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Written Evidence submitted by Liz Kendall, MP for West Executive Summary

 In 2019, the Environmental Audit Committee’s “Fixing Fashion” report highlighted evidence of serious worker exploitation and illegally low pay in the garment industry in Leicester. It made specific reference to the conduct of the retailer Boohoo and set out important recommendations for the Government and fashion retailers.  Since the publication of the EAC’s report, Alison Levitt QC’s “Independent Review into the Boohoo Group PLC’s Leicester supply chain”1 has revealed further damning evidence of worker exploitation including the failure to pay the national minimum wage; serious health and safety violations, including the risk of fire that could lead to loss of life; and employees rights being ignored and neglected on a wide scale. The Review concludes that these problems are “endemic” and “exist across the best part if not the entirety of Boohoo’s Leicester supply chain.”  Despite this, in late June 2020 Boohoo unveiled a plan to pay bonuses of up to £100m to its two co-founders, Mahmud Kamani and Carole Kane, and £50m to its other senior executives.  Shareholders have a responsibility for the companies they own, and fund managers should be held to account for their promises to champion “responsible investing”, high ethical standards and ESG (Environment, Social and Governance). However, most of Boohoo’s major shareholders have failed to take any action or change any of their investment decisions following the Levitt Review.  The Government rejected the recommendations of the last EAC report. Alison Levitt’s Review makes clear that inaction by Government has contributed significantly to the problems of worker exploitation in the textile industry. It concludes: “Legislation is not merely a system for regulating society but also the mechanism by which society’s values and priorities are communicated. If the law is not enforced, this sends a clear message that the violations are not important and the people affected do not matter.”  Although local government does not have enforcement powers where factories are concerned, Leicester City Council has been working hard to try and bring together the work of the various different enforcement and regulatory bodies to share information and to push for more effective enforcement action. The Government should learn lessons from the work that is being done in Leicester as it develops its proposals for a Single Enforcement Body, which will be part of the Employment Bill that is due to be introduced next year. 1. Boohoo – worker exploitation in Leicester Earlier this year, Boohoo commissioned a review of its UK supply chain after yet another report on unacceptable working conditions and underpayment of workers in factories making clothes for the company, published on 5th July 2020 by newspaper.

1 https://www.boohooplc.com/sites/boohoo-corp/files/final-report-open-version-24.9.2020.pdf FFFU0013

The “Independent Review into the Boohoo Group PLC’s Leicester supply chain”, which was conducted by Alison Levitt QC, found that repeated allegations of unacceptable working conditions and underpayment of workers were not only well founded but substantially true. These include a significant number of suppliers and subcontractors paying their employees less than the national minimum wage; serious health and safety violations, including the risk of fire that could lead to loss of life; and employees rights being ignored and neglected on a wide scale. It concludes that these problems are “endemic” and “exist across the best part if not the entirety of Boohoo’s Leicester supply chain.” The review makes clear that “Boohoo’s monitoring of its Leicester Supply chain has been inadequate for many years. Its internal processes were well below the standard which would be expected for a company of its size and status.” The review says this was “attributable to weak corporate governance… Commercial concerns such as growth and profit were prioritised in a way which made substantial areas of risk all but invisible at the most senior level.” Ms Levitt says that “from, at the latest, March 2019, Boohoo realised that there were problems with the Leicester supply chain” and that “by December 2019 at the latest, senior members of the Boohoo Board knew for a fact (her emphasis) there were serious examples of unacceptable working conditions and poor treatment of workers including illegally low pay.” Whilst some steps were taken by the company “there was insufficient sense of urgency, particularly from late December 2019 onwards.” Despite all of this, in late June 2020 Boohoo unveiled a plan to pay bonuses of up to £100m to its two cofounders, Mahmud Kamani and Carole Kane, and £50m to other executives. Regarding the impact of the Coronavirus pandemic on the supply chain in Leicester, Ms Levitt says: “Boohoo was quick to take advantage of the commercial opportunities afforded by the increase in demand during the pandemic” but that “at no point was any assessment made as to how the Leicester workforce was to cope with the increased volume of orders”. She rightly concludes this was “inexcusable” and that “in truth Boohoo has not felt any real sense of responsibility for the factory workers in Leicester… because they are largely invisible to them.” One of the under-reported findings of the review relates to the willingness of senior members of the company to provide evidence to Ms Levitt. Ms Levitt notes “I have been surprised by the degree of difficulty we have had in getting them to provide material for which we asked.” She further comments “As the weeks passed, I noticed a marked reduction in enthusiasm for giving me anything I asked for, which culminated in the refusal to allow Grant Thornton to have access to the emails of the Board.” Ms Levitt questions why Boohoo’s Chief Executive John Lyttle failed – on three occasions - to tell her about an email from Leon Reed, the Managing Director of Verisio (appointed by Boohoo to carry out sample audit work in Leicester in 2019 and 2020), which identified extremely serious health and safety concerns about a factory in Leicester, and a subsequent visit by senior members of the Boohoo team. Ms Levitt says “Somewhat to my surprise John Lyttle did not tell me about the Leon Reed email or the visit to Leicester… It was my view, FFFU0013

