Boohoo directors knew of poor conditions at factories but failed to act fast enough, damning report finds

Business

Top directors at online fashion giant Boohoo knew of the poor treatment of factory workers at its suppliers in Leicester in December last year at the very latest but failed to stem the problems, an independent investigation into poor work practices concluded today.

The investigation found there were health and safety issues that meant “unacceptably poor working conditions” and “a significant risk of a disaster in the future” such as fatal fires.

The report by Alison Levitt QC found senior directors “knew for a fact” that there were “very serious issues” and, while they put a programme in place to remedy it, they did not act quickly enough because they prioritised profit instead.

Her investigation was launched in response to a Sunday Times report that found low pay in a Leicester supplier to the group. Staff were alleged to be getting paid £3.50 at one of its suppliers despite the minimum wage being £8.72. The report was published at the height of the Leicester Covid-19 outbreak and at the time there were claims the garment industry’s working conditions were fuelling the spread of the disease.

Levitt concluded that the reports of poor conditions were “substantially true”. Boohoo capitalised on the profits to be made by an online fashion retailer while the nation was in lockdown but failed to appreciate the “serious risks” the surge in orders could mean for workers making the clothes they sold.

She said a significant number of the factories she had visited had “unacceptably poor working conditions,” adding that employee’s rights were ignored or neglected on a “wide scale” with many getting no proper contracts, no paid holidays or sick pay and excessive hours with inadequate pay.

Such conditions prevail across the majority “if not the entirety” of Boohoo’s Leicester supply chain.

Boohoo’s monitoring of that had been “inadequate for many years”, she concluded, with the in-house compliance team starved of resources and a lack of checks.

She did not, however, find any evidence of criminality or that Boohoo’s actions had caused an increase in Covid rates in the city.

Levitt, whose investigation had been criticised for being too narrow, found Boohoo had failed to pay enough attention to the activities of its suppliers in Leicester because the workers there were not directly employed by the company.

Allegations of poor working conditions and low pay were “not merely well-founded by substantially true,” she said, adding: “Boohoo’s monitoring of its Leicester supply chain was inadequate and this was attributable to weak corporate governance.”

Levitt also said some Boohoo witnesses had become increasingly reluctant to cooperate with her inquiry. “As the weeks passed I noticed a marked reduction in enthusiasm for giving me anything I asked for.” That culminated in the board refusing to allow auditor Grant Thornton access to the board’s emails.

She said the “lack of candour” was important because “if Boohoo is not prepared to take a long hard look at itself then the long-term prospects are bleak.”

In a finding that could open the door to litigation from shareholders who suffered a large fall in the company’s share price as a result of the Sunday Times exposee, she said the board had failed to acknowledge that responsibility for the supply chain was part of their duty to look after the interests of investors.

She said the directors had found it hard to stand up to chairman and founder Mahmud Kamani, who still ran the business like a family company rather than the large PLC it had become.

Boohoo had failed to look out for their supply chain workers “because they are largely invisible to them,” she said. “It is hard for people to empathise with the plight of those of whom they know little.”

The breakdown in working conditions were caused by four key factors:

::Boohoo’s governance process had failed to keep up with its rapid growth

::It focused on growing sales at the expense of its other obligations as a large company

::It did not feel responsible for conditions at its Leicester factories “other than a superficial level”

::It failed sometimes to appreciate the responsibilities that come with the advantages of being a large PLC

Levitt, whose costs were paid by Boohoo, spent large portions of her report praising Boohoo’s potential to be a “force for good” but said of the company founded in 2006: “It is time for Boohoo to come of age.”

Her report cleared Boohoo of committing the crimes of modern slavery.

It also cleared the company of committing moneylaundering offences under the Proceeds of Crime Act by continuing to work with suppliers it knew were breaking labour laws after being told of appalling conditions by factory auditor Verisio.

Boohoo was founded by fashion industry tycoons Mahmud Kamani and Carol Kane who first worked together at Kamani’s business Pinstripe in 1993 where they supplied big retailers including New Look and Primark. Critics have said their lengthy experience in the industry meant they should have realised the dangers of ill-treatment of staff.

Describing the corporate governance culture at the business, Levitt pointed out that the company had controversially approved a £100 million potential pay deal for its two co-founders and £50 million to other executives.

She cited evidence from former chairman Peter Williams who said that, despite its being a stock exchange listed company, Boohoo was still run as if it was “a family company belonging to the Kamanis rather than a publicly-listed corporate”. Williams, an experienced retailer at Asos and Selfridges, had been replaced by Kamani.

Levitt said directors had given strikingly different explanations about how the supply chain in Leicester worked, highlighting how remote they were from the complex network of manufacturers, designers and pattern cutters.

For example, she said it could have around 500 suppliers but “the truth is that Boohoo does not know with any degree of certainty” how many suppliers it has.

Leicester textile industry work practices have come under repeated scrutiny over at least 10 years, with two Channel 4 Dispatches programmes, a University of Leicester investigation, two parliamentary reports, a Financial Times probe and a Labour Behind the Label report all preceding the Sunday Times investigation. Yet low wages and poor working conditions for the vulnerable, often poorly educated workers continues, and Boohoo is by far the biggest customer of the city’s factories.