Pressure mounted on Sports Direct International Plc (LON:SPD)as it revealed "serious shortcomings" in labour practices only a day before it faces a possible investor rebellion.
But the City did not appear to be overly bothered about the brewing storm as the company’s shares bounced 18.6p, or 5.6%, to 350.9p following the announcement.
The chain said a review of its procedures carried out by its lawyers had revealed the failings, which it said it "deeply regrets and apologises for".
It said it would begin offering casual retail staff the option of guaranteed hours as well as "zero-hours" contracts, under which employers do not have to commit to provide regular work.
Sports Direct also said breaches of National Minimum Wage rules in its Nottinghamshire warehouse were unacceptable but not intentional.
The report by the company's lawyers follows criticism of the company and its boss, Newcastle United owner Mike Ashley, by Parliament's Business, Innovation & Skills (BIS) select committee.
Sports Direct said it had asked its lawyers to do another comprehensive review of its working practices that would use the report to identify further measures needed.
The report said: "Ashley accepted that as founder and majority shareholder he takes ultimate responsibility for any aspects of the working practices that were unsatisfactory, even where he is not in day-to-day control of these matters or had no knowledge of them.
"He has been publicly held to account in a robust manner by MPs and he will no doubt continue to be scrutinised by the BIS committee."
Shareholder revolt
The news came as Sports Direct prepared to face a shareholder revolt at its annual meeting on Wednesday over the employment practices affair, as well as the proposed re-election of chairman Keith Hellawell.
Hermes Investment Management and Britain’s biggest mutual investment manager, Royal London, are reportedly set to back a resolution demanding an independent review of the company’s labour practices.
But the company’s board is likely to be more immediately concerned about a growing rebellion against its board amid discontent with corporate governance issues.
Hermes has vowed to vote against the re-election of Hellawell, chief executive Dave Forsey and two directors.
Other investors including Legal & General Group Plc, Aberdeen Asset Management and Royal London are understood to be unhappy with Hellawell’s performance.
Three North American investors including the Ontario Teachers’ Pension Plan are also reported to be opposing Hellawell.
Sports Direct’s lawyers said in their report that their forthcoming review would include corporate governance.
The problems have sparked speculation that Ashley may take the company private, although he said earlier this year he had no current intention of doing so.
Connor Campbell at financial spread-betting firm Spreadex said: “Whether or not this improves Ashley and Hellawell’s standing with shareholders ahead of tomorrow’s AGM is unclear, with Hellawell especially still facing a wave of opposition.”
Oliver Parry, Head of Corporate Governance at the Institute of Directors, said: “It is good news that Sports Direct is responding to public and investor pressure to reform working practices.
"This is only the first step towards restoring shareholder and employee trust in the management and board. A radical overhaul of their corporate governance arrangements needs to be the next step.
“From what we have seen in the past two years, the corporate governance standards have fallen way below what we would expect from a listed company.
"It is imperative that the promised governance review is seen as completely independent, so we still have reservations about the connections of the law firm to Sports Direct.
"Ultimately, the minority shareholders will only be protected if it’s clear the board is acting in everyone’s interests, not just Mike Ashley’s.”