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It is difficult to know whether to laugh or cry over the stories about Mike Ashley of Sports Direct which are pouring out of the High Court as we speak.
No wonder the case has been moved to a bigger court to make room for all the reporters. The press are out in force as the evidence is proving to be so delightfully lurid in its detail and irresistibly colourful.
There is the drinking that Ashley is alleged to have indulged in at “lock-in” management meetings at the pub – 12 pints followed by vodka chasers which prompted the retail tycoon to vomit into a fireplace in front of his staff. And for which Ashley was greeted with huge applause from his underlings. He was also so bored at City meetings that he would hide under the table and sleep.
These outrageous vignettes about the life and times of Ashley – already under pressure under the conditions in which he keeps his staff – come courtesy of ex-Merrill banker, Jeff Blue. The former banker claims that Ashley held regular senior management meetings at the Green Dragon pub in Alfreton, near Sports Direct’s warehouse: the same one that has been described as operating on “Victorian workhouse” conditions.
This evidence emerged as part of Blue’s claims that Ashley reneged on a £15m deal with him to boost the share price of Sports Direct. The shares did hit the £8-a-share target they set, and Blue was paid a £1m bonus. Now Blue wants the rest.
He claims that Ashley agreed to pay £15m if he could help double Sports Direct’s share price within three years. According to the evidence, the banker alleges that Ashley said: “If he [Blue] can get the stock to £8 per share why should I give a fuck how much I have to pay him? I will have made so much money it doesn’t matter.” (It’s worth noting that this conversation is said to have taken place in another drinking session at the Horse and Groom pub near Sports Direct’s Oxford Street store in 2013.)
Allegedly, the retailer responded by saying it would be “fucking unbelievable” for Sports Direct’s shares to hit that level, which would have given it the same value as Marks & Spencer.
And so it came to pass: Sports Direct’s shares hit the £8 price target in February 2014. But the shares have since collapsed below £3 – 298p at the latest count – after media reports that Ashley pays his warehouse staff below the minimum wage, and subjects them to appalling conditions.
There’s more dynamite. Blue has also accused him of making an annual “side-payment” to Dave Forsey, the former boss, on top of his declared £150,000. Blue alleges that: “Mr Ashley paid Mr Forsey £1 million per year personally, and that was done by way of a side-payment so as artificially to cap the wages of other staff [on the basis that they could not be paid more than the CEO]. ” Other senior employees were also given top ups, it is alleged.
As you might expect, lawyers for Ashley told the court he could not remember details of the “banter and bravado” conversation in the pub, “particularly in the light of the amount of drinking”.
Although distasteful, Ashley’s vomiting habits are for his own conscience. They are his own private matter. Or are they? As the chief executive of a quoted company, Ashley’s behaviour in front of his staff is very much a public matter. It’s also the sort of unseemly 1980s Loadsamoney style behaviour that most of us thought had died out in the 1990s.
The way a CEO – or any leader of any organisation – behaves sets the tone for the business, for the relationships between managers and employees and between employees and customers. It’s a tone and style that goes all the way down the chain. Like in the army, the values and standards come from the leaders at the top, and they must be held accountable.
Which is why shareholders in Sports Direct should be seriously worried if it it is proven that Ashley did indeed offer money to Blue to manipulate the share price. And so should the regulators, they should be crawling all over this evidence.
It’s clear from what has emerged and is emerging at Sports Direct that Ashley runs the company as his own private fiefdom, right down to the obligatory corporate private jet. Part of the problem is that he still owns a majority of the business – 55% – having floated off the balance in 2007 when it was listed ten years ago. Is that right? Should one man be able to keep such a large stake in a listed company? The rules are for a minimum free float of 25% but it maybe time to look at these listing rules again.
Quite simply, Ashley should not be running a public company, and his antics are giving the rest of the business community a terrible reputation. He promised to tighten up corporate governance after the exposure of working conditions by adding one new NED on the board last year but that is too little and too late.
The reputation of Sports Direct is now at rock bottom, as is the share price, back to where it was when the retail chain floated. Yet there are big institutional shareholders which own about half the company – nearly £1bn worth – which has been invested on behalf of the public’s pensions, either directly or indirectly. Where are they now? What are they saying about Ashley’s behaviour? Why are they not putting pressure on him to clear out the board and start afresh? Or indeed demanding he step down.
As Professor Bob Garratt, one of the world’s most provocative thinkers on corporate governance, who draws on the old Chinese proverb for the title of his brilliant book on leadership,The Fish Rots from the Head: The Crisis in Our Boardrooms, the buck starts and stops with the CEO, the chairman and the boardroom.
However, even Garrett has now given up on most attempts to improve corporate governance, describing them as a sham. Instead, he wants to see a fundamental change of board structures and another look at 300 years of limited liability company law.
Garrett is spot on. The professor, whose work on leadership has been adopted by many organisations including the NHS, reckons that we need to ask again what a company is for. As he says, limited liability means that neither the management of a company nor the owners of shares have direct ownership, therefore they have no sense of true responsibility.
Perfectly put. Ashley is clearly not accountable to anyone – neither his staff nor his shareholders – and has been able to get away with his egregious Loadsamoney behaviour because he could.
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Iain Martin and the team make sense of the news, providing commentary and analysis on the stories that matter in politics, geopolitics, economics and culture.