There's a quote from Alibaba's Jack Ma: "Customers should be number one, employees number two, and then only your shareholders come at number three."

Many great companies have understood this over the years, and Jack is simply one of the latest digital leaders to express this sentiment.

After reading Ma's quote (see more here), I read about the scandal of Sports Direct warehouses, where workers are effectively paid below The National Minimum Wage (due to staff searches lasting for 15 minutes at the end of each working day).

Sports Direct's share price has tumbled recently, and although this has partly been the result of poorer than expected sales (due to the closure of its premium brand USC), there's no doubt that continued controversy around worker treatment is having an effect.

In a Guardian article on the topic, Ashley Hamilton Claxton, a corporate governance manager at Royal London Asset Management, has this to say:

We remain concerned about corporate governance issues at the company and believe these issues will continue to place a drag on the share price over the long term.

Until the company improves its governance and relationships with employees, shareholders face substantial risks.

We maintain that companies such as Sports Direct need strong governance in place to protect the interests of minority shareholders, employees and other stakeholders.

This couldn't be clearer. Poor relationships with employees will lead to substantial risk for shareholders. A causal factor, and indicative of the hierarchy of importance that Jack Ma refers to.

With Sports Direct also in the spotlight for zero hours contracts and not giving the mandatory 30 days notice when laying off hundreds of workers in its USC business, the brand's tale could become a cautionary one.

usc

But will it affect sales?

Share price may decrease until the Government decides what to do about Sports Direct, but will sales suffer? History would suggest probably not.

Even digital-first companies with inspiring leaders have marks against their reputations; Amazon is well acquainted with exposés of its culture and working practices (try this Independent article for a taster) and Tesla is often mentioned as a place that can be forbidding for those that aren't 100% committed to the cause.

Despite talk of a Sports Direct boycott (see Twitter), the biggest impact sounds as if it will come from Government rebuke.

Rotten culture begets rotten work

Sports Direct employs a large amount of Eastern European workers and will not suffer from a workforce shortage.

However, the culture of the business leaves it poorly positioned to deal with competition in retail (e.g. at USC).

Frances Frei and Anne Morriss from Harvard Business School define the impact of culture as follows:

Culture guides discretionary behavior and it picks up where the employee handbook leaves off. Culture tells us how to respond to an unprecedented service request. It tells us whether to risk telling our bosses about our new ideas, and whether to surface or hide problems.

Employees make hundreds of decisions on their own every day, and culture is our guide. Culture tells us what to do when the CEO isn’t in the room, which is of course most of the time.

What that means is that if/when Sports Direct needs to innovate and move away from manual labour to a technology-optimised system, can it be sure a mistreated workforce will respond, and will the retailer be able to attract the talent needed for this transformation?

Giving customers a great product at a great price is, of course, the priority, but should never be at the expense of workforce dignity.

Ben Davis

Published 15 December, 2015 by Ben Davis @ Econsultancy

Ben Davis is Editor at Econsultancy. He lives in Manchester, England. You can contact him at ben.davis@econsultancy.com, follow at @herrhuld or connect via LinkedIn.

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