Governance, Risk And Ethical Issues Of Sports Direct

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Question :

ACF528: Continuous Assessment 3 

2016/17

SWIF Learning: A Guide to Student Written, Instructor Facilitated Case Writing

Each student will find online a paper written by Professor Paul Swiercz on the SWIF approach to be used for the continuous assessment for the module. The following identifies applicable and non-applicable sections of this paper for the purposes of preparing the continuous assessment for ACF528:

Case Study Analysis

Each student must choose a company/organisation for investigation but students cannot choose a company on which a case has been written in the module textbook, Tricker (2015) or a case that is older than 10 years. Each student should conduct research into their chosen firm/organisation and prepare their case study and analysis on the issues/events/dilemmas that have taken place. As regards the analysis of the case, each student is required to address the following discussion questions:

  1. What were the main corporate governance issues within this case?
  2. What does the theoretical, academic, professional or legal literature/regulation say on these issues? Were such events or features of your case consistent with or in contrast to the theoretical, academic, professional or legal literature/regulation?
  3. If the company/organisation addressed these issues, was the response appropriate? Did it address the fundamental issues at stake? If a response has yet to emerge, what would you expect a suitable response to be and why? 
  4. Could similar events happen again in the UK today? Why? Do you think the current system of corporate governance and accountability in the UK is sufficient to deal with these issues? 
  5. What were the general lessons learnt from this case? What have you as a student learnt about governance, risk and ethics from this case?
  6. Would you invest in this firm? Give the reasons for your decision.  

Students may also develop their own discussion questions for inclusion in the case. Additional issues that emerge in the course of your analysis may be presented here and should be reported under the heading ‘Other discussion points’. 

Suggested Case Structure

The following may be used as a guide to help structure your case:

Case Study

1. Introduction: Purpose of study, importance of case, structure of case study.

2. Context: Provide background and context to the case by providing an overview of the firm(s)/organisation(s) involved within the case.

3. Description of key events that took place within the case.

Case Study Analysis

4. Address discussion questions.

5. Conclusions: Summary of case study, summary of key findings and their implications for corporate governance. 

6. Bibliography and references. 

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Answer :

GOVERNANCE, RISK AND ETHICAL ISSUES OF SPORTS DIRECT: CASE STUDY AND ANALYSIS

Case study:

The purpose of the study:

The largest sports good retailer of United Kingdom Sports direct has been established in 1982. Since that period, this organization has been seen to go through different segmentation in business. The integrated prospect of this industry is now spread through 670 stores (sportsdirect.com, 2016). However, it has complied with different law and regulations of governance in terms of attaining the customer service operation and the championship of the customers accordingly. In order to accompany customers with high-quality brands and quality delivery, the direct strategy is to be attempted. Therefore, this case study has been developed to show the necessary amendments that the organization is intended to take to implement strategic adoption.

The importance of the case study:

This organization is a leading brand of sports retailing industry and attains huge revenue in a year, 2.832 billion (sportsdirect.com, 2016). Still, this organization is incorporated with some distinctive issues regarding development of the websites and promoting their brands. Moreover, it has constraints regarding investment in the workforce as well as in store portfolio. Due to the inadequate means in proportioning goods, this organization faces problem to identify their brand acquisition. This study will shed light on the probable ways of resolving these states. The recommended skills will deliberately help this organization restoring the brand integrity (Gast and Ledford, 2014).

The structure of the case study:

At the very beginning of the case study, it will provide a general overview of the organizational need and purpose. Thereby, the related issues that obstacle on the performance level of the business. This organization faces problem in fields of promotion, identification, investment, and development. Therefore, the probable issues and threats in adopting strategy will be forecasted over the study (Blowfield and Murray, 2014). Possible methods and theories in this respect will also be attempted to implement further progressions. The study depicts the resolving ways and practices to help out of the problems and sheds light on attaining the destined outcome related to the business.

Company background:

This Company is governed up with the selling off a large number of sporting brands. However, the trading details of this organization are vividly described under SportsDirect.com brand. This is dealing in an overwhelming thread in the accumulation of the retailers like USC and Lilywhites (Hawkins, 2006). This organization is associated with a low marginal operation type and dealing successfully with some top most brands. Some of the remarkable brands associated with this group are, Donnay, Firetrap or Dunlop in almost all markets. The business excellence of this group has enabled attaining a remarkable success. This leading success is intended with a satisfactory profit margin. 

