Boohoo : The annex to Sir Brian Leveson’s final report

Report to the Board: February 2022

Annex B: The Levitt Recommendations

Introduction

1. On 25 September 2020, the day after the final open report of the Independent Review conducted by Alison Levitt QC into had been received, it was published by boohoo. Although set out in the Review and in my first Report of January 2021, for the sake of completeness it is worth repeating the extensive quotation from the introduction which was in these terms:

"There is much to like and admire about Boohoo. The entrepreneurial talent which led Mahmud Kamani and Carol Kane to start this hugely successful company has been the engine for the creation of many jobs at its Manchester Headquarters and its Burnley distribution centre. Both Board members and employees have emphasised that they regard the Boohoo workforce as "family" and those to whom I have spoken all plainly felt proud of working for Boohoo. The Manchester Headquarters, which I and my team visited on 22nd July 2020, felt vibrant and energetic in spite of the social distancing restrictions imposed on workplaces as a result of the coronavirus pandemic.

"It is not without value that Boohoo has helped to democratise fashion. Whilst I am conscious of, and respect, the view that inexpensive clothes have an unacceptable environmental impact, it should be recognised that Boohoo's business model means that young people of modest means can now afford to wear clothes that would in the past have been beyond their reach.

"Boohoo should also be congratulated for the revenue it has generated for the UK and for the fact that, unlike many of its competitors, it has continued to support UK manufacturing, particularly in Leicester.

"The question is: at what cost? …

"The evidence I have seen has been sufficient for me to answer the questions, but it has also allowed me to reach some more general conclusions about Boohoo, which I hope the company will receive in the constructive spirit in which they are offered.

"It is my view that:

1. Boohoo's extraordinary commercial growth has been so fast that its governance processes have failed to keep pace;
2. It has concentrated on revenue generation sometimes at the expense of the other, equally important, obligations which large corporate entities have;
3. It has not felt responsible for conditions in the Leicester factories on anything other than a superficial level; and
4. 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.

"That being said, I have seen material showing that, following the publication of the Sunday Times article, Boohoo's Chief Executive, John Lyttle, and other Board members spoke privately but with passion about the importance of leaving "no stone unturned" in this investigation and their commitment to being "a good corporate citizen".

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"The problems in Leicester are complex and of long-standing and Boohoo is not solely to blame; others too are responsible for not having gripped this over many years. It has been alleged that Boohoo's business model is dependent on the profits which can be made from the deliberate exploitation of the Leicester supply chain, safe in the knowledge that there will be little scrutiny. I do not accept this; I am satisfied that there are sound legitimate business reasons for Boohoo using Leicester to manufacture clothing but for this to be the case going forwards it may require a change of approach, not least in terms of how Boohoo educates and trains its buyers.

"I have reached the conclusion that the true reason that Boohoo did not become more involved in monitoring conditions in Leicester was that it saw it as being a lower priority than matters which directly affected the company (such as commercial issues or their own employees). The Leicester workers are not employed by them and so they are not their responsibility in the way that their own workforce is. To some extent this is understandable, but can lead to serious issues of the kind which Boohoo is now facing."

2. It is also worthwhile repeating her findings, expressed in summary in these terms:

"(1) There is no evidence that the company itself or its officers have committed any criminal offences;

1. 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;
2. Boohoo's monitoring of its Leicester supply chain was inadequate and this was attributable to weak corporate governance;
3. 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;
4. 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.

"I should make it clear that there is ample evidence that the steps which Boohoo is now taking in relation to remedying problems in its Leicester supply chain had been embarked on nearly a year ago. They were a product of processes it had itself put in place and not just a reaction to the negative publicity in July and August 2020".

3. When publishing the report, boohoo expressed its intention to implement the recommendations contained in the Levitt Review in full. In its most comprehensive, the recommendations are to be found in Chapter 10 ('An Agenda for Change') which, for a reason that is not explained, start at paragraph (hereafter #) 181. I shall refer to these numbers throughout. Thus #28 required:

Within three months Boohoo should appoint an individual to provide independent oversight of the implementation of this change agenda. This person should not be a Director of Boohoo, rather it should be a man or woman of standing in whose independence the market and the public can have confidence. Their appointment should be announced publicly together with their Terms of Reference, which should include a regular update to the Board on progress against this agenda.

1 See the Review page 222

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I was appointed on 28 November 2020: the conditions which I required are set out in the Report. In addition, KPMG were also appointed to bring (in the words of the Group Chairman) "independent oversight, additional expertise and further transparency to a programme that will help us on our journey to lead the fashion e-commerce market globally in a transparent manner". Thus, this recommendation was satisfied.

1. As the Agenda for Change comes to an end (moving into business as usual) and as my oversight and the advice and present input provided by KPMG also comes to an end, it is appropriate to reflect back on the recommendations: the time frame in the headings was that provided in the Review. Each recommendation has been the subject of validation by KPMG and reviewed by me; I have also been involved in the resolution of such issues as have arisen. When boohoo was looking for expert assistance, at least one management consultant believed that the programme would take 5 years. In fact, in the 17 months that have elapsed, almost all have been completed; the remaining few (identified below) are in progress and it is a real testament to all at boohoo that so much has in fact been achieved. In that regard, both throughout the entire exercise and especially in connection with this review, I must repeat the tribute to KPMG without whose perceptive input and validation work I would not have been able effectively to oversee this programme.
2. That is not to say that the end of the road is near. As I have observed more than once, this is not the beginning of the end but the end of the beginning. The challenge for boohoo will be the same as that faced by every organisation undertaking a transformation agenda: that is to maintain the impetus and determination to maintain the new processes as the programme ceases and those involved move on to new challenges. Whatever has been achieved to date will only remain in place as long as those charged with running 'business as usual' keep an eye on ensuring that learning continues and new standards enforced.
3. One further introductory point needs to be made. As systems were designed with an eye to some of the recommendations, it became apparent that the phraseology did not always meet boohoo's business approach. In those cases, the recommendations have been
   'adapted' or modified to do so: this has been done without altering the fundamental thrust or root cause of the recommendation and each adaptation has been put to the Board and has been approved.

