell-mike-ashley-asks-for-more-time-2016-9 shareholders decided to
reappoint a new chair for board. But he was saved by Ashley majority holding in company and
Ashley said he has experience we need to change things quicker.
“We question how a board can effectively function when the executive deputy chairman fails to
attend four board meetings, even if they are unscheduled,” he added. It described the decision
of the board to lower performance targets for the directors’ bonus scheme as “yet another
example of bad governance.” https://www.standard.co.uk/business/sports-directs-mike-ashley-
under-pressure-as-shareholder-plans-to-vote-against-his-re-election-a2928746.html “This is
contrary to UK standard and act as yet another example of bad governance, we are voting
against the remuneration report and the share scheme amendment,” said Hamilton Claxton.
Royal London follows shareholder group Pirc’s advice to investors to opt against Chairman
Keith Helliwell’s re-election.
Pirc, who advises clients with assets of more than 200 billion, said that he also had significant
concerns abouthttps://www.thisismoney.co.uk/money/markets/article-3753023/Lobby-group-
Pirc-calls-Sports-Direct-shareholders-block-election-Mike-Ashley.html Mr Ashley’s influence on
the board and whether other director could objectively challenge and influence the decision-
making process of the board. https://uk.investing.com/equities/sports-direct-historical-data
Sports Direct shares traded 0.8p lower at 299.1p, with the company falling by more than 45
percent year-on-year to results as the negative headlines over its working practices and poor
trade statistics took a toll.
Shares in Sports Direct (2016), dropped 10 percent after CEO said that company’s profit would
plunge this year. He said, https://www.irishtimes.com/business/retail-and-services/sports-direct-
shares-drop-as-mike-ashley-warns-of-profits-fall-1.2582994 “We are in trouble, we are not
trading very well. We cannot make the same profit we made last year.” Over the past year
(2015-2016), the company’s shares have fallen by more than 40 percent and in 2016 Company
lost their place in Britain’s FTSE 100 index of blue chip companies. Sports Direct for the wrong
practices came under pressure from Media, investors, and politicians.

Institutional shareholder has great influence over company, thus key players, so they have
greater power and great interest in company’s affairs. That is why company should disclose all
material matters to them otherwise they can withdraw their investments, putting company at
reputational risk. Which in Sports Direct’s case they are failed to save their interests, and
matters were not resolved timely.

The Board and Employees: The CEO of Sports Direct, Mike Ashley, saw his paper fortune
plummeting by £1 bn within a month, making one of the greatest slumps in the history of the
notorious businessman. The landmark was hit on a day when one of the top 10 Sports Direct
Investors announced that they had little confidence in the director, the company issued a shock
profit warning, analyst raised concerns about feasibility of its business model. The company’s
shares closed downhttps://www.independent.co.uk/news/business/news/mike-ashley-loses-1bn-
as-sports-direct-shares-crash-a6803521.html 15 percent after informing the stock market that
full-year profit would no longer reach targets and could be as much as £ 40 million off
expectations. Thousands of permanent staff were unlikely to receive life-changing bonuses,
which were linked to profit targets, “as the unseasonable weather” over Christmas was blamed
for a fall in trading. Sports Direct is facing increasingly stronger demands for corporate
governance following allegations of abusive working conditions, the widespread use of zero-
hours contracts, and executives withholding facts from the board in regard to administration of
USC.
Here Board has greatest influence over company and responsible for its all affairs, however
employees has low power but greater interest in the company. For example their job safety,
incentives, and bonus etc. which motivate employees to perform efficiently. They are not
powerful but if they form coalitions with other stakeholders, they can be powerful just like that
happened in this situation, when outsider pressure groups (Unite) and authorities helped them
to claim their rights.
Union and Pressure Groups: Members of the union and pressure group organized a rally and
petition signing over perceived ill-treatment by Sports Direct workers as part of a national
campaign. A group gathered outside the Regent Street store to hand out placards and facts to
the public. A petition for the public to sign and express their unity with the workers was also
available during the protest. https://www.swindonadvertiser.co.uk/news/14277965.union-and-
pressure-group-unite-for-sports-direct-protest/ The demonstration included the presentation of
Valentines cards to Sports Direct workers as part of their alternative Valentine’s Day, which
reads “We love Sports Direct Workers, we will fight with you.” The demonstration was part of the
#SportsDirectshame campaign which began after an investigation into the Shirebrook
Warehouse retail. The groups claim that by employing them on unfair zero-hour contracts and
providing a “Draconian” working environment, Sports Direct is mistreating its staff.
Company’s trade union has strong influence over company because simply company cannot be
operated without workers. But pressure groups do not have that power but interest, but they can
help suffering parties by forming coalitions. In our case, pressure groups played great role in
claiming rights of workers. Authorities has high power but little interest that make them “keep
satisfied” party and if interest can be re-awaken, they would become influential. Scandals made
the authorities influential over company. Thus authorities were act quickly in our case.

