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TMCNet:  Bonus row goes into extra time [Scotland on Sunday]

[July 06, 2014]

Bonus row goes into extra time [Scotland on Sunday]

(Scotland on Sunday Via Acquire Media NewsEdge) MIKE Ashley, the controversial owner of Britain's biggest sportswear retailer, may have won only a pyrrhic victory in getting his multi-million-pound bonus scheme pushed through at the fourth attempt.Institutional investors are hopping mad at what they see as high-handed and hidebound corporate governance at Sports Direct and are seeking boardroom blood as payback at September's annual general meeting.In the firing line when it comes to voting for their re- election will be Keith Hellawell, Sports Direct's group chairman, Dave Singleton, the remuneration committee chairman, and possibly some other directors as well.Shareholders unhappy about Ashley's bonanza are co-ordinating their action through the Association of British Insurers (ABI) investment committee, which voted against the bonus payout last Wednesday, and the National Association of Pension Funds (NAPF).For good measure, the Institute of Directors (IoD) has also been vocal in opposing the payout to Ashley, the founder and majority shareholder of Sports Direct, which went public in 2007 but has continually sparked anger at what is seen as his overbearing leadership.The IoD said last week's vote was "suggestive of weak underlying governance at the company". One investor said: "The payout to Ashley cannot be stopped. But a substantial revolt at the AGM against the re-election of some directors would send a clear message about the distaste felt for what looks like a supine board deferring to Ashley's wishes."He may have got the money, but the issue of corporate governance at Sports Direct is now right back centre stage."Sports Direct shareholders last week voted through the scheme, which will give GBP180 million of shares to 3,000 permanent staff, including Ashley, if a key condition of group profits doubling by 2019 is met.The company has not revealed how much of the pay-out will go to Ashley, who owns 58 per cent of the company and is deputy chairman. He does not receive a salary.One major shareholder in the business who will vote against Hellawell and Singleton said: "This cannot just be allowed to pass without a significant gesture, even if Ashley's controlling stake makes any such action unlikely to succeed. This is a public company but with a board that seems in thrall to the owner."Among institutional investors who will vote against some of the individual directors is Railpen, which oversees some GBP20 billion of railway pension funds. Deborah Gilshan, corporate governance counsel at Railpen, says the action is "because they haven't acted in the best interests of all shareholders".Railpen says it will also send a message to the wider stock market that the interests of minority shareholders must be protected.The dispute raises echoes of the controversy when Sports Direct floated seven years ago. Ashley scooped GBP929m in a single day as he divested 42 per cent of the business, but soon after the float was in hot water with investors for disclosing less than desired about its trading as the share price fell sharply from the flotation.But Ashley turned things round and investors began to warm to him and the company as it generated booming profits amid strong expansion.Sports Direct, along with a similar price-conscious British high street staple, Primark, seemed able to defy the downturn in consumer spending since the 2008 financial crash.One analyst said: "People talk a lot of about corporate governance, but the City winks at a lot if the business is successful. And Ashley has consistently delivered, in good economic times and bad. He has also shown he has a thick skin, both at Sports Direct and frequently controversy-racked Newcastle United FC (which he took over in 2007). I don't think he will be quaking in his boots at the thought of a public protest vote against directors."The consensus City forecast is for group underlying earnings to have jumped to GBP330m, from GBP288m in the previous year, when the group unveils its annual result to April this month.Sports Direct has said the bonus plan has tougher conditions than its predecessors that failed to secure shareholder backing, and Ashley is included in a scheme for all permanent employees that could see many thousands of shopfloor staff scoop five-figure sums if the profit targets are met.The controversy, meanwhile, has not diverted Ashley's attention from his penchant for wheeling and dealing in the retail industry. He recently bought and sold shares in Debenhams in a complex deal that gave him a bridgehead for Sports Direct outlets in the group's department stores.Last month he also swooped to buy a stake of almost 5 per cent in MySale days after the online fashion business floated on the Alternative Investment Market. Even so, it almost seems a shame that the bonus row is overshadowing the success of the man once dubbed the "Howard Hughes of British business" for his reclusiveness - before he started attending Newcastle United matches in team colours.Facts: Sports Direct InternationalFounded by Mike Ashley, deputy executive chairman, in 1982Floated in 2007 at 300p a share. Currently trading at about 750pHas grown to more than 400 shops in Britain and 260 stores in continental EuropeSales reached GBP2.19 billion in its last financial year, and core earnings rose 22 per cent to GBP28m (c) 2014 ProQuest Information and Learning Company; All Rights Reserved.


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