Decision by independent shareholders comes as retailer admits it has no auditor
Nearly a third of independent investors have voted against Mike Ashley continuing as chief executive of Sports Direct amid criticism of the company’s poor corporate governance.
Ashley controls 62% of the company but 31% of the other shareholders who voted at the company’s annual meeting on Wednesday cast their votes against him. The vote came as Sports Direct admitted it no longer has an auditor after the incumbent, Grant Thornton, resigned at the retailer’s sparsely attended shareholder meeting in London. The retailer has so far been unable to persuade any other auditing firm to take on the job.
Grant Thornton stepped down after the retailer’s chaotic annual results announcement in July. After more than 10 hours of delays, the company said it could not issue profit guidance for the year ahead as it had received an unexpected €674m (£605m) tax bill from Belgium. The company’s finance director also quit.
The retailer’s new finance director, Chris Wootton, said on Wednesday that Sports Direct was “going through a process”to appoint a new auditor but did not indicate how long it would take.
Under the Companies Act, Sports Direct must now formally notify the business secretary, Andrea Leadsom, within a week, that it has failed to appoint an auditor. If it does not do so it will face a fine.
Leadsom has the power to appoint an auditor if and when all other efforts to do so have been exhausted. It is not clear whether she will step in but as a listed company Sports Direct must have an auditor in place by the time of its full-year results, which are usually announced in July.
Audit experts said Sports Direct would normally have had a new auditor lined up months ago. They said a firm would normally have to start work on the interim figures just before Sports Direct’s half year finishes at the end of October. Although unusual, unaudited interim results can be published, so long as the company announces to the stock market that the interim results have not been audited.
Ashley said he paid close attention to the accounts to ensure they were “simple and conservative” as the majority of his personal wealth was tied up in the company.
“If [the shares] don’t perform I’m in trouble. I just have a different perspective. It will be a bumpy ride but we will get there,” he said.
Ashley said the company was unlikely to pay a dividend for years to come while it invested in improving House of Fraser and Sports Direct stores. It paid £90m to buy House of Fraser out of administration in August 2018 and in its end year results described the business as “terminal”, adding that with the benefit of hindsight it should probably not have bought the department store chain.
The retailer’s shares were largely flat at 264p, but are down from 350p a year ago. Four years ago they were changing hands at more than 800p.
Ashley said the future of Sports Direct relied on moving away from its longstanding “pile it high, sell it cheap” business model, and towards more upmarket brands. He said “elevation is our golden ticket” and that he wanted to open more outlets similar to a converted BHS in Leicester, which includes a Sports Direct alongside the group’s upmarket Flannels fashion store and streetwear outlet USC.
“It’s happening, it’s coming, it’s just not as fast as I would like it,” Ashley said. “I would like to click my fingers and have 100 Leicesters tomorrow … God do they take some money,” he said.
However, in an eccentric outburst, Ashley then told shareholders not to buy anything in the Flannels store downstairs from the annual meeting on Oxford Street, central London. “It’s eye-watering what some of the prices are for a pair of shoes or a cap,” he said.
Richard Bottomley, a non-executive director, said Sports Direct needed to make improvements in its corporate governance and insisted that the company was making changes. “Corporate governance is important to us as an organisation and [something] we are well aware of and are discussing,” he said.
However, Ashley said he did not intend to carry out a review of corporate governance standards, as he had once promised. He insisted he was not a “pantomime villain” and that handing out bonuses of £50m to full-time staff put him “streets ahead of other people”.
John Gray from the Local Authority Pension Fund Forum, which represents about £100m of shares in Sports Direct, criticised the company for rejecting its call for an independent review of corporate governance and ignoring requests for a meeting.
Gray asked: “Can you explain why you have found it difficult to get an auditor and non-executive directors with relevant experience?”
Bottomley told about 15 shareholders who attended the meeting that there had been “no argument” with Grant Thornton but Sports Direct had been disappointed at the delay with its results.
Grant Thornton is under close scrutiny by the accounting regulator and at the time of the Sports Direct results was under investigation over the retailer’s failure to disclose a transaction with a company owned by Ashley’s brother.
Wootton said Sports Direct had “total confidence in our numbers”.
“Media likes to sensationalise this kind of thing. We are going through a process. We account for stuff conservatively, consistently and simply,” he said.
He added that Sports Direct had met more than once with the Belgian tax authorities to discuss its hefty bill and continued to believe it was “less than probable to be a material liability”.
• This article was amended on 13 September 2019 to clarify details about timing and auditing of results.