The Recommendations

IMMEDIATE ACTION (within 6 months)

#18. Boohoo has been 'mapping' its supply chain for over a year. The time has come to bring this process to a conclusion. Within six months Boohoo should reduce its approved suppliers to a list which contains a manageable number of companies, ideally without reducing capacity. The methodology for the selection process should be predicated on the goal of reducing and ultimately eliminating sub-contracting. Criteria should include prioritising:

1. The largest suppliers and sub-contractors by volume;
2. Those who have passed the Verisio spot checks or which have only minor contraventions;

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iii. For Tier 1, those which have a manufacturing as well as a design capability

iv.

1. 1. Promoting as many Tier 2 companies to Tier 1 as is possible (in other words to ensure that there is a direct contractual relationships where this can be achieved).
2. The purpose of this recommendation was that boohoo should map its supply chain and consolidate the supplier list to a manageable number. In consequence, boohoo undertook a project to identify all of its Tier 1 and Tier 2 manufacturing suppliers in the UK with suppliers required to bring their Cut Make and Trim (CMT) facilities in house. As is clear from the UK Manufacturing Supplier list published on 25 March 2021, the supplier list was consolidated to 78 suppliers including CMT facilities brought in house.
3. A similar exercise was undertaken for the rest of the world and a further supplier list published on 27 September 2021. Both lists have been subsequently amended as new manufacturers are on-boarded and others moved off the list. This recommendation has been met.

#19. Boohoo should invite suppliers which they have not previously used but which have a track record of ethical and sustainability policies to apply to be included on the list, subject to the onboarding process set out below.

1. Until the Supplier Hub is fully operational, a process for onboarding was devised whereby the Group Director for Responsible Sourcing and Product Operations listed a number of potential suppliers based on prior experience and knowledge of the market. A short list was then drawn up with the key criteria being the existence of a valid spot check report from an independent body or a similar check from Verisio or Bureau Veritas (performing audits for boohoo). Those identified were then invited to be onboarded. This process was reported through to the Supply Chain Compliance Committee as working 'extremely well'.
2. Other manufacturers have also been onboarded over the following months again following a robust system. This recommendation has therefore been met; the process will be replaced when the Supplier Hub is in operational with effect from 21 February 2022.

#20. Boohoo should commit to publishing the refreshed list of Tier 1 suppliers and Tier 2 subcontractors as soon as possible and in any event within six months of the delivery of my report.

11. The Review was concerned with Leicester alone but the recommendation was taken as applying to the UK Manufacturing Supplier list which was published on 25 March 2021 after which, on 27 September 2021, a Manufacturing Supplier list for the Rest of the World was also published. This recommendation has therefore been met.

#21. In the interests of transparency, Boohoo should commit to publishing its list of suppliers and sub-contractors annually.

12. The Manufacturing Supplier list is dynamic, changing as manufacturing suppliers are included and others removed. The boohoo plc website has been updated and there is a

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commitment to publish an updated supply chain every six months. This recommendation has been met.

#22. Those companies which do not make inclusion on the list should be written to and told what they will need to do to become eligible for consideration as a boohoo Group supplier or subcontractor in the future.

13. The concern was expressed that if the decision to exit a supplier has been made on the basis that the supplier does not meet pre-defined standards, boohoo does not feel it appropriate to advise suppliers how to become eligible or necessarily to onboard in the future: to share the information could open the process to potential abuse. The introduction of additional resources in the compliance team and the clear articulation in the Code of Conduct of the expectations of suppliers address this concern. This deviation and its reasoning was placed before the Board which approved it. As a result no further action needs to be taken in relation to it.

#23. Within six months Boohoo should contact all suppliers and sub-contractors on the refreshed list and inform them of the following.

1. There are six essential parameters for passing spot checks and audits,

namely:

1. 1. Payment of the minimum wage
   2. Proof of working hours
   3. Right to work documentation
   4. Health and safety, with fire safety and COVID-19 risks prioritised
   5. No unauthorised sub-contracting (to include both sub-contracting without Boohoo's knowledge as well as to non-approved companies)
   6. A new requirement of keeping a copy of all essential paperwork on the premises available for immediate inspection by auditors and in-house compliance team.
2. The parameters are now clearly categorised as zero-tolerance, critical, major and minor (the compliance team should decide the categorisation within each parameter).
3. The onus is on the supplier to show that they have complied, not on Boohoo to show that they have not. If there is insufficient evidence for a supplier to show compliance with a particular measure, this will be recorded as a 'fail' and appropriate measures taken.
4. The letter should set out in clear and simple terms the sanctions for failing a spot check or an audit, by reference to the categories of zero-tolerance etc.

14. The purpose of this recommendation was to ensure that suppliers were made aware of the minimum standards of conduct and operations in the supply chain along with the procedure which would be followed if they did not meet these minimum standards. The supply chain process map has been enhanced to include a procedure for dealing with the

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