Is this the social licence at work?

If you’re Mr Mike Ashley, owner of Sports Direct the whole idea of needing a social licence must raise a hollow laugh.Ashley

After all, he’s been called a “business genius” by at least one respected investment analyst, which must do his ego a bit of good.

He also owns a highly profitable business empire, and been getting away with highly dubious business practices for so long why worry?

Yet the pressure is mounting. Who likes to go to bed being branded in public by the IOD as running “a scar on British business?” Or being front paged as representing “big British capitalism at its grubiest”.  Losing £400 million wiped off the value of his actual shares hardly helps, and must surely give some pause for thought.

Meanwhile, his managing director Dave Forsey seems set as the fall guy for Ashley’s convoluted share dealings and tricky business manoeuvres.

In an echo of a now long gone prime minister, Forsey claims “we need to do a better job of getting our side of the story over”.Sports direct

It’s as if the endless tales of staff abuse, below cost of living wages and warehouse employees being yelled at by loud speaker are all irrelevant. What matters he seems to be saying, is sounding more convincing when he makes denials.

Then there’s the shadow chancellor calling for an investigation by HMRC for breaches in the national minimum wage, plus a series of tabled parliamentary questions. They all add up to ensuring Sports Direct stays firmly in the public limelight, attracting mounting negative attention for the foreseeable future.

Does any of it matter? Why can’t Mr Ashley, genius that he is, just carry on—he’s known to rarely listen to anyone outside his groups of close lieutenants, and certainly not his passive and apparently impotent board.

One investor for example recently sold his shares when Mr Ashley never bothered to turn up to four board meetings in a row. Mr Ashley seemingly never gave it a second thought.

The apparent freedom of Ashley to run his empire as he thinks fit may be rather more limited than he may think. The company’s social licence is clearly now running out. He may yet come to regret his cavalier disregard for what being a responsible business person actually means.

Of course he is by no means alone. Plenty of other companies have discovered the hard way the social licence is real and not at all imaginary. The freedom of banks to run up unsustainable debts for example, turned out to be unacceptable. They’re still paying the financial and regulatory price for such misunderstanding.

“Social licence is intimately linked to judgements about fairness and the just distribution of rewards.”
J. Guthrie, Work magazine December 2015

With Sports Direct we are seeing the social licence in action. There is no obvious national law Mr Ashley has broken, although that may turn out to be wrong when it comes to paying a living wage.

Yet the name of Sports Direct is now firmly associated with bad practices, which even price conscious consumers may come to see is worth avoiding. As with Starbucks, once the rot sets in the danger is starting a runaway effect that cannot easily be controlled.

When famously Gerald Ratner called his own company’s earrings “cheaper than an M&S prawn sandwich but probably wouldn’t last as long.” customers exacted their revenge by staying away from Ratner shops. There is yet no customer revolt over Sports Direct, but for how long?

See also: How to make sense of the social licence

Latest update (15th December 2015)

Things are heating up though.

With founder Ashley publicly branded a “monster” by one MP, yet more knocked off the share price, an urgent debate authorised on the company in Parliament by the Speaker, and the government being pressed to launch an enquiry over alleged breaches of the minimum wage, this firm’s social licence seems in serious jeopardy.

“Everyone knows in our area you can’t get a job in the warehouse of Sports Direct if you are an English native speaker, despite 3000 people working there,” claims John Mills MP.

How much pressure is enough? At what point does the licence to operate in society get withdrawn? As the FT’s Jonathan Guthrie wrote recently: “The social licence is intimately linked to judgements about fairness and the just distribution of rewards.”

His observation, widely endorsed elsewhere that “you can only operate with the consent of the populace, regardless of what the statute books tells you” seems to be in the throes of being openly tested.

 

 

 

 

 

 

 

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