The decision of one of Boohoo’s biggest shareholders to dump its stake in response to allegations that the fashion chain uses sweatshop labour sends a powerful message.
Standard Life Aberdeen, which was among its biggest investors, exited with a devastating assessment, labelling the company’s response “inadequate in scope, timeliness and gravity”. Having denied the accusations and hired top QC Alison Levitt to audit its supply chain, those words of condemnation will have stung.
Still, before Standard Life is hailed as a brave campaigner for workers’ rights some perspective is needed. Yes, it shows that big shareholders with strong environmental, social and governance mandates are prepared to put their money where their mouth is but come on, the fund manager had been on Boohoo’s shareholder register for six years so why has it taken this long to speak out? Why have other big shareholders such as Legal & General Investment Management, Man Group and JP Morgan not followed suit?
Concerns about Leicester’s clothing factories are so long standing that they pre-date the new generation of fast-fashion labels. Channel 4’s Dispatches programme reported “appalling conditions” back in 2010 at sites making clothes for established chains such as BHS, New Look and C&A.
Then in February 2015, a University of Leicester investigation found that the majority of the city’s 11,700 garment workers were earning way below national minimum wage. It described “a ‘new’ apparel manufacturing industry” characterised by “very small margins, relatively small but numerous orders and fast turnaround times”. Fast fashion had taken over.
In 2017, after returning to Leicester’s clothing trade, Dispatches accused River Island, New Look, Boohoo and Missguided of paying workers less than half the minimum wage.
That same year, MPs on the human rights committee claimed there was an “epidemic” of workers being poorly treated, and in 2019 the parliamentary environmental audit committee said factories were still “breaking the law to maximise profits”.
So where was Standard Life then? Indeed, how did it come to own shares in Boohoo in the first place? The investor says the retailer passed its ethical screening when it first invested in 2014, which raises questions about how rigorous those tests were. It also insists that it has repeatedly lobbied management in private in the years since, and therein lies a big part of the problem.
The fund management industry prefers to operate behind the scenes, pressing for change discreetly, but too often this softly-softly approach is ineffective.
The City has been “engaging” on executive pay for as long as I can remember and look at the results: bosses are earning more than ever, including at Boohoo where the board saw fit to introduce a new £150m bumper bonus scheme at a time when companies are expected to show solidarity with the rest of the workforce.
As activist Sir Chris Hohn said at the weekend, a gentlemanly tap on the shoulder is easy to ignore. Besides, shareholders are more inclined to look the other way when the share price is only going up, and few stocks had risen like Boohoo’s in recent years.
On the other hand, Hohn and other activists have shown what happens when investors make a noise – companies are forced to act – yet most fund managers are still only paying lip service to ESG issues.
A taste of what is to come?
Itsu has joined the growing queue of restaurant chains considering insolvency. It’s a shame, and not just because it means one less decent place to buy lunch when I start writing from The Daily Telegraph’s offices in Victoria, London, again.
The high street is far more than just retail. It is food, drink, and leisure too, and in recent years the tide of closures has been held back by a proliferation of dining chains snapping up vacated premises.
But the retreat is already firmly under way, and not just because Covid-19 has decimated footfall. The pandemic is merely the final blow to a sector that got fat on private equity backing, cheap bank debt and low rents. Even in the good times there are only so many middling burger, pizza and sandwich chains the world needs.
The Chancellor’s innovative meal voucher scheme will be a lifeline to many, but will come too late to save those that left themselves overstretched.
Finding businesses to take on empty properties, especially in places like central London where commuter and tourism numbers have fallen off a cliff, will be one of the biggest challenges of this crisis.
Halfords hits the brakes
Halfords has reaped the rewards of being declared an essential retailer during lockdown. In the current circumstances, flat turnover and only a slight fall in profits for the year to the end of April should be considered a great result. As is news that first-quarter sales are only slightly down on the previous year.
So its decision to push ahead with plans to close 60 stores and garages is bitterly disappointing.