Three years ago, this column suggested that the JD Sports Fashion (JD.), which is known best for selling running shoes and fashionable sportswear, was being run as if it belonged to a different era. (“Spot the red flags”, July 2019.) The main concern was that Peter Cowgill, who had chaired the group for over 15 years, doubled as its chief executive.
The power that comes from combining these two roles makes it easier to shrug off criticism from other directors. Two of JD’s were linked to the Pentland Group, which then owned 57 per cent of JD. Pentland had been taken private by Stephen Rubin, whose son, Andy, was a JD director. Another former Pentland director was Andrew Leslie, who chaired JD’s remuneration committee, and who by then had been a JD director for over nine years. The other three non-executive directors could be called independent, but since Cowgill was so dominant, this did not necessarily make them all immune to groupthink.
Three years ago, the issue was a £6mn bonus, awarded to Cowgill retrospectively, for less than convincing reasons. The excuse was that he should be recognised for driving the group’s growth over the years: he’d negotiated deals and formed partnerships with global brands such as Nike and Adidas; and he’d spearheaded the US expansion, and yet he had gone for years with neither pension nor share awards. This overlooked the 0.87 per cent of the group that he owned – a group that was then worth £6bn. This bonus was not conditional on future performance and the directors admitted that they had failed to seek any outside advice. The timing was poor – the media had recently exposed harsh working practices in a JD distribution centre and one of its warehouses.
Other examples of poor governance have happened since. In June 2020, the group put its subsidiary, Go Outdoors, into administration, and then bought it back shorn of its debts. Its creditors lost much of what they were owed. Perfectly legal, but somewhat controversial. A couple of alleged anti-competitive agreements are being investigated by the Competition and Markets Authority (CMA): one about replica Leicester City football kits, and the other, where price collusion has provisionally been found, to do with Rangers FC.
Then there was Footasylum, which JD had acquired for £90mn in April 2019. Its chief executive was Barry Bown, who had been JD’s chief executive until 2014, when Cowgill took over his role. In February 2020, a five-month CMA investigation ruled that the deal would restrict competition in the sportswear market. JD appealed, and the CMA took another look, but stood by its previous conclusion. The appeal alone produced a 93-page report and yet, as Cowgill pointed out, the final ruling seemed to expect the increasing inroads made by direct-to-consumer internet competitors to fade away. The upshot was that earlier this month, JD sold Footasylum to a German private equity group for a mere £37.5mn – hardly an ideal result, although no doubt some will count this as inward investment into the UK.
The investigation threw up another problem. Cowgill had been caught on camera secretly meeting Bown in a car park, even though their two companies were supposed to be run at arm’s length from each other. Neither had kept minutes, the CMA said some phone records had been deleted - an allegation JD continues to deny - and neither chief executive could recall in detail what they’d discussed. JD was fined £2.5mn for failing to have safeguards in place, and another £1.8mn for sharing commercially sensitive information.
The article three years ago concluded that to restore proper internal governance, JD needed new blood. Well, it’s happened. At the 2021 AGM, the group promised that it would “divide the current role of executive chairman and CEO” by June this year and that new directors would be appointed. Leslie was voted out by shareholders there and then. All the others, apart from the chief financial officer, left during the year. Cowgill’s sudden departure in May this year coincided with the completion of a review of governance, which had delayed the announcement of the results until June. Two non-executives held the fort until replacements could be found. Andy Higginson was chosen to chair the group, and this month Regis Schultz became the new chief executive.
The reason that sound corporate governance matters is because it’s all about the way companies conduct themselves. Profits are important, but so is how those profits were achieved. JD Sports shows how shareholders who tolerate poor governance while their company performs well often discover the hard way how it can damage its reputation. The new directors have taken great strides towards improving matters, but they still have some way to go.
As for Cowgill, over the last 10 years he has been paid £30mn. During the last two of these, he also sold most of his JD shares for over £50mn, for what are said to be “family wealth planning and diversification” reasons. He won’t be hard up.