Company’s Responses to Scandals:

National Minimum Wage & Poor Working Conditions: Sports Direct boss mike Ashley has
admitted that he paid workers below the minimum wage, also telling MPs that as part of an
internal review he has discovered “issues” with work practices at the retailer. Mr. Ashley told
business Select Committee MPs that security guards at the Shirebrook company warehouse
held staff from leaving, meaning they were paid less than the minimum wage. MPs were
examining working practices at Sports Direct's warehouse, including unsafe treatment, the use
of restrictive zero-hour contracts and payment processes. Mr. Ashley described his review as a
“work in progress” and added: https://www.independent.ie/business/sports-direct-boss-mike-
ashley-admits-issues-warehouse-worker-gave-birth-in-toilet-34779267.html “I have found some
concerns and ideally solved some of those issues. The key problem is the bottlenecks at
security.” He also confirmed that HMRC is investigating the company over wages and that
Sports Direct is in talks to give workers
backpay.https://www.theguardian.com/business/2016/jun/07/mike-ashley-admits-sports-direct-
staff-were-not-paid-minimum-wage Mr. Ashley, sitting alongside public relations adviser Keith
Bishop, was asked if employees were actually paid less than the minimum wage, and
answered: “On that specific point, for that specific bit of time, yes.” When asked if it would be
better for anhttps://www.independent.co.uk/news/business/news/sports-direct-latest-mike-
ashley-work-conditions-lead-to-external-review-board-a7197891.html independent organization
to carry out a review of working conditions at Shirebrook, Mr. Ashley said: “I can agree that in
some ways I am not the right person because I am not an expert on every area of employment,
obviously.” He said he only spoke to the trade unions when they had the opportunity of posing
questions at the company’s AGM, which take place once a year. Mr Ashley said when it comes
to looking after staff, Sports Direct would do a better job than the Unite union.
Responding to health and safety issues, Mr Ashley said it was excessive that between 1
January 2013 and 19 April 2016 110 ambulances were called to the warehouse. He said: “Let
us assume that every single call-out was needed. How are people getting injured at Sports
Direct? https://engageemployee.com/mike-ashley-admits-sports-direct-staff-effectively-paid-
minimum-wage/ You cannot have that number of serious incidents – it is impossible.” Mr Ashley
also said that it was unacceptable for staff to be charged docked for being one minute late. In 90
days, the tycoon promised to make a range of improvements to business procedures, agreeing
to write to MPs if the time limit has to be expanded.
Sports Direct ishttps://www.theguardian.com/business/2016/sep/06/sports-direct-to-ditch-zero-
hours-contracts to put a representative of the workers on its board and offer the shop staff
guaranteed hours instead of zero-hours contracts after admitting a string of failures in an
internal report. The company apologized for conditions at its warehouse, including a “six strike”
policy that puts workers in fear of losing their jobs. As founder Mike Ashley said he wanted to
give workers a voice at highest level and “help ensure dignity and respect for al staff.”
Thousands of Sports Direct warehouse workers are expected to receive back pay totaling over
£ 1m afterhttps://www.theguardian.com/business/2016/aug/15/sports-direct-staff-to-receive-
back-pay-unite-hmrc store has admitted violating the rules and refusing to pay the national
minimum wage. The sportswear and its job agencies are now face fines of up to £2 m levied by
the Business, Energy and Industrial Strategy (BEIS) after they have been found to underpaid
some of the lowest-paid employees in the country for four years.
Mr Ashley agreed that Sports Direct had become too big for him alone to manage and vowed to
review the corporate governance structure of the firm. In defending the use of employment
agencies, https://www.itv.com/news/2016-06-07/is-sports-direct-just-too-big-for-one-man Mr
Ashley said growing as fast as Sports Direct has without them was “physically impossible.” The
billionaire claimed that he “cannot look after every single thing” that is going on at the company
but admitted: https://engageemployee.com/mike-ashley-admits-sports-direct-staff-effectively-
paid-minimum-wage/ “I am the guy that’s responsible for its biggest successes and major
failures, that’s me.” Mr Ashley has also appeared to commit to an independent review of the
corporate governance structure of his company. Representatives from Transline and The Best
Connection, employment agencies hired by Sports Direct to manage the warehouse and its
employees, denied Unite’s allegations, saying that they “wholly misrepresent” conditions.