This organization offers a number of products for male and female along with a variety of sports accessories. Therefore, the promotions of this brand are very much required to intend profitability. This company is associated with primitive issues regarding risk management as it is stated to be problematic in managing the employees (Caroll, 2015). It is reported to be resistant in forcing employees to work hours by hours or to deduct their payment in case of being late or absent. However, this objection has not been accepted by the founder of the company, he strongly denied all these objections. Problems also occurred in specific fields of health maintenance or in the case of remuneration of the employees. This organization has also confronted issues in maintaining corporate responsibility and ethics (Chin et al. 2013). Therefore, the study has been forecasted to relevant ways of coming out of the obligations and issues.

Description of events:

In attempting the different events associated with the organization, it might go through the risk management process. There is also ethical issues related to the integrity of the organization and thus it depicts the probable ways of resolving the status. Moreover, the company faces problem regarding the corporate social responsibility related to it. Therefore, all these events have been stated over the case study so that it might attain the necessary means to help solve the status.

Risk-management:

This organization has confronted criticism by the trade union of MP and media accordinglyIt has been blamed for the accompaniment of having zero hour contracts with almost all the employees. Moreover, the statement shows an utter dissatisfaction of the employees for putting them under a tremendous pressure (Chin et al. 2013). They were forced to work in a resistant manner for a long time and a short delay was termed to be a deduction. Therefore, the six strikers system has been put on the system to force employees handling, even more, pressure. However, all these statements have been denied by Mr. Ashley, the founder of Sports Direct. Thus, the study has been formed to adopt necessary implementation to come out of the obligations.

Moreover, the risk of this organization is associated with the threatening consequences of the health of the employees too. It has been reported by BBC that, more than 76 times in two years it has to attempt visit of the ambulance (BBC, 2013). This threatening consequence is also resulting in frightening the women employees. Staffs had to receive strikes due to the toilet breaks also. It has also faced giving birth of the child by a woman employee in the toilet in fear of attempting the strike. These tremendous consequences have been taken in a grant by the founder. It has further been recorded to take an initiative of attempting the better solution to help out of resolving the status.

Problems were also prevalent in respect of the remuneration to the employees. Certain numbers of employees were working in the unpaid status for more than four years. For this offense, the Department of Business has charged 2 million of fine to pay the workers at a time. Undermining an argumentative discussion the founder had to pay 1 million to the workers of the warehouse for breaking the law of employment. Therefore, the organization had to face a severe financial issue and development constraint for fostering its business.

Ethical issues:

Every associate of the business world has to abide by the ethical consolidations to sustain in the industry. The strategic adoption by this retailer is regarded to be the discounted price at products. But, it has been stated that this organization has practiced trick in labelling their products with a higher price. The discounted price then has satisfied the customers but after revealing this unethical trick, the organization has been put under ethical pressure. This organization has also been criticized for refusing to pay the suppliers and lying off around 200 employees within a short notice of 15 minutes (Preuss, 2013). These negative impacts have inevitably marred the authenticity of the greatest retailer brand, Sports Direct.

Corporate social responsibility:

The leading organization is inevitably required to be associated with the practices of corporate social responsibility. This directly inclines the safety of the associated people. However, this organization has been experienced not to take care of the employees neither it has taken good care of the customers. By labelling, high price this organization has attempted the means of cheating their customers. This is completely unethical and against the rule of ensuring the conformity of people (Preuss, 2013). The concerned practices of this organization are not concerned about the means of its profit associations too. Therefore, this is highly disregarding the impacts of corporate social responsibility. This association has deliberately followed the theories of stakeholder. Side by side it has disregarded the relation between society and organizational purpose that is the Legitimacy Theory. Furthermore, the contact between society and the associating obligations of human has also been disregarded by this organization (Preuss, 2013)

Therefore, to get back the position, this organization needs a varied work on these above-mentioned theories to assess a compiled situation with the employees and their conditions.


