Worker Exploitation: Leicester Textile Industry

Debate between Liz Kendall and Philip Hollobone

Wednesday 18th November 2020 Westminster Hall

[Liz Kendall]

My hon. Friend makes an extremely good point. This issue does not just affect the workers in this industry. It does not just affect those of us who have pensions that are invested in these companies. It also affects us as consumers, which is why it is so important that we get this right.

There have been long-standing and serious problems with workers being exploited in some textile factories in Leicester. In the last five years alone, they have been highlighted by the University of Leicester, the BBC’s “Dispatches” programme, the Financial Times and the Environmental Audit Committee. Many, although not all, of these appalling cases had been in the supply chain of fashion retailer Boohoo. The latest issues were exposed by The Sunday Times in July. Following those revelations, Boohoo finally commissioned a review into the supply chain, carried out by Alison Levitt, QC. The findings of this review, published in September, were utterly damning.

Ms Levitt found that repeated allegations of unacceptable working conditions and illegal underpayment of workers were

“not only well-founded, but substantially true”—

something that Boohoo had denied or downplayed for many years, which I know personally from my meetings with the chief executive and director of sustainability. The review found that a significant number of Boohoo’s suppliers and subcontractors had been paying their employees less than the national minimum wage and had serious health and safety violations, including the risk of fire that could lead to loss of life, and that employees’ rights had been 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.”

Ms Levitt says that Boohoo’s monitoring of its supply chain has been “inadequate” for many years, and that is down to “weak corporate governance”. She says:

“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.”

From March 2019, Boohoo knew there were problems in their supply chain, and,

“By December 2019, at the latest, senior members of the Boohoo Board knew for a fact that there were some serious examples of unacceptable working conditions and poor treatment of workers (including illegally low pay).”

Despite all that, in late June 2020, astonishingly, Boohoo unveiled a plan to pay bonuses of up to £100 million to its two co-founders, Mahmud Kamani and Carol Kane, and £50 million to its other senior executives.

Ms Levitt says that when the covid-19 pandemic struck,

“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 that that 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.”

An under-reported part of the review relates to the behaviour of Boohoo’s chief executive, John Lyttle, and the executive chairman and co-founder Mahmud Kamani. Ms Levitt questions why John Lyttle failed on three occasions to tell her about an email that identified extremely serious health and safety concerns in Leicester supply chain. She says:

“It was my view that, given that John Lyttle could not possibly have forgotten this, his failure to tell me about it was significant.”

Ms Levitt highlights Mr Kamani’s “lack of knowledge” or even “interest” in reports by Boohoo’s internal auditor about problems in the Leicester supply chain or the checks carried out by their independent auditor, Verisio. Significantly, she says that

“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.”

She 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.”

I am going through this in so much detail because it beggars belief that the very people who denied and brushed aside this appalling exploitation are still in place and, far from suffering any penalties as a result of their failures, have instead given themselves a huge pay cheque. Hiring independent directors, however good they may be, will not solve fundamental governance weaknesses where boards are still in the power of an all-powerful founder chairman, as others have rightly said today.

Boohoo is still failing to take sufficient action and fobbing people off with warm words. It promised to implement all the recommendations of the Levitt review, but to take just one example, I have repeatedly asked Boohoo to send me its emergency plan for a second national lockdown and to spell out exactly how many people are now physically inspecting the factories in its supply chain—a key recommendation of the Levitt review—but I cannot get any clear answers. This is a serious question for the chief executive, the executive chair and other members of the Boohoo board. It is a serious question for Boohoo shareholders, too, because shareholders have a responsibility for the companies that they own, and fund managers should be held to account for their promises to champion responsible investing and environmental, social and governance—so-called ESG—issues.

Following publication of the Levitt review, I wrote to all of Boohoo’s major shareholders to ask what action they were taking as a result of what I think is one of the worst ESG scandals in modern UK history. I said that I did not think that those who had turned a blind eye to these problems over many years were the right people to take the company forward. To be clear, the executive chairman and the chief executive officer should be removed.

The response has so far been extremely disappointing, to say the least, save for the notable exception of that from Standard Life Aberdeen. Of those shareholders that have replied, Jupiter Fund Management has told me that it is in “close dialogue” with Boohoo. Fidelity Investments claims that it has had “positive engagement”. Invesco also says that it is “engaging”. And BlackRock says that it is

“following the situation with the company closely”.

