Last week – on 22 July 2016 – the Parliamentary Committee of Business Innovations and Skills issued a 37-page report accusing Sports Direct, one of the country’s leading retailers, of systematically mistreating its workers. An MP noted that the working conditions for its employees “are closer to that of a Victorian workhouse than that of a modern reputable High Street retailer”. The report stated that the company’s billionaire founder, Mike Ashley (also, as it happens, the owner of Newcastle United soccer team), should be held accountable for his company’s failings. Mr. Ashley rebutted such criticisms by claiming that issues of corporate governance are outside MPs’ purview, although he acknowledged that matters need to be rectified. Full details of the case can be found on the BBC website.
We suggest that the parliamentary report should be required reading for all senior executives. It describes multiple failures of corporate governance. These failures indicate a corporate culture that put profits before the basic rights of employees. Sports Direct’s troubles were aggravated when the company’s recruitment agencies, namely Transline Group and The Best Connection, were called into question for their own unscrupulous practices. During the inquiry, the firms gave inadequate and even incorrect evidence. Transline was accused of deliberately misleading the committee. The actions of external suppliers can damage a company’s reputation, even if that company is not itself at fault.
It’s easy to dismiss the outrageous failings of Mr. Ashley and his team of executives as a one-off occurrence, an extreme case of bad management. But they are hardly unique. Similar failings have occurred in many companies. They are as much a case of inaction as action on the part of managers. They include a failure to take an empathetic and close interest in their employees and the working environment, let alone to do anything about it. The problems that arise are therefore avoidable. Many British companies fro m a wide range of sectors are caught out because their corporate cultures do not embrace proper internal inspection and compliance. Such companies fail their shareholders, their customers and their employees. They also give business a bad name. They contribute to the clamour for more rules and regulations and for the demand that audits don’t just look at the numbers but also at the nature and ethos of leadership within companies.
Mr. Ashley told the parliamentary committee that “some things have come as a bit of an unpleasant surprise”. The inference is that ignorance somehow excuses a failure to correct matters. By comparison, good leaders accept that they are accountable for what happens within their company at all levels. They take a close and benign interest in their workers, providing clear direction and ensuring that it is followed. It may sound simplistic, but in that sense it is true to say that there is no such thing as poor companies, only poor leaders. If those responsible for selecting CEOs looked more carefully at leadership track records then there would be fewer cases of corporate governance failure of the likes of Sports Direct.