Employee Directors at Sports Direct

It seems that controversial company Sports Direct (SPD) are likely to become the first UK public company to have a worker on their board. They plan to appoint an elected “Worker’s Representative” who will attend and speak at board meetings although they would not formally be appointed as a director. A spokesman for Sports Direct said: “Having explored all options we believe this is the best way to ensure the Workers’ Representative is free to champion the interests of all staff. We see this as a major step forward in bringing about positive change.”

Comment: if that improves their employee relations, which has seemed far from ideal in the past, then so much the better. But is there not a risk that the person so appointed might be seen as a “shadow director”? For those not familiar with that concept, anyone who has significant influence on the operations of a company and its board could be seen as a shadow director and in that case the legal position is that they have the same duties and obligations as any other director (and the associated legal liability).

One objection to these kinds of arrangement is that employee directors might have power without the associated obligations and hence make cavalier decisions. But in this example, not being formal directors they presumably will not be able to vote on any board resolutions.

ShareSoc has not adopted any formal policy on employee directors although we do think that a Shareholder Committee is a better way to improve corporate governance and stakeholder engagement. The presence of a worker representative on a Shareholder Committee might be an alternative solution.

Roger Lawson

Sports Direct – AGM Resolution on Working Practices

Sports Direct (SPD) have received a requistioned resolution for its Annual General Meeting on the 7th September. The resolution which has been put forward by Unite Union and its supporters says: “That the board commissions an independent review of Sports Directs PLC’s human capital management strategy and report back to shareholders within six months.” with the supporting comment that “As over 100 shareholders in Sports Direct, we believe the company’s current approach to human capital management will compromise its long-term growth and shareholder value in the UK as well as in continental Europe.” 

The Board of the company recommends shareholders vote against the resolution because it has already commissioned its legal advisors (RPC) to compile a Working Practices Report and a review is on-going. In addition they have opened a constructive dialogue with the Unite Union. The Board therefore considers it to be an “unnecessary distraction”.

Comment: Shareholders in companies should rightly be concerned if the activities of a company bring it into public disrepute in any way, and certainly the negative recent publicity about the working practices at Sports Direct are surely that. If the company is already meeting the obligation that would be imposed by the resolution, and intends to publish the results of an independent review, then there is no obvious reason why the company should object to the resolution. The resolution does appear to have some merit. However ShareSoc will not be giving a specific recommendation on this matter because we believe that shareholders should make their own minds up on such issues. But it is important that you vote on that and the other resolutions at the AGM.

Roger Lawson