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Business analysis: Sports Direct: Spineless shareholders rolled over too easily on bonus, says Nils Pratley

July 3, 2014

Nils Pratley



Who are these spineless Sports Direct shareholders who now support the idea of offering founder Mike Ashley a megabonus? And why have they changed their minds since April, when they booted out the company's last attempt?

According to Sports Direct, there are three reasons why it was able to secure a 60:40 majority among non-Ashley shareholders. It extended the length of the performance period from two to four years; the targets were made harder; and Ashley's incentives were wrapped up within a pounds 180m scheme that will cover all 3,000 or so permanent staff.

But the last of these explanations is a nonsense because Sports Direct refuses to say how much of that pounds 200m has been earmarked for Ashley. Last time around, under the tailor-made plan, he was being offered about pounds 70m, which was deemed far too rich for a public company. The precedent would have been appalling.

But the 60% of shareholders voting for the latest plan may now have sanctioned pounds 70m anyway. Shareholders have no way of knowing what Ashley's award will be.

If it is pounds 70m, they will have allowed Sports Direct to smuggle in via the back door an award that was kiboshed when the company knocked on the front door. Or perhaps the figure will be pounds 100m on the grounds that the performance hurdles are now higher.

The Institute of Directors - not a hotbed of Marxist radicalism - called this one correctly. Its director of corporate governance, Roger Barker, said on Tuesday: "This type of package would be unthinkable for a senior executive who was not also the company's major shareholder. It raises doubts about whether the board is acting as an effective independent check on Ashley's power."

Quite right. Ashley has a 58% stake worth about pounds 2.5bn and thus does not lack motivation to put in a decent shift as an executive deputy chairman. Sports Direct's chairman, Keith Hellawell, looks a patsy in his arrogant refusal to set out the terms of Ashley's award.

The 60% of compliant shareholders have sent two bad messages: first, that the normal standards of corporate governance and disclosure don't matter when the share price generally goes up; second, that they'll roll over when a big founding shareholder is sufficiently bloody-minded.



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Source: Guardian (UK)


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