None, however, has changed any of its actual investment decisions. That makes a total mockery of their promises and claims to champion responsible investment. This matters, because these are the companies that manage the retirement savings of millions of ordinary Britons.

In contrast, Standard Life Aberdeen has sold all the shares that it owned in Boohoo, because of the company’s failure to take proper action. It told me that it had over time made specific demands of the company to improve its supply chain practices and management. It met regularly with the company to monitor progress. It demanded an extension of the audits carried out on the company’s UK supply base and said that Boohoo should engage with industry-led supply chain initiatives. It said that its patience with the company’s response on these issues had been diminishing during all of last year, that that patience finally evaporated in the summer, when the allegations by The Sunday Times were published, and that that was why it took the decision to sell its remaining shares. Standard Life Aberdeen also told me that it voted against the appallingly hubristic pay package for the co-founders and senior executives when it was introduced at Boohoo’s 2019 annual general meeting.

Standard Life Aberdeen is to be applauded for its decisions, because fund managers need to champion responsible investing—not as the latest marketing gimmick, but because they intend to drive real change. Otherwise it is all just warm words and not worth the paper, or website, it is written on.

Let me turn finally to the role of Government. Although most of Ms Levitt’s review focuses on Boohoo, she makes it clear that inaction by Government has also contributed significantly to the problems of worker exploitation in the textile industry in Leicester. She 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.”

I think Ms Levitt is right, yet over the last decade the very bodies responsible for tackling worker exploitation and enforcing workers’ rights have faced considerable budget cuts from this Government, which has significantly reduced their capacity for inspection and enforcement. For example, Her Majesty’s Revenue and Customs, responsible for enforcing the national minimum wage, has seen its budget cut by 17%, and the Health and Safety Executive has seen its budget cut by a staggering 46%. The HSE was also explicitly told by the Government to reduce its proactive inspections in the textile industry by a third, because Ministers wrongly considered this sector low risk. On top of this, Ministers have refused to implement recommendations from key reports such as the Environmental Audit Committee’s “Fixing fashion” report, which made some really important proposals, especially about improving supply chain transparency. The Government have also been far too slow in sorting out the mess of different regulatory bodies involved in this area.

Ministers proposed a new single enforcement body almost two years ago, but we have yet to see a response to the consultation on that important change, let alone the Government’s actual proposals. There are lots of important questions about this body that need to be answered: how much of a local presence it will have, how much it will engage with the local community and trade unions, what kind of sectoral expertise it will have, and what its enforcement powers will be. The Minister will know, as I met him to discuss this yesterday, that I think there is much that could be learned from the work being done by Leicester City Council as the Government develop their proposals for the single enforcement body.

Although local authorities have no powers to check on working conditions inside a building, enforce the minimum wage, or monitor the legality of the workforce, Leicester City Council has nevertheless been working hard to do what it can within the current framework and legislation. It has appointed a co-ordinator to bring the various national enforcement agencies together to improve intelligence sharing and enforcement—the very first post of its kind in the country. The city council is working closely with trade unions, local community and voluntary groups, the citizens advice bureau and Crimestoppers to raise awareness about the problems, better engage with employees, and give exploited workers the courage to speak out, because we know the fundamental problem is that many people are too scared to say what is really happening.

The council is also proactively helping the textile industry modernise by providing bespoke business advice, holding training sessions with factories and supporting businesses with nearly £600,000 of grant financing, for new equipment in particular. It is also investing £200,000 into setting up a new skills and training centre for the textile sector, and seeking investment and support from the industry and others.

Before I finish, I particularly want to emphasise to the Minister the importance of working with trade unions to support the positive changes we need. If we want greater openness and transparency, if we want a partnership between employers and employees to improve workplace safety and standards, and if we want all workers to have the courage and confidence to speak out, we must increase union representation in the textile industry. I hope that when the Minister speaks he will commit to working on these issues with trade unions such as Community and the GMB, because this is a critical issue for the future.

In conclusion, the responsibility for tackling worker exploitation in the textile industry—not just in Leicester but across the country—lies with the boards of textile companies and fashion retailers, with the shareholders of those companies and with the Government. Action is required by all three to end exploitation and ensure that not only Leicester’s but the entire country’s textile industry improves its standards and has an ethical, productive and sustainable future. I hope the Minister agrees, and look forward to hearing his response.

[Mr Philip Hollobone (in the Chair)]

The debate can last until 11.30 am.