Maverick Sports Direct Billionaire Wants an Auditor

(Bloomberg Opinion) -- Wanted: An accountant to get to grips with a sprawling but ailing British retail clothing empire (selling everything from tracksuits to designer suits) – and its colorful billionaire founder.

Unfortunately for Mike Ashley’s Sports Direct International Plc, no one is biting. Grant Thornton U.K. LLP won’t seek reappointment as the company’s auditor, and other firms appear to be steering clear too. Ashley has had to ask the British government about what it will do if he’s left without external oversight, according to the Financial Times. This includes the possibility of the state appointing an auditor itself.

It all reinforces the sense that things are spinning out of control for Ashley, Sports Direct’s founder and chief executive, after he purchased a string of troubled British store chains over the past year, including House of Fraser. The company’s annual financial results were also delayed after the discovery of an unexpected 674 million euro ($753 million) tax bill. Struggling to find someone to audit your accounts wouldn’t be a good look, explaining another 9% drop in its share price on Wednesday. 

After several big British corporate failures – including Carillion, BHS and Patisserie Valerie – auditors are under huge regulatory scrutiny and are cracking down on what they perceive as risky clients. While Sports Direct has warned that it can’t give guidance on its current financial year because of the uncertainties about the ailing House of Fraser, the worry here for external accounting firms is more to do with Ashley’s unconventional corporate governance (where he pretty much does as he pleases) and establishing a proper understanding of all the businesses he’s bought. 

There are ways the impasse could be resolved, though. One idea would be to pay a bigger audit fee to compensate for what’s a more perilous process, although this wouldn’t necessarily do much to improve the feeling of security among investors who’ve pushed the share price down by 46% over the past year.

A better option would be for Ashley to improve the company’s corporate governance, for example by strengthening its board with more heavyweight non-executive directors and relinquishing some control. He could also offer more details on all of its recent investments.

Ashley’s eccentricities have long been a feature of Sport Direct. Investors in the group know what they’re letting themselves in for. But the latest crisis shows his unorthodox approach is starting to interfere with its ability to do business. This should be a moment for him to take stock. He has to change – or consider taking the company private.

As for the broader audit market, there needs to be a clear process in place for those who find themselves in Sports Direct’s shoes. The government does have the power to appoint an auditor to a quoted company if it fails to do so itself. But this is hardly comforting for any affected businesses, and especially their investors.

Ashley is one of the first chief executives to face this dilemma. With a more risk-averse audit profession, he won’t be the last.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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