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Boohoo’s largest external shareholder, Jupiter Fund Management, has rejected MPs’ call for Mahmud Kamani to step down as an executive director. This follows an independent review which revealed illegally low pay and life-threatening conditions for the factory workers making its clothes. PricewaterhouseCooper LLP (PwC) also stepped down as auditor this month after six years of working with the fashion retailer. PwC declined to comment on its motive for ending its relationship with the family run business.
In July an independent investigation led by Alison Levitt, a senior lawyer and former principal legal adviser to the Crown Prosecution Service, was launched by Boohoo, following concerns by investors and customers about the treatment of its workers. Levitt stated that ‘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.’ The review found poor working conditions in factories in Leicester, including ‘serious health and safety violations’ and underpayment of staff which contributed to employees’ rights being ‘ignored and/or neglected on a wide scale’. Home Secretary Priti Patel also implored Boohoo to work with suppliers and ensure better protection for vulnerable workers. For more information, see: Boohoo questioned on whether it is doing enough.
Since then, Boohoo has promised to change its practices including a move to publish a full list of companies in its supply chain, reducing the number of factories it relies on, and using new, ethical suppliers. However, it was reported in October that the National Crime Agency is further investigating some of the £4bn fast fashion firm’s suppliers. Despite this, Jupiter Fund Management wrote to Leicester MP Liz Kendall, stating that the group had ‘significantly escalated’ its engagement with Boohoo’s board, in response to Kendall’s urge for shareholders to ‘demand’ new senior directors following ‘appalling failures’. The major external shareholder justified its position with the reassurance of Boohoo’s recent responsive measures, but warned that ‘more needs to be done’ to improve corporate governance.
PwC has certainly not followed suit in supporting the major AIM company. In Boohoo’s announcement, it stated ‘PwC signed an unqualified opinion on the Group's 2020 Financial Statements and having served as the Group's auditor since 2014, is not participating in this process.’ The auditor’s decision led the share price to drop by a fifth to 254p. Kamani, co-founder and executive chairman, bagged a further 300,000 shares, less than a day after confirming PwC’s intentions, at an average price of 243.07p per share. Kamani is now the largest shareholder with a 12.6% stake in the company. This is not the first time that Kamani has been subject to potentially huge benefits from the company, after his maximum bonus opportunity of up to 200% was revealed in this year’s annual report. For more information on Boohoo’s remuneration report and 2020 AGM results, see: Price tag on remuneration reports cause for shareholder opposition.
Boohoo stated last week that it had ‘launched a competitive tender process for the Group's audit, and will update shareholders at its conclusion.’ After the previous auditor’s departure, a replacement may risk its reputation in deciding to engage with a company that is struggling to convince stakeholders of its commitment to certain corporate social responsibility issues.
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