The analysis of case study:

As stated by Forster (2011), corporate governance can be described as the system of the practices, rules and the processes by which any organisation can be controlled and directed. Corporate governance mainly involve in balancing the interests of different stakeholders such as management, shareholders, suppliers, customers, government, financiers and the community of the organisation. This case study analysis mainly analysed different problems in the corporate governance strategy of the Sports Direct International Plc.

1. Risk management:

According to Zheng (2013), risk management strategy of any organisation mainly identifies, investigate, evaluate, circumvent, control, eliminate and diminish different unacceptable risks. In order to manage the risks in the Sports Direct International Plc. they can utilise the postulation, escaping, transmission and retention of the risk achieving a proper management. Risks always create a terrible impact on the business outcomes it is very much important for the Sports Direct International Plc. to have an effective risk management strategy.

It is observed that Sports Direct International Plc. is facing different types of corporate risks regarding the strategy, operation, and management. It is seen that the operation of the Sports Direct International Plc. are continuously criticised by the trade unions, MP's and the media for their inconsistent working hours (Walters and Tacon, 2010). It is seen that most of the organisation follow the zero hours contract, whereas the organisation put employee under the enormous pressure due to their inconsistent working hours. This system is called six strikes system which is implemented by the organisation and makes agency worker and the staff provide more effort to their organisation.

It is seen that the organisation also have the issues regarding their remuneration strategy and they do not provide any health and wellbeing facilities to their employees. It is seen that Sports Direct International Plc. is not providing the minimum wages to the workers. The warehouse worker of the organisation is not getting their salary for 4 years (Sportsdirectplc.com, 2016). On the other hand, their six strikes policy force the worker to work in the organisation even when they need some medical assistance. They also terminate their employee if they became failed to do so. In the present times, they are also facing problems regarding the ethics and the corporate social responsibility, it is seen that they are not labeling the sufficient information regarding their products that any customer requires before buying that product. Due to fewer amounts of ethics, the organisation is facing losses in their sales despite of their high-level discounts because customers have encountered that the organisation print the higher price in their label and offer higher discounts to them.

The main guilty person of this issue is all level of management that also include the board of director because they can provide good working hours and remuneration to the organisation (Theguardian.com, 2016). Along with that, the operation department is also guilty because they can print the appropriate price and sell it to the customers in proper costs but they do not provide that. Their employment policy raises different questions regarding the health and safety, working condition in the organisation. Therefore, after sometimes they may face huge problem from the employees, so in order to reduce the risks, it is important for them to apply appropriate risk management strategy in their organisation. 

Board of the director:

Governance can be defined as the process to make effective decisions and the process by which the decisions can be implemented (Babiak and Wolfe, 2012). Therefore, governance can help any organisation to be more important in the industry in which they are currently operating. On the other hand, the management of any organisation can be defined as the process to control or deal people or different things in the organisation.

Among the management and the governance, the management has more focuses on the businesses; therefore, the managing director of Sports Direct International Plc. is responsible for all of the company related activities. Managing directors are also responsible for delegation of the responsibilities among employees and they mainly arrange different business meetings and demonstrate a presentation in those meetings (Tricker, 2015).On the other hand, the board of the directors is not the part of the organisation but they are involved in directing the organisation. The work of the board of directors of Sports Direct International Plc. mainly include identification of the effective control as well as the system, adapt and prepare the mission and vision statement of the organisation and put the corporate values and the professional standard in the appropriate places.

Along with those responsibilities, the members of the board of directors are also associated with the identification of the appropriate risk management strategy and they are also entitled to ensure that the major risks of Sports Direct International Plc. regarding the employment and operation can be identified (Ethicalconsumer.org, 2016). After the identification of the risks, the board of directors also analyse the risks to understand the impact of those risks on the organisation. After the evaluation of the risks in the Sports Direct International Plc. they instruct the high-level managers to establish a design regarding the risks management program so the risks can be resolved with effectiveness.