Data Breach: The attack is said to have been identified in September 2016, but the
organization did not know about it until December 2016, suggesting some form of failure
in incident management systemshttps://blackmereconsulting.com/sports-direct-failed-to-tell-
staff-of-data-breach/ from Sports Direct. Even then , while the company evidently disclosed the
event to the Information Commissioner’s Office (ICO), once it was established that no efforts
had been made to either copy or exchange the records, it opted not to notify workers. Sports
Direct has declined to comment on the incident beyond saying its policy is to continually
improve the systems, and, where appropriate, notify the “relevant authorities.”

Criminal Offence: In September 2016 Sports Direct’s chief executive, Dave Forsey has
resigned from the firm with its multimillionaire founder and controlling shareholder, Mike Ashley,
taking over immediately. https://www.itv.com/news/2016-09-23/chief-executive-dave-forsey-
resigns-from-sports-direct Mr Forsey has been with the company for 32 years and has promised
to encourage a “smooth handover of his responsibilities.” In a statement, he said “I have given
my entire working life to the company and in return the company has given me amazing
opportunities and experiences at Sports Direct well in the future.” The 450-store sportswear
company has been widely criticized for the “Victorian” working practices, with the change being
seen as an effort to mend its shattered reputation. In response to the departure of Mr Forsey,
Mike Ashley said: “I feel like I have lost my right arm, but I do hope the opportunity to work with
Dave again in the future.”

Conclusion:
Sports Direct is the largest retailer in UK, but its scale and popularity is based on a business
model which makes the majority of the staff in both Shirebrook and in shops around the UK to
be viewed with little honesty or respect. Sports direct is an especially poor example of a
company that uses its employees to increase its profit, and behaving poorly, it is unlikely to be
the only entity working in such a manner. Evidence of poor working practices reflects badly on
corporate governance arrangements at Sports Direct, Mr. Ashley took the review of poor
practices, but that review was taken by their longstanding firm RPC. The way the Sports Direct
market model is operated, both at the Shirebrook warehouse and in the shops around the world,
includes treating workers as resources rather than as human beings with interests, obligations,
and ambitions. Low-priced consumer goods and shareholder gains come at the expense of
sustaining negotiated terms and working practices that fell far below reasonable expectations of
prosperous, developed environment. In Data breach case, firstly Sports direct failed to get
knowledge of the breach at early stage then they failed to report it to suffering parties.
One of the key principles of corporate governance is to safeguard shareholders and promote
their interests and minimize the risks associated with it. In addition, corporate governance also
promotes the acknowledgment of stakeholder legal interests along with vacillating business to
improve the organization's financial status and wealth. Moreover, the system of corporate
governance affects the jobs and strategic advantages through an efficient plan. In addition,
corporate governance includes transience and disclosure in the organization’s decision-making.
In addition to this, the organization's administrative, financial reporting, and ownership are
conducted independently through timely disclosure. Corporate governance is there to ensure
that the boards meet the needs of the various relevant parties, including the employees and
staff, in managing businesses. Widespread evidence of poor working practices in a well-run
company would be detected at an early stage, reported to the board, and addressed
appropriately.
Responses which were taken by the Sports Direct were not timely nor enough, Steps taken to
remove six strikes and zero-hours contracts is good initiative but on other side they did not
answer for Data breach So Mike Ashley should be accountable for some appalling practices in
Sports Direct shops, either for not knowing about them or for turning a blind eye to such
practices in order to maximize Sports Direct's revenue. From the current situation, it is likely to
tell; the organization is a big problem. Corporate governance should take care of the
circumstances which the organization is now facing. Having worker’s representative on the
board is just not enough, they need to take care of his independence and freedom of speak on
the board. The company's reformation is much needed, and the governing bodies should be
liable for the necessary actions, and still an independent review of practices and procedures is
required, which can help to improve Sports Direct's reputation amongst stakeholders and
investors.