given that John Lyttle could not possibly have forgotten this, his failure to tell me about it was significant.” Ms Levitt also raises concerns about the attitude of Boohoo’s Executive Chairman, Mahmud Kamani. She highlights his lack of knowledge or even interest in a report by Boohoo’s internal auditor about problems in the Leicester supply chain, or the checks carried out by Verisio. Significantly, she says “the Board has found it difficult to stand up to the current Chairman and to ensure that the best interests of all the shareholders are acted upon” and concludes that “for too long, Mr Kamani’s priorities have been allowed to dictate company policy.” Perhaps Ms Levitt’s most striking finding is that “No member of the Board I interviewed mentioned that the responsibility for what is happening in the supply chain derived from the duty of the company’s officers to act in the best interests of all the shareholders.” She also highlights “the failure of the company to grasp that their responsibility for the factory workers does not derive from a nebulous ‘moral duty’ but from their obligations as officers of the company.” 2. Inaction by Boohoo’s shareholders Shareholders have a responsibility for the companies they own, and fund managers should be held to account for their promises to champion “responsible investing”, high ethical standards and ESG (Environment, Social and Governance). Following the publication of the Levitt Review I therefore wrote to all of Boohoo’s major shareholders to ask what action they are taking as a result of one of the worst ESG scandals of modern times. The result has so far been extremely disappointing, save for that of Standard Life Aberdeen. Of those shareholders who have replied, Jupiter Fund Management told me they are in “close dialogue” with Boohoo, Fidelity Investments claim they have had “positive engagement”, Invesco also says they are “engaging”, and Blackrock says they are “following the situation with the company closely”. However, none of these shareholders have actually taken any action or changed any of their investment decisions, despite the appalling failures of the company and repeated warnings over many years. In contrast, Standard Life Aberdeen have now sold the shares they owned in Boohoo due to the lack of the company had made on these issues. They told me: “We had over time made specific demands of the company to improve its supply chain practices and management and met regularly with them to monitor progress. In particular, we demanded an extension to the audits being carried out on the company’s UK supply base and that Boohoo should engage with additional industry-led supply chain initiatives. Our patience with the company’s response on the issue had been diminishing during the last year. That patience evaporated this summer with the company’s response to the media allegations and that is why we took the decision to sell our remaining shareholding.” Standard Life FFFU0013

Aberdeen emphasised to me that ‘to reach the situation where we sell a complete shareholding is a reasonably rare occurrence’. 3. Wider Enforcement Issues As members of the committee will be aware, the Government rejected the recommendations of the “Fixing Fashion” report. Alison Levitt’s Review into the Boohoo supply chain makes clear that inaction by government has contributed significantly to the problems of worker exploitation in the textile industry in Leicester. The review rightly concludes: “Legislation is not merely a system for regulating society but also the mechanism by which society’s values and priorities are communicated. If the law is not enforced, this sends a clear message that the violations are not important and the people affected do not matter.” Local government does not have enforcement powers where factories are concerned. However, Leicester City Council (LCC) has nevertheless been working hard to try and bring together the work of the various different enforcement and regulatory bodies to share information and to push for more effective enforcement action. These include the Gangmasters and Labour Abuse Authority, HMRC, the Health and Safety Executive and the Employment Agency Standards Inspectorate. In addition, LCC is working closely with trade unions, and local community and voluntary groups to better engage with employees and give exploited workers the courage to speak out and report problems. The Council is also supporting a range of approaches to boost positive, ethical growth in the textile industry in Leicester including holding workshops with local manufacturers, introducing business support programmes, and developing a skills and training centre for employers and employees. I believe there is much to be learnt from the work being done in Leicester as the Government seeks to develop its own plans for a Single Enforcement Body, which I understand will be part of the Employment Bill that is due to be introduced next year. 4. Conclusion Ms Levitt QC’s review found clear and unequivocal evidence that Boohoo failed to take decisive and meaningful action following the EAC’s Fixing Fashion report last year. There have been multiple serious failings in the way the company monitors its supply chain, weak internal processes and inexcusable failures in its corporate governance. Members of the Boohoo Board were aware of serious examples of unacceptable working conditions and poor treatment of workers including illegally low pay but did not act to address these issues with any real urgency. The company, and its senior executives, have continued to be resistant to change even after these issues were repeatedly brought to the fore. The majority of Boohoos shareholders have also failed to take action. This makes a mockery of any of claims to support responsible investing and high ethical standards. FFFU0013

The Government has also failed to take the necessary action to tackle worker exploitation and to improve monitoring, regulation and enforcement in the textile industry. However, Leicester City Council has been working hard to address these problems locally, and there is much that could be learnt from their approach. November 2020