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Ian Brinkley
Economic Advisor
Ian Brinkley

What might restore Sports Direct's reputation

Authors: Ian Brinkley

23 March 2016

The troubled firm Sports Direct seems to be able to do nothing right. Held up as giving capitalism a bad name by, of all people, the Institute of Directors, and widely criticised for alleged poor employment practices the firm is now engaged in a public row with the House of Commons on giving evidence on how the firm treats its workers. Sales and share price have suffered as a result.

This is a timely reminder that good employment practice is not a nice to have. In today’s world where brand and reputation matter more than ever before, acquiring a reputation as a bad employer carries significant risk – especially in competitive markets where alternative suppliers can easily snap up defecting customers. And once bad reputations are acquired, they are hard to shift without a lot of sustained effort.

Sports Direct has pledged to try and turn things round with an internal review led by the current CEO and founder, Mike Ashley. We should give Sports Direct the benefit of the doubt until proved otherwise. It is also important not to think that the alleged examples of bad practice that have come to light apply across the whole workforce.

But it is not clear that, however commendable and genuine the intention, a CEO-led internal review is the best way of going about producing fundamental change within the organisation. There are also significant risks. The worst outcome for Sports Direct would be an exercise that introduces changes that are dismissed by external commentators and shareholders – rightly or wrongly –as a PR exercise. Whatever the company comes up with needs to have external as well as internal credibility.

If senior managers are to fix anything they have to know what went wrong and why. That requires their willingness to listen and accept an honest assessment which may include some uncomfortable truths about internal practices and culture. In a company that appears to have lost its way so badly, there is clearly a risk that some people will simply tell the CEO and senior managers what they think management wants to hear. Others may be unable to see what is wrong with practices which have become embedded in company culture as the way things are done.

A CEO-led review has the advantage of giving the exercise authority and urgency, but it is highly likely to be a top down exercise. Past experience suggests that planned changes work best when they have some buy-in from the workforce. It is hard to judge the current level of trust between workers and senior managers, between workers and line-managers, and between line-managers and senior managers at Sports Direct from the outside. But it is likely that in organisations which have low levels of trust there is a greater risk that changes will be poorly implemented and may not influence shop-floor behaviours and commitment in the way that senior managers hoped.

What is also not clear is how far the review is being guided by a clear view of where the company wants to be. The CEO has been quoted as saying that the aspiration is to be like John Lewis as an exemplar of good practice. This is fine as far as it goes, but employment relations at John Lewis are in part determined by an unusual ownership structure which it is unlikely that Sports Direct shareholders will adopt. The review needs to be informed by a systematic review of current good practices both inside and outside of the retail sector. A more radical suggestion would be to develop a partnership agreement with an appropriate trade union, an arrangement that has worked well with some other major retailers.

All of this strongly suggests that a better approach might be to have an external driven review backed by the CEO but acting independently. This would give both managers and the workforce more confidence in the process and reduce the risk that the exercise is perceived as no more than a cosmetic change.

However, I would argue that what is really needed is to identify some clear principles and values from the start which the company can then work towards by developing a credible plan with timetables and milestones in consultation with the workforce. In my view a good start would be for Sports Direct senior managers to read the report of the Good Work Commission and commit Sports Direct to become a good work employer.