Stakeholder’s theory:

It is seen that Sports Direct International Plc. is facing problem regarding their employees because they become de-motivated to work in the organisation because their organisation does not have any effective policy regarding the health and wellbeing. Therefore, in order to achieve huge productivity from their employees, it is important for the Sports Direct International Plc. to apply the stakeholder’s theory. As stated by Blowfield and Murray (2014), stakeholder’s theory can be referred as the business ethics and organisational management theory that can address the values and morals to manage any organisation. By applying the stakeholder’s theory in the Sports Direct International Plc., the management can identify the specific condition where the managers treat that party as the stakeholders. This theory will help the organisation to understand that they are mistreating the employees so they need to develop more effective employee related policy to satisfy their employees (Sportsdirectplc.com, 2016).

2. Issues regarding corporate social responsibility:

According to Coyle (2013), corporate social responsibility of any organisation can be defined as the approach regarding the business that can contribute to the sustainable development of any organisation in order to deliver different benefits regarding social, environmental and economic. The main aim of the corporate social responsibility is to increase long term profits of organisation and gain the trust of shareholders through effective as well as positive public relations (Simon, 2016). Therefore, in order to increase positive impact on the environment as well as different stakeholders such as employees, customers, committees, and investors, it is very much important for the Sports Direct International Plc. to have a good CSR strategy.

There are several drivers that can push Sports Direct International Plc. to have an effective CSR strategy that is shrinking the role of the government, growing level of pressure from the investors, high level of competition in the markets, the relationship among the suppliers Electra. However, it is seen that in the current time the organisation is facing problems regarding their corporate social responsibility and ethics. To attract the customers in highest extent, Sports Direct International Plc. provides the high level of discounts to their customers. However, it is observed that the labelling of their products do not provide sufficient information that any customers need to assess before buying (Crowther and Capaldi, 2008). The company prints high price on the labelling and provide several discounts based on the negotiation of the customers. This makes customers very annoying to accept the product from the organisation so the sales of the organisation have dramatically dropped in the present days. Moreover, lack of ethics in their organisation makes customers reject the company. Therefore, this activity of the organisation makes the government take several actions against the organisation. Along with that, when they will face the lack of sales then they could be forced by the investors to implement an effective CSR strategy in their organisation. 

Therefore, when Sports Direct International Plc. will implement the CSR strategy for their organisation then they have to consider the benefit of different stakeholders such as the investors, customers, employees, and government (Bbc.co.uk, 2016). They must make their CSR strategy in that way that can provide the organisation the ultimate level of profit to the investors. Along with that, they must take some responsibility regarding their employees in that way by which they can encourage their employees to provide their full effort to their organisation. Along with that, they must promote some health and wellbeing strategy for the employees so they can be motivated. Sports Direct International Plc. must consider this as their duty to provide all of the information regarding a product to customers so they can achieve the sustainable competitive advantage.

3. Ethics:

As stated by Hawkins (2006), ethics can be defined as the moral principles that can govern the behaviour of any person or conduct any activity in the organisation. Ethical issues that are faced by any organisation mainly varied in a different country, because it is seen that the ethical behaviour that is considered normal in one country can be considered as the abnormal in another country. It is very much difficult for any country to set a particular and universal ethical standard because the norms and the view of the different country are different from each other.

It is seen that the Sports Direct International Plc. was criticised for their unethical behaviour by different media, trade unions and the MP’s. It is seen that the organisation does not provide a flexible working hours to their organisation and they force employees to provide their effort for the extra time but they do not pay any ex6tra money for that extra time. Moreover, they do not provide any facility to their employees to receive medical assistance when they getting seek in the working hours. Moreover, they refused to pay their suppliers and their warehouse workers. Along with that, they terminate 200 workers of their organisation within the 15 minutes of time. Along with that, the organisation was also criticised because they do not have any kind of cotton sourcing policies (Louche et al. 2010).For their unethical behaviour and negligence in the corporate social responsibility, they are facing a high level of rejection from their customers. It is seen that, Sports Direct International Plc. print the high price in label of their products and they do not show enough amount of information on products.

Every organisation that is operating in any community has some specific duty regarding their society and they should not affect other people in a negative way if they want to facilitate an effective ethical practice in organisation. There are a huge amount of regulations and law that can control the corporate nature of any organisation and makes it more ethical in both the national as well as in global mode (Mallin, 2013). The ethical code of practice of any organisation mainly reflects the behaviour of the director so it is very much important for the board of directors of the Sports Direct International Plc. to establish an effective ethical code of practice effective maintenance of which can provide them the competitive advantage.

