Billionaire Mike Ashley failed to appoint an auditor in time for Sports Direct's annual general meeting on Wednesday, throwing the UK retailer deeper into chaos.
Sports Direct has been racing to find a replacement for Grant Thornton, which quit as auditor last month following the company's delayed posting of annual results because of a last-minute €674 million tax bill. The big four auditing firms have turned down the role, citing conflicts of interest.
Wednesday's meeting was the culmination of a dramatic year for Mr Ashley, who lost his 30 per cent stake in department-store chain Debenhams in April when it was taken over by creditors. Since then, he has said he regrets buying unprofitable retailer House of Fraser last year and has come under fire for acquiring more struggling businesses despite Sports Direct's own profit decline.
"The failure to appoint an auditor shows that both Mike Ashley and Sports Direct's reputation precedes them," said independent retail analyst Richard Hyman. "They're difficult, very unconventional and don't play by the rules, so many firms clearly think that it's not something they want to get involved in."
Under UK law, Sports Direct can still call on the UK government to appoint an auditor. Mr Ashley must do so within one week, or the company and its officers could risk a fine.
Sports Direct shares traded 1.2 per cent higher on Wednesday afternoon in London, but they’ve fallen 22 per cent over the past 12 months.
On Wednesday, 9 per cent of shareholders voted against Mr Ashley’s reappointment as a director, heeding a recommendation from advisory firm Institutional Shareholder Services, which cited “material failures of governance and risk oversight.”
It is near impossible to oust the billionaire, though, because he and his holding company MASH Beta Ltd own a majority of Sports Direct shares.
“This is what happens when a business is publicly quoted and privately owned – he can do pretty much whatever he wants,” Mr Hyman said.
It is a steep fall from grace for Mr Ashley, who left school at 16 to buy a sports shop in Maidenhead, England, and expanded the business into one of the biggest retailers in the UK, and subsequently the Republic. The company’s 2007 initial public offering catapulted Ashley into the ranks of Britain’s super rich with a fortune of as much as $7.1 billion (€6.45 billion), according to the Bloomberg Billionaires Index.
Trouble
The first sign of trouble came about four years ago, when an undercover report alleged that Sports Direct paid some workers below minimum wage. It led to a formal government inquiry into the company’s treatment of employees, and Mr Ashley was questioned in parliament over his governance.
Since then, his wealth has slumped to $2.9 billion as Sports Direct’s stock sank and the UK retail market slowed.
"The issue over the way workers are treated by Sports Direct should have been a signal to everybody that there's a problem here," said John Gray, vice chairman at the Local Authority Pension Fund Forum, which owns shares in the company. "The governance is broken and needs to be fixed. That's why the auditors have walked away and why they can't find an auditor."
The forum voted against every motion and board appointment Wednesday, Mr Gray said.
Other shareholders said they had been reassured by Mr Ashley during the meeting, from which journalists were barred. – Bloomberg
