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Big task for Sports Direct's Mike Ashley in tidying scandal-hit past

Published: 13:19 09 Mar 2017 GMT

Sports Direct
Sports Direct's troubles started around 2013

Sports Direct International plc (LON:SPD) owner Mike Ashley has a long road ahead if he wants to repair his tarnished reputation.

In his first steps down that road, the retailer today announced it was looking to hire a “workers’ representative” to attend its board meetings after coming under fire for the ill-treatment of staff.  The workers' representative will attend and speak at all scheduled board meetings on the behalf of Sports Direct employees.

But it is a rather small stride towards turning around what MPs have called “appalling working practices” at Sports Direct.

Sports Direct branded a sweatshop …

A parliamentary inquiry in June last year, triggered by an investigation by The Guardian, said Ashley had been running Sports Direct like a Victorian workhouse and had treated employees “without dignity or respect”.

The report, by the business, innovation and skills (BIS) select committee, said workers were seen as commodities rather than human beings.

It found the retailer was paying its employees less than the legal minimum and was docking 15 minutes pay for being one minute late.

Employers reported coming into work while sick as they feared being sacked.

Sports Direct was also found to have a “six-strikes-and-you’re-out” policy, where workers could be fired if they receive six black marks over a six-month period.

Appearing in front of MPs after months of resistance, Ashley said that much of what he had found out after starting an internal investigation was an “unpleasant surprise”. 

Ashley, who also owns Newcastle United, admitted employees were paid below the minimum wage due to “bottlenecks” at security checks on staff leaving work, but said those issues had been resolved.

The parliamentary inquiry came well after the problems began. In July 2013 it was revealed that about 90% of the company’s employees were on zero-hour contracts.

A Freedom of Information request from the BBC also found that between 2013 and 2014 paramedics were called out to Sport Direct’s distribution centre at Shirebrook in Derbyshire for pregnancy issues, including an incident of a woman giving birth at the site’s toilet as she feared disciplinary action.

Ashley’s foray into lingerie

More recently, Ashley has been accused of hurting jobs through an indirect acquisition of British lingerie label Agent Provocateur.

Four Holdings, a company in which Sports Direct owns at 25% stake, on 2 March confirmed it was buying Agent Provocateur for about £30mln.

Agent Provocateur co-founder Joe Corre branded the sale of the retailer as a “scandal on many levels” as there was a higher bid on the table that he said would have saved a majority of jobs and international presence of the brand. Quadro Capital reportedly offered £35mln for the business.

“Mike Ashley has already confirmed he’s closing down the entire international side of the business,” he told City A.M. on Monday.

“He’s going to buy the stock and he’s going to keep a few stores in the UK running - everything else is going. None of the creditors will be paid which means the factories will close which means the jobs will be lost. The taxman is not going to get paid either, it’s a disaster.”

Sports Direct sought to clarify the terms of the deal on Tuesday, saying a number of reports have incorrectly stated that it bought Agent Provocateur - rather, Four Holdings did. The group also said reports that it purchased Four Marketing for £35mln two years ago were false as it had actually paid £8.75mln.

Sports Direct hides data breach from staff...

Adding to Ashley’s woes at Sports Direct, the Information Commissioner's Office (ICO) in February revealed employees’ personal details were comprised in a data breach.

The ICO said it had received a report on the hacking incident from Sports Direct but since there was no evidence that employees’ personal details were passed on, the company failed to tell its staff about the breach in September.

A spokesman for Sports Direct told the BBC: "We cannot comment on operational matters in relation to cybersecurity for obvious reasons.

"It is our policy to continually upgrade and improve our systems, and where appropriate we keep the relevant authorities informed.”

Profit warnings...

On Tuesday Sports Direct warned that it continues to believe the devaluation of the euro against the dollar will impact on its gross margin.

The company said its euro-dollar exchange rate was currently hedged at US$1.46 and that it had no hedging in place for 2018. The euro is currently trading just under $1.06 against the dollar.

The firm has previously blamed a weaker pound against the dollar following the UK’s vote to leave the European Union last June for a series of profit warnings since.

CFO and CEO step down...

Last October chief financial officer Matt Pearson resigned after the company slashed its earnings forecast by another £35mln. He had held the position since June 2015.

His resignation came a month after the departure of Dave Forsey as chief executive.

Forsey, who spent 32 years at Sports Direct, reportedly quit over a breakdown in his relationship with Ashley after the scandal over the group's working practices emerged.  

Ashley took over as chief executive after Forsey stepped down, vowing to be more hands-on in fixing the troubled sports retailer.

Ashley defies shareholders...

Ashley upset shareholders in January after saying chairman Keith Hellawell will keep his job despite investors voting against his reappointment.

A total of 54% of Sports Direct’s outside shareholders opposed Hellawell’s re-election in a January vote.

However, he was reappointed after winning 81% of the total vote thanks to the support of Ashley, who owns 55% of the company.

It followed a 53% vote by investors at the September annual general meeting against the move.

Ashley uses brother’s firm for overseas distribution...

Sports Direct reportedly pays a company owned by Ashley’s brother to deliver online purchases to customers outside the UK, it emerged last August.

The retailer was criticised for not disclosing the arrangement with Barlin Delivery Limited, owned by John Ashley, in its annual accounts.

Online orders from overseas customers account for about 6% of Sports Direct’s £2.9bn annual revenue. Barlin makes about £300,000 a year from the arrangement, the company told the Financial Times.

Sports Direct’s website states that it only delivers to the UK but that Barlin may provide international delivery for online purchasers.

Following a string of scandals, Ashley will need more than a workers' representative to support him in his efforts to tidy up Sports Direct's image.

At the time it was announced he was taking over from Forsey as chief executive, Ashley admitted he had taken his eye off the ball and promised: “I’m going to fix it and I will.” 

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