Board of the director:

The board of director of the Sports Direct International Plc. mainly include the seven members; among them one member is the chief executive, five non-executive directors and one acting chief financial officer (Fool.co.uk, 2016). Among those non-executive directors one individual is the independent non-executive director and the other four non-executives are not the independent non-executive director. It is seen that where the economies are advanced the board of the director include most of the non-executive director and different non-executive directors are the independent directors too. As most of the director ion the board is a non-executive director then activities and the international relation of the Sports Direct International Plc. are different from that, which is dominated by the executive director of the organisation (Ethicalconsumer.org, 2016). In Sports Direct International Plc. it is the duty of the executive director to plan the meetings in any certain period of time that presents different data and information regarding the code of compliances. After evaluating all those findings, it is very much important for the organisation to make an effective report based on the review of assessment so it can be ensured that all of the rules are classified and respected based upon that report. If it is observed that the report is not met the satisfactory criteria, then it is important for the organisation to take different action so the condition can be improved as well as corrected.

Agency theory:

Agency theory is one of the parts of the corporate governance, this theory mainly stated different problem that any director faces when they control any organisation, while the shareholders own any organisation (Monks and Minow, 2011). This theory describes the relationship between the agent and the owner, where the agent is employed by owners for carrying out the task on their behalf. It is seen that sometimes directors might not act in the best interest of the shareholders. Therefore, agency theory describe considers this problem and stated way by which this problem can be minimised.

Therefore, by applying this theory it can be stated that here the board of directors hires employees in Sports Direct International Plc. but they are unable to satisfy the needs of employees. It is seen that they do not even provide appropriate remuneration to their employees and force them to work overtime without extra pay. This makes the worker highly dissatisfied with their work (Nordberg, 2011). Therefore, in order to make the employees more satisfied, it is very much important for organisation to apply different strategy so they can effectively treat their employees.

Stewardship theory:

When any organisation achieves huge amount of profit then they consider them as the part of something huge. This theory is the alternative theory of the agency theory. This theory specifies different effective strategy by which any organisation can reduce the losses of an agency. It is seen that Sports Direct International Plc. is facing the loss of the agent because of their insensible attitude towards the agent (Solomon, 2013).For this reason, they can apply this theory in their organisation to minimise the employee turnover and motivate them. In order to motivate the employee, Sports Direct International Plc. can provide effective remuneration to them provides some extra level of benefits to them and can provide them some extra level of incentives to them. The organisation can face the high level of employee turnover mainly due to the inflexible strategy so that it is important for them to make their organisation more flexible for the employees (Theguardian.com, 2016). 

Responses to different issues:

After facing problem from different sides they have undertaken several steps so they can increase their ethics ion their organisation:

  • There was an allegation against the organisation that Sports Direct International Plc. does not provide minimum wages to their employees. In order to resolve the problem and to decrease the employee turnover, the organisation has announced that they will provide more than the minimum wages from this 1st January to their directly engaged employees and their directly employed employees from the UK.
  • There was also an allegation against the Sports Direct International Plc. that they deduct the monthly wages of the employees even for the 1 minute late in the organisation. This creates a terrible revert regarding their business in the mind of the customers so they are buying less amount of products from the organisation (Sportsdirectplc.com, 2016). In order to resolve the problem, Sports Direct International Plc. have generated a new pay regime by which they offer the deducted money to employees in another way that they have deducted from their wages.
  • It is seen that in the financial year of 2016, their employee turnover has been increased by the 7% and the turnover of the store managers have been decreased by 2.9%. Therefore, it can be easily assumed that in order to motivate their bottom level employees they have taken some strategy to motivate their store manager so they can motivate their bottom level employees.
  • It is seen that the organisation does not provide any time to their employee to take some medical help even when they became sick during the working hours. This creates a negative image of the organisation in the mind of customers (Theguardian.com, 2016). To remove this kind of image, Sports Direct International Plc. has decided to invest some money on the health and wellbeing of the employees.
  • They have alleged by an issue that they force employees to provide overtime services to their organisations and do not provide sufficient remuneration according to it (Waddock, 2009). In order to remove their bad image, they have decided to provide some flexible working hours so they can help them to make a balance between family and work life.

