At a special meeting earlier this week, the shareholders of Sports Direct International plc rejected a pair of proposals that would have given current and former management millions in respect of services rendered. It’s a notable result that has grabbed headlines, but perhaps more notable is that the votes went forward – and how they did so.
One year on from an annus horribilis that saw Sports Direct anointed as the embodiment of UK business gone wrong, this week’s meeting offers a mixed bag in terms of the company’s progress on governance. On the one hand, the decision to guarantee minimum executive payouts and commission a review into just how much John Ashley, the brother of majority shareholder Mike Ashley, had been underpaid could be seen to suggest misplaced priorities. On the other hand, the board and Mike Ashley’s decision not to vote on the proposals is a positive sign. The agenda may still be subject to the whims of the founder, but the outcome was up to independent shareholders. And with 65.87% of participating shareholders rejecting a guaranteed minimum value for share awards made to executives Karen Byers and Sean Nevitt, and 70.73% rejecting a payment of approximately £11 million to John Ashley, independent shareholders made their feelings clear.
Setting a guaranteed minimum value for Ms. Byers’ and Mr. Nevitt’s share awards would have been in line with the treatment of awards granted to lower-level employees, but raised serious questions about undermining the performance-basis of the incentives. The awards were originally granted in 2011, with EBITDA performance targets met in full back in 2015, at which time the share price was north of £6; however, the shares were subject to a two-year holding period and suffered during last year’s crises, dropping as low as £2.57 before rebounding in part.
The proposal would have insulated Byers and Nevitt from these fluctuations, guaranteeing at least £3 per share, or £4 if they held the shares for an additional year. With executive pay still a lightning rod, it’s unsurprising that the proposal faced opposition. The attempt to protect executive payouts may have been particularly galling given that many of the business practices that put the company into the spotlight last year were presumably also partly responsible for meeting EBITDA targets in the first place.
While that was undoubtedly an encouraging result for corporate governance enthusiasts who advocate linking pay with performance, it’s the second proposal that grabbed headlines. The £11 million sum in question was arrived at after a review commissioned by Sports Direct found that John Ashley, by virtue of being Mike Ashley’s brother, had been “clearly disadvantaged” by not participating in a post-IPO cash bonus award of £5 million and subsequent annual share awards.
The rejected payment comes a year after it was revealed that Sports Direct had failed to disclose payments to a company owned by John Ashley for delivery services outside of the UK. Barlin Delivery reportedly received approximately £300,000 profit a year for the arrangement, which involved paying other couriers to collect items from a Sports Direct warehouse. In explaining its rationale for the £11 million sum, the board stated that the relationship with Barlin Delivery was considered but fell outside the period under review.
Sports Direct has received a great deal of press attention in recent years for its employment practices and corporate governance arrangements, including public struggles between Mike Ashley and the company’s independent shareholders. John Ashley’s backpay was no exception, and shareholders may be justifiably weary of meetings, and headlines, focused on distractions and payouts. It’s noteworthy then that the board and Ashley decided to abstain from the vote at this EGM, enabling independent shareholders to ultimately determine the outcome of the meeting. Whether this approach will apply going forward or simply marks a one-off in the evolving relationship between Sports Direct’s board, its majority owner, and independent shareholders will certainly be worth watching going forward.
Cian is an analyst covering the UK market.