Written by: Keith Tully
Reviewed: Monday 30th March, 2015
The board of directors at the retail group Sports Direct has been branded “dysfunctional” after it emerged its members were kept in the dark about plans to enter part of its USC fashion business into administration earlier this year.
Sports Direct’s founder and executive director is accused of failing to discuss the decision to enter parts of USC into administration with the rest of his board, having apparently taken the decision after consulting with only a small number of company executives.
“This is a further indication of how dysfunctional the Sports Direct board is,” said Oliver Parry, a senior adviser on corporate governance at the Institute of Directors.
“Last year we saw the board trying to push through a huge pay plan for Mike Ashley and you don’t need to be a forensic lawyer to figure out that there isn’t a sufficient check on Ashley’s powers,” he said.
Sports Direct’s chairman Keith Hallawell told the Scottish affairs select committee last week that non-executive members of the company’s board were only made aware of the decision regarding USC the day before it became public knowledge.
The entry of USC into administration saw 200 warehouse workers in Scotland lose their jobs and discussions with administrators had been ongoing for several months before the action was taken.
Administrators were called into West Coast Capital, an entity that owned 28 USC stores but was controlled by Sports Direct in January. After its 200 employees were made redundant, the stores it owned were bought out of administration by Sports Direct’s Republic division.
The job losses and the fact that much of the costs involved in the administration process were borne by the Insolvency Service and, ultimately, the British taxpayer, has turned the issue and dealings at Sports Direct into a politically sensitive matter in recent weeks.
MPs in Scotland described Sports Direct as being run like a “backstreet outfit”.
“This is not just reputational damage, but there are moral and ethical issues here,” said Parry from the IoD.
“About 200 workers were laid off and the board was not aware until the day before. For a FTSE 100 firm that’s not acceptable. Boards need to hold management to account,” he said.