Could the similar events happen again in the UK today’s?

It is seen this kind of event is very much common in the UK; therefore it is the duty of the UK government to take some effective stage so they can remove this kind of issues. In order to resolve different problems in Sports Direct International Plc. it is important for them to follow all of the law and regulation implemented by the government so they can be one of the most ethical organisations in the UK (Fool.co.uk, 2016).

  • It is important for the Sports Direct International Plc. to follow the legislation regarding the rate of minimum wages and the condition in the workplace so they can achieve their desired result in the workplace
  • There are several chances that this kind of event may happen in the UK again so it is important for a government to establish some appropriate guidelines regarding the standard of the quality and standard of employment (Ethicalconsumer.org, 2016). After implementing this, they must force every organisation to follow that so they can avoid this kind of event to be happened in the UK again.
  • Along with that, the UK government implement some regulation to avoid different issues regarding corporate governance and then they force each of the organisation to follow that so any company never faced this kind of issues again.

The lesson from this case:

This case provides the huge range of knowledge to the learner regarding the understanding and improvements of different corporate governance issues, different risks regarding ethics and corporate social responsibility. This case also helped to understand different problems regarding the ethics that can damage the brand image of any organisation and make them unacceptable to the customers. This lesson also provide knowledge that only huge amount of discounts to the customers cannot provide huge success to the organisation. To retrieve huge success, it is important for any organisation to be honest to the customers. This is because customers only want honesty and transparency from any organisation. Along with that, this case also provides huge knowledge the importance of the information that is provided in labelling of the product in sales. It is seen that due to lack of concentration on their labelling, Sports Direct International Plc. is facing huge level of rejection form the customers.

The case also provides the lesson that in order improves the performance of any organisation, it is important for Sports Direct International Plc. to maintain different ethical actions and they need to follow some effective relationship with their employees so they can achieve more productive. This case also provides a clear view regarding the impact of autocratic leadership. It is seen from the case that in Sports Direct International Plc. they follow autocratic leadership and deduct the wages of their employees even for one minute late. This creates huge dissatisfaction among employees, therefore, in this current year they have faced 7% increment in the employee turnover. The case also provides a good knowledge that only satisfying managers cannot provide enough success to organisation, in order to increase productivity satisfaction of bottom level employees are also important. This case also helps to understand the role of media and trade union to increase the level of ethics in organisation. It has been observed that due to high pressure from media, Sports Direct International Plc. has implemented different effective strategy so they can help employee in their health and wellbeing by providing them proper remuneration and flexibility in the workplace. 

Would you like to invest in the organisation?

As stated by Wearing (2005), before investing in any organisation, there are several factors that need to be considered; otherwise any individual may face huge losses. One of the most important factors that need to be considered is the return of investments, which can help any individual to understand their future profit or loss.

Sports Direct International Plc. is one of the retail-based organisation that mainly sell the sports good product to the customers. Currently, their revenue is 2.832 billion euro, and their profit is 295.6 million euro. Therefore, it can be easily understood that the organisation has effective financial stability (Ethicalconsumer.org, 2016). On the other hand, this organisation has17207 numbers of employees so they can access that human resource to provide effective services to the customers. It is seen that organisation is listed in the London stock exchange and they are a constituent of the FTSE 250 index.

From the huge amount of profit it can be easily estimated that organisation is enjoying the huge return of investments. The main strength of the organisation is they have the huge workforce and they have implemented different methods by which they can improve images of the organisation (Nordberg, 2011). However, in the recent times, Sports Direct International Plc. has faced huge issues regarding corporate social responsibility and ethics but in order to provide living wages to the employees, it would be better to not consider some legal obligation of organisation.

Conclusion:

It can be concluded that Sports Direct International Plc. can resolve the problem regarding ethics and their CSR policy by following different rules and regulation regarding the employment, quality standard, environmental practices and code of conduct. In order to achieve competitive advantage in their organisation, they must provide more flexibility to their employees so they can be encouraged to provide their fullest possible effort to the organisation. Along with that, it is also important for them to maintain the transparency and honesty for their customers so they can be motivated to buy products from the organisation. Maintaining transparency in the organisation not only increases the customer base but it also helps them to improve their brand image.