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Soldiers in trenches mythically raise helmets on sticks to assess where the enemy line of fire begins. In UK corporate governance, Mike Ashley has been that tin hat. Bullets have regularly whizzed around the boss of sportswear retailer Sports Direct.
Next month, Ashley will quit as a director of the expanded business he founded, renamed Frasers. Controversies should no longer erupt around his bonuses, derivatives bets or treatment of warehouse staff.
Venturesome bosses will just have to adopt another lodestone of what annoys City investors. The latter are less tolerant of eccentric entrepreneurs and family control than peers in the US and Asia. Mavericks will have to watch Matthew Moulding of The Hut Group to see what provokes hostile fire.
Cynics will snark that change at Frasers is no change at all. Ashley is shedding the title of executive director. Michael Murray is theoretically in full executive control. But Murray is the son-in-law of Ashley, who would presumably retain influence via his 68 per cent stake and a seat at the Sunday dinner table.
The riposte is that stock market investors and family-controlled businesses must sometimes compromise for mutual benefit. Companies need the capital, status and scrutiny a listing brings. Investors need to attract businesses to the public market, or it will die.
Ashley enjoyed rapturous applause during Sports Direct’s rapid growth phase. The claque fell silent as he floundered with his leadership role and sales faltered. The market worth of rival JD Sports has exceeded that of Sports Direct since 2016 thanks to better procurement, marketing and City relations.
Murray’s job is to close the gap. The business has been refurbing stores that too often resembled explosions in a trainer factory. One aim is to pacify sportswear brands intent on selling direct to consumers online.
Ironically, the shares of Frasers have lost their discount to JD Sports partly thanks to the group’s cut-price image. Both trade at a forward price/earnings ratio of some 11 times. Frasers’ PEG ratio — which measures price/earnings against forecast growth — slightly lags that of JD. But the eternal optimists of the sellside have made too little allowance for consumers trading down.
Frasers is a better defensive proposition — if Ashley can resist the temptation to interfere.
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Image and article originally from www.ft.com. Read the original article here.