Boohoo : Sir Brian Leveson’s second report to the boohoo Board

boohoo group plc

Report to the Board: March 2021 The Rt. Hon. Sir Brian Leveson

• 1. On 6 January 2021, I published my first report to the Board of the boohoo group plc ('boohoo' or 'the Group') following my appointment to provide independent oversight of the Group's Agenda for Change Programme (identified by the acronym 'A4C'). The report was a transparent identification of the steps taken by boohoo in response to the Levitt Review and identified a determination to ensure that both its purchasing practices and supply chain operated in accordance with high ethical standards. It was published on the corporate website and was the subject of comment in the press.

• 2. In the three months that I have had oversight of the work being undertaken by and on behalf of boohoo, I have had weekly discussions with the Chief Executive Officer (John Lyttle) and the Chief Information Officer and Programme Lead for A4C (Jo Graham). I have also had meetings with the Directors of the Group, the Director of Responsible Sourcing and Group Product Operations (Andrew Reaney) and other senior managers. In addition, I have engaged with KPMG, Tim Godwin (who, on my behalf, is conducting the independent enquiry and enforcement limb of the engagement) the ethical auditors and the legal team. Throughout, I have been provided with whatever documentation I have sought. Suffice to say, I have no doubt about the determination of all those whom I have met to address the failings for which boohoo has been criticised and both to promote and to embed a new way of working.

• 3. In addition to internal meetings (all of which have been 'virtual'), I have also taken part in other meetings including a 'town hall' event with other members of staff; I have met Dame Sarah Thornton (the UK's Anti-Slavery Commissioner) and one of the Leicester City's MPs. I attended a 'virtual' meeting organised through the auspices of the community arm of Leicester City Football Club which brought together a number of stakeholders and interested parties (including the Lord Lieutenant, the Police and Crime Commissioner and community groups). Concurrent with these events, under the watchful eye of KPMG with the assistance of the independent teams to which I have previously referred, the A4C programme has been proceeding at pace demonstrating a recognition that what was required from boohoo was action and not merely words.

• 4. This report is not intended to cover in depth all areas of the A4C programme (a detailed analysis of which will be published to coincide with the end of year results in May). Instead, it is designed to accompany the publication of the list of UK manufacturing suppliers (which boohoo publicly undertook to make available by 25 March 2021, that is to say six months after the publication of the Levitt Review)1. It will explain the enquiries, investigations and processes that boohoo has undertaken to preserve a manufacturing base in Leicester that is conducted lawfully, ethically and transparently. For those that have been approved, however, the process continues: it is clear that boohoo is fully prepared to support businesses that operate in accordance with its code of conduct but will maintain

1 A similar undertaking was made in relation to the supply chain for the rest of the world by the anniversary of the Review at the end of September 2021

compliance oversight to ensure that they do, taking action (including but not limited to removing them from the approved supplier list) where they do not.

5. Two further preliminary points must be made. First, I am well aware that in the past few months, boohoo has embarked on a number of acquisitions and I was concerned how this might impact on the delivery of the Agenda for Change programme. I have discussed this issue on a number of occasions and am not only re-assured that A4C remains as boohoo's top priority but, more significantly, I have seen no slackening of effort in this direction; the enthusiasm to establish a new 'business as usual' is palpable. Further, it is intended to integrate a number from the compliance teams of those businesses that have been acquired into the expanding compliance team that boohoo now engages.

6.

The second preliminary point is to note that there has been recent focus on the extent of law enforcement in relation to the Leicester garment industry in general as well as upon the activities of boohoo. It will not be surprising that, as a criminal and regulatory lawyer for some 50 years and as a former Head of Criminal Justice in England and Wales, I have been concerned to consider this issue in depth. Having said that, I do not wish to distract from this report which, as I have said, deals principally with the steps being taken by boohoo to ensure that its UK supply chain operates lawfully and in accordance with ethical principles. In the circumstances, I have included an Annex to this report which sets out my analysis of the operation of criminal and regulatory law in this area but, particularly, as to its potential impact in relation to Leicester.

Executive Summary

7.

There is no doubt about the determination of all those involved to address the failings for which boohoo has been criticised and to embed a new way of working. Despite the Group having made a number of acquisitions in recent months, A4C remains its top priority.

8. Recognising that it began to address issues surrounding its supply chain later than it should, in October 2019, boohoo commissioned Slave Free Alliance to review and audit its internal processes relating to modern slavery controls. Following a working group set up to implement the recommendations, an up to date Modern Slavery statement has been published. In addition, all participating suppliers have received a code of conduct as part of their onboarding process and a training pack relating to the provision of a safe Covid-19 working environment; more than 100 suppliers attended webinars relating to a Covid-secure work environment.

9.

On 27 February 2020, boohoo engaged Verisio to supplement its own compliance team by conducting unannounced audits of its Leicester suppliers and requiring each supplier to disclose all subcontractors. After publication of the investigation by The Sunday Times, Verisio was also instructed to undertake spot check audits of areas identified in the article and in the report Labour Behind the Label. Following this work, failure to comply led to boohoo removing 64 businesses from its supply chain. Additionally, in September 2020, following work that it had also undertaken in Leicester, Bureau Veritas was retained to carry out audits of those suppliers who were based in other parts of the United Kingdom (most of which were in Manchester). Internal compliance teams at boohoo has also regularly visited suppliers.

• 10. The Group's Supplier Manual (including its Code of Conduct) has been the subject of a review by independent counsel. The conclusion has been expressed that boohoo appears to have a thorough knowledge of its UK 'modern slavery' obligations, has incorporated policies and made declarations about its commitment to stamp out 'modern slavery' practices and has adopted policies recommended by organisations to end the exploitation of workers and ensure that suppliers comply with all 'modern slavery' legislation, avoid exploiting their workforce and behave ethically to workers. Health and safety policies appear to be reasonable and boohoo is alive to the need to ensure that working conditions are compliant with legal obligations generally.

• 11. Led by Andrew Reaney, Group Product Operations and Responsible Sourcing Director and the Head of Ethical Compliance, boohoo has enhanced its commitment to ethical trading and sustainability by appointing senior managers in Ethical Compliance, Sustainability, Responsible Sourcing, Product Compliance and Product Operations. It has also made further progress implementing the recommendations of the Levitt Review by introducing a Supply Chain Committee, an Executive Risk Group and a Risk Committee. Having advised and assisted on A4C, KPMG continues to review all that boohoo is achieving and issues monthly reports to the Board.

• 12. Regarding ethical audit, enforcement and quality assurance, one challenge identified by the Levitt Review concerned second tier manufacturers and, in particular, the 'cut, make and trim' (CMT) processors who were sub-contractors and whose business practices were not controlled by boohoo or the supplier. The process undertaken by or on behalf of boohoo has required CMTs to be taken in-house by suppliers with consequent responsibility for the workforce and subject to ethical compliance audit.

• 13. Alongside the internal compliance team reviewing events in Leicester, Verisio has conducted unannounced assessment audits and spot checks of all suppliers (visiting the vast majority at least twice) in order to address criticism of working practices. All audit data and results have been fed back to boohoo and into the internal oversight provided by a team led by Tim Godwin (former Deputy Commissioner of the Metropolitan Police). As well as accompanying the boohoo compliance team and liaising with them and Verisio, this team also undertook 'deep dives' and analytical analysis into the corporate structures to identify directors and people exercising significant control who were then interviewed. Although a consequence of its failure to exercise sufficient care in the past, it is clear that few, if any, companies undertaking due diligence of their supply chains have gone to the lengths undertaken by boohoo and for which it deserves credit.

• 14. The outcome of this work is to provide strong support for the decision taken by boohoo that, it should no longer be open to suppliers to sub-contract production to CMTs which, in the main, consist of a multiplicity of small entities which may have failed to treat workers appropriately and which it is hard to audit let alone police. In order to continue supplying the Group, CMTs have had to be incorporated into a supplier's business. Approved suppliers therefore have to engage staff on contracts of employment which comply with all aspects of the law. With a mandate (and encouragement) from boohoo, many suppliers have already adopted biometric verification systems including biometric clock machines, facial recognition or fingerprints; boohoo will ensure all its suppliers provide similar assurance systems.

• 15. Early decisions on the supply chain saw suppliers removed because breaches of the Code of Conduct were of a type that demanded 'zero tolerance' or because they demonstrated

a sustained lack of transparency such it is was clear that it would not be possible to conclude that they could be taken into the supply chain.

• 16. The process undertaken for the remaining companies has been a detailed consideration by a group chaired by Andrew Reaney (but not involving anyone with a long association to any suppliers involved) of the results of various audits undertaken by Verisio or Bureau Veritas; interaction between the boohoo compliance team and the supplier; whistleblowing allegations; the work undertaken by Tim Godwin and his team; and the result of analytics that provided the insight into the networks, individuals and timelines described above.

• 17. The outcome of this work is the publication of a list of businesses from Leicester and the rest of the UK onboarded into the new supply chain. Along with KPMG, I am satisfied that a rigorous process of audit, research and analysis has taken place and that boohoo has done all that it could do to date as part of that process.

• 18. This exercise cannot be the last word and boohoo has to make a decision about ongoing monitoring and review. Thus, boohoo can continue to fund an annual ethical audit report for its suppliers or in the long run, mandate suppliers to undertake a regular third party social and ethical compliance audit as part of its due diligence programme. Doing nothing is not an option.

• 19. On the basis that Leicester has caused high risk problems, it is critical to ensure that there is a robust mechanism for review to ensure that lawful and ethical practices have become baked in and 'business as usual'. This mechanism is essential until the digital supplier hub - a 'one stop shop' to manage interactions with suppliers and specifically, provide a platform to manage end-to-end relationships with ethical suppliers - is operating. An additional benefit of the hub is Leicester factories and approved overseas factories being on internal systems that identify weekly production capacity by factory, allowing a check on how much is being made for boohoo and where. If a factory is exceeding capacity, the hub would raise a 'red flag' regarding transparent and ethical production and identify potential capacity for new work.

• 20. While this report is focused on the supply chain and accompanying publication of the list of approved suppliers, other developments relating to the A4C programme are worth highlighting.

a. boohoo has acknowledged that it is not sufficient for sellers to comply with lawful and ethical working practices unless that requirement is matched by buyers ordering garments not just by price but also by the cost of ethically sustainable raw materials, labour, overheads, logistics and profit. It is critical to have a buying process capable of being audited to justify the price of whatever is being bought so any failure by a supplier to comply with boohoo's Code of Conduct cannot be the consequence of aggressive pricing by boohoo. The Group has therefore engaged with buyers' teams from all brands and developed plans to improve learning and development relating to responsible purchasing practices, with a set of Responsible Purchasing Practices being produced.

b.

The importance of sourcing, sustainability and product compliance has led to the appointment of a senior manager to head these areas, with a sustainability strategy due to be published.