Those up to speed on the latest fashion trends or who have teenage kids, will be familiar with Boohoo, an extremely popular “fast fashion” UK based company.
It has come under public scrutiny, in this case in relation to how they treat their staff. Boohoo is accused of alleged illegal work practices in its supplier operations in Leicester, England.
The claim is textiles workers were being paid 60% less than the UK minimum wage; have to work in cramped conditions with no measures in place to help protect staff from being infected by Covid-19.
In response, Boohoo’s board launched an independent enquiry to look into the matter. So far there have been no convictions, but that hasn’t stopped Next, ASOS, Very.co.uk and Zalando from temporarily dropping Boohoo products from their websites and the share price has lost about a third of its value.
As part of their routine analysis of investable companies, Institutional Investors now focus keenly on Environmental, Social and Governance [ESG] standards and every listed company is assigned an ESG rating.
Researchers found a high number of governance red flags part as part of their ESG scoring analysis on Boohoo, warning them against buying the stock.
- There was a concentration of power and a highly questionable culture in the leadership team.
- There was a continuous process of extracting cash from the business by family/founders. For example, two founders cashed out £150m worth of shares in December 2019
- Excessive and unjustified long-term incentive plans are in place for founders of up to £150m if share price targets were met
- Boohoo decided to remain listed on the smaller companies (AIM) index rather than the main FTSE index which meant their independent audit standards were appropriate for a small company. But Boohoo had reached a £5bn market value making them not only eligible for the FTSE index but they would have been included as one of the top 100 listed companies in the UK by size.
Institutions will consider buying the stock only if they receive clear commitments from the board that governance and social practices will change.