Week of 5 October 2020
Clothing retailer Boohoo’s directors knew for a fact that there were very serious issues about the treatment of factory workers in Leicester and whilst it put in place a programme intended to remedy this, it did not move quickly enough. Recommendations to the company include enhancing visibility of the full supply chain, promoting Tier 2 suppliers to Tier 1, establishing a new senior-level governance mechanism, having supply chain compliance as a standing item on every Board meeting agenda, educating buyers in the actual cost of fabricating garments, conducting due diligence and engaging suppliers (Alison Levitt QC Report)
UK clothing retailer Boohoo Group has released an independent study that it commissioned by barrister Alison Levitt QC to investigate claims of poor working conditions in its suppliers’ manufacturing facilities in Leicester, England.
Background and context
- Labour Behind The Label estimates that the majority of garment workers in Leicester are “from minority ethnic groups” and “[a]round 33.6% were born outside the UK (e.g. from India, Pakistan, Bangladesh but also Somalis and increasingly Eastern Europeans).”
- Labour Behind The Label points out that migrant workers are especially vulnerable to exploitation: “These workers are vulnerable to abuse as a result of their immigration status, language skills, integration in the community (and support mechanisms such as union membership etc) as well as higher unemployment rates. … The lack of documented resident status or entitlement to work means that many workers are willing to accept poor conditions in exchange for a job – even one without formal contracts or minimum wages. This also contributes to a situation where workers are unable or unwilling to speak out about labour rights abuses for fear of being deported or otherwise investigated.”
- The investigation by The Sunday Times found that workers in Leicester apparel factories were earning as little as £3.50 per hour, which is less than half of the national minimum wage of £8.72 per hour for adults over the age of 25. Further, some workers went unpaid for weeks or months at a time.
- Labour Behind The Label also found that many workers were at high risk of contracting COVID-19 while on the job, due to tight quarters and a lack of protective equipment. A reporter for The Guardian noted the lack of precautions in Leicester’s apparel manufacturing sector as one possible factor in the city’s spike in COVID-19 cases during the summer.
- The Guardian reported that an estimated 75%-85% of the clothing produced in Leicester is sold to Boohoo.
- Immediately following the reports, Boohoo’s share price dropped dramatically by around 30% over two days (an approximately £1 billion loss in value). In addition, one of the company’s largest shareholders and the UK’s largest listed asset manager, Standard Life Aberdeen, sold most of its stock in the company, citing the company’s response to the allegations “as inadequate in scope, timeliness and gravity.” The Financial Times further reported that several other large shareholders were in conversation with the company to understand how the company would address the issues in its supply chain.
Findings of the independent study
The study, led by barrister Alison Levitt QC, assessed Boohoo’s management of labour rights issues by interviewing company leadership, current and former employees of Boohoo companies, NGOs and community organisations, policymakers and journalists. To capture perspectives from affected workers, the study also relied on information collected via a third-party website, which included a questionnaire available in seven different languages. The objectives of the review were to: “(1) consider whether the allegations about working conditions and low pay are well-founded; and if they are, (2) consider the extent to which Boohoo monitored its Leicester supply chain and had knowledge of the allegations; (3) consider the Group’s compliance with the relevant law; and (4) make recommendations for the future.”
Alison Levitt summarised the top findings of the report as follows:
- “There is no evidence that the company itself or its officers have committed any criminal offences;
- I am satisfied that the allegations about poor working conditions and low rates of pay in many Leicester factories are not merely well-founded but substantially true;
- Boohoo’s monitoring of its Leicester supply chain was inadequate and this was attributable to weak corporate governance;
- From (at the very latest) December 2019, senior Boohoo Directors knew for a fact that there were very serious issues about the treatment of factory workers in Leicester and whilst it put in place a programme intended to remedy this, it did not move quickly enough;
- Boohoo ought to have appreciated the serious risks created by ‘lockdown’ in relation to potential exploitation of the workforce of the Leicester factories. It capitalised on the commercial opportunities offered by lockdown and believed that it was supporting Leicester factories by not cancelling orders, but took no responsibility for the consequences for those who made the clothes they sold. However, I received no evidence that the company’s purchasing practices are responsible for an increased COVID-19 rate in Leicester.”
She also underscored the inherent human rights and sustainability risks posed by Boohoo’s business model, which relies on extremely fast turnaround of products, from design to production to sales:
- “(i) Boohoo’s extraordinary commercial growth has been so fast that its governance processes have failed to keep pace;
- (ii) It has concentrated on revenue generation sometimes at the expense of the other, equally important, obligations which large corporate entities have;
- (iii) It has not felt responsible for conditions in the Leicester factories on anything other than a superficial level; and
- (iv) On occasions it has failed to appreciate that with the enormous advantages of being a publicly-listed company come responsibilities, one of which is on all occasions to act in the best interests of all the shareholders.”
These characteristics are endemic to other types of businesses as well and demonstrate the crucial importance for companies of understanding the impact of their purchasing practices and broader business model on people in their own operations and in the supply chain.
The study’s recommendations for the company
The study concluded with recommendations for Boohoo, briefly summarised below:
- Gain oversight of the full supply chain: “Within six months Boohoo should reduce its approved suppliers to a list which contains a manageable number of companies, ideally without reducing capacity.” It should also seek to establish direct contractual relationships with as many of its suppliers as possible (i.e. “promoting” Tier 2 suppliers to Tier 1).
- Increase supply chain transparency: “Boohoo should commit to publishing the refreshed list of Tier 1 suppliers and Tier 2 subcontractors as soon as possible” and should also do so on an annual basis.
- Establish and enforce policy expectations for suppliers: Within six months, Boohoo should outline minimum requirements for its suppliers, including payment of minimum wage, proof of working hours, ‘right to work’ documentation, health and safety including fire safety and COVID-19 precautions, no unauthorised sub-contracting, and maintaining all documentation on-site for review by auditors. These issues should be categorised as zero-tolerance, critical, major and minor based on severity.
- Establish senior-level governance and accountability mechanisms: Within six months, Boohoo should form a Supply Chain Compliance Committee, including “the Director of Sustainability, the Heads of compliance, buying and merchandising and the internal auditor,” and chaired by a member of the Board of Directors. Within a year, the Supply Chain Compliance Committee should create a “robust supply chain roadmap” with actionable targets for transparency, traceability and auditing of suppliers. Supply chain compliance is to be a “standing item on every Board meeting Agenda” – with the appointment of an “an individual to provide independent oversight of the implementation of this change agenda.”
- Engage with suppliers: Boohoo should regularly engage with suppliers, including sharing its supply needs in advance to help suppliers plan their workforce requirements, encouraging them to employ more skilled workers who can manufacture higher-priced complicated clothing, and “committing to placing a ‘mixed bag’ of orders with each supplier” in order to “allow Boohoo to keep the prices of simple clothing low whilst still allowing the supplier to pay proper wages and make a reasonable profit.”
- Create due diligence and risk management systems: “There should be a clearly defined and understood process for ongoing monitoring and due diligence of suppliers. There should also be a system of recognised triggers which require completion of a due diligence exercise, such as a change of ownership.” In addition, there should “be a clearly defined risk management system within the governance structure of Boohoo.”
- Training of buyers: “Boohoo should devise and institute a programme to educate all its buyers in the actual cost of fabricating garments in order to ensure that they do not drive cost prices below what is reasonable. […] Buyers should be encouraged to understand how designs can be adapted to reduce prices without compromising ethical and sustainability standards,” and their performance should be measured according to an “ethical metric.”
- Skills development for Leicester garment workers: The company should implement a skills development programme for workers to both improve productivity and learn to manufacture more complicated clothing, which receives a higher price.
Response from stakeholders
Responses to the study from stakeholders have been mixed, with the majority of them focusing on the role of investors in pushing for change at the company. A few of these responses are shared below:
- In an op-ed for the Thomson-Reuters Foundation, Thulsi Narayanasamy, Senior Labour Rights Lead at the non-profit Business & Human Rights Resource Centre called attention to the fact that “Boohoo’s investors have responded to the company’s ‘commitment to change’ as if the sweeping internal reforms put forward have already been implemented. A share price jump of 16% shows that Boohoo has been rewarded for publishing a report revealing how bad its supply chain issues are. It’s a perverse vote of confidence which labour rights advocates see as dangerously unfounded and premature, with long-suffering workers once again abandoned.” She also wrote that investors “should be calling for […] a total shift in the buying and pricing function of the company – nothing short of a total overhaul will ensure that workers who make Boohoo’s clothes are paid properly and work in safe conditions.”
- Martin Buttle, Head of Good Work at investor advocacy non-profit ShareAction, wrote, “We are calling on Boohoo’s investors to commit to holding management accountable in terms of implementing the steps recommended by the Levitt enquiry, and to continually reviewing whether the company’s leadership team are committed to making the necessary changes and acting like a publicly listed company.” He also expressed concern about the narrow scope of the study’s recommendations: “Although the conditions in Leicester are not solely Boohoo’s responsibility to fix, they will need to go significantly further than what is set out in the recommendations if they are to have a supply chain that supports decent jobs that we can all be proud of. The absence in the report of any mention of the importance of working with other stakeholders, such as trade unions, civil society and government, does not inspire much confidence.”
- The Guardian’s Business Leader column questioned whether the report’s recommendations could be implemented effectively while Boohoo’s existing leaders maintained their positions of power: “At this stage, the finger should point at Kamani, as chairman of the board. Indeed, Levitt remarked: ‘As Mahmud Kamani told me, he knows how to sell clothes and leaves it to others to deal with the other aspects of running the company. I have concluded that for too long, Mr Kamani’s priorities have been allowed to dictate company policy.’ … The new plan is to appoint two new non-executive directors and a senior outsider in a non-board role to oversee the clean-up of the supply chain. That’s better than nothing, but outside shareholders should insist on more. Kamani’s 12.5% stake is large, but Boohoo is not a private company. He should stick to the retailing role he knows about and stand down as chairman.”
- As reported by the Financial Times, Liz Kendall, a Member of Parliament from Leicester, wrote a letter calling on Boohoo’s shareholders to “demand a new chair and CEO to lead the changes the company and the people of Leicester desperately need.” The letter also said, “It would make a mockery of any claims to support responsible investing if the same executives who allowed these appalling failures to take place, despite repeated warnings over many years, were kept in place by the shareholders.”