Mike Ashley has thumbed his nose at the City once again, using his majority shareholding to secure the appointment of his man Keith Hellawell as chairman of Sports Direct, despite a majority of independent shareholders voting against him. Twice.
A little while ago the Financial Conduct Authority, the City's chief watchdog, became concerned at the way wealthy individuals were able make pots of cash by taking companies public in London only to ride roughshod over minority investors having done so.
In response, a new rule was introduced giving minority investors the power to vote down directors. If they said no to a particular candidate, said candidate would, in effect, be put into a sort of corporate purdah ahead of an EGM at which a fresh vote would be held.
The idea was that there should be no need for that. Company directors are supposed to represent the interests of all shareholders. Having failed to secure the support of a majority of independent investors, the candidate was supposed to step aside because their position would, in theory, be untenable.
Peace talks would then be held behind closed doors, a way forward agreed, a new candidate put forward and approved. Move on, nothing to see here.
Until Mike Ashley exposed the problem with the new rule. It doesn’t work.
Minority investors have for the second time voted against Mr Hellawell.
He has sat at the head of the board as a string of problems at the company have come to light, and so really ought to be held to account.
In fact, an increased majority of independent shareholders tried to do this. Some 54 per cent voted against his reappointment at the latest EGM, up from 53 per cent at the last AGM.
While Mr Hellawell did offer to resign in the wake of the first negative vote, Mr Ashley asked him to stay put and so he did. Mr Ashley, who has appointed himself as chief executive in the meantime, further issued a statement to the stock exchange after the latest no saying that he hoped to persuade Mr Hellawell to reconsider his pledge to stand down if he failed to receive the backing of independent shareholders for the third occasion at the company’s AGM later this year.
Other investors who maintain large shareholdings in their companies after going public like Mr Ashley will take note of this. What it tells them is that, while they might have to endure a bit of bad publicity, at the end of the day the rules allow them to do more or less what they want.
That’s not good enough. The point about Sports Direct, and about companies like it, is that they are public companies. Ordinary Britons have money invested in them through their ISAs and through their pensions. The Government has told them that it is a good idea for them to save in this way, and thus provide for themselves.
Mr Ashley’s behaviour, and Sports Direct's poor corporate governance, is a problem that goes beyond Sports Direct. But he isn’t going to change it until watchdogs step up to the plate and force the issue. It’s time for them to do that.
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