Boohoo : Sir brian Leveson’s final report to the Board

The boohoo group plc

Report to the Board: February 2022

The Rt. Hon. Sir Brian Leveson

1. This is my fifth (and final) Report to the Board of boohoo group plc ('boohoo' or 'the Group') and comes as the Agenda for Change Programme ('A4C') concludes and is subsumed into business as usual. As I commented in my last report, this movement does not signify the beginning of the end of the process but merely the end of the beginning. The challenge for boohoo (which it recognises