UPDATE 2-Sports Direct founder Mike Ashley takes CEO role

* Dave Forsey resigns as CEO

* Ashley owns 55 pct of company's shares

* Stock rises 2.3 pct (Adds detail, background, analyst comment, shares)

By James Davey

LONDON, Sept 23 (Reuters) - Britain's Sports Direct, the retailer trying to mend its battered image, named its billionaire founder and controlling shareholder Mike Ashley as chief executive on Friday after Dave Forsey quit the role.

Forsey, who has been with the firm for 32 years, resigned as CEO on Thursday, it said.

Sports Direct has had a disastrous 2016. Lawmakers have condemned it for "Victorian" working conditions, investors and media have slammed it for dire corporate governance and trading has been poor with a series of profit warnings issued.

Its shares, some 55 percent of which are owned by Ashley, have slumped by 50 percent so far this year. They were up 2.3 percent at 293 pence at 0730 GMT.

Under pressure from shareholders the company agreed on Tuesday to carry out an independent inquiry into its working practices and governance.

An initial report undertaken by its legal advisers RPC and published earlier this month had identified "serious shortcomings."

The 450-store sportswear chain said Forsey would be replaced by Ashley, who previously held the title of executive deputy chairman, with immediate effect.

Forsey has, however, agreed to facilitate a smooth handover of his responsibilities.

"I feel like I have lost my right arm," Ashley said of Forsey's departure in a statement.

No explanation was given for his exit.

"It looks like he has simply done the honorable thing, given the recent criticisms of him in the Sports Direct working practices report and the likely outcome of the corporate governance review," said independent retail analyst Nick Bubb, noting that Ashley "really runs the show" in any case.

But he said Forsey was valuable to Ashley as he acted as a "human shield" to him.

Sports Direct said Ashley will continue to be supported by the existing executive management team.

In addition, the firm said UK retail boss Karen Byers has been promoted to the role of global head of operations, and Sean Nevitt has been promoted to the role of global head of commercial, both with immediate effect. ($1 = 0.7673 pounds) (Reporting by James Davey, Editing by Sarah Young and Susan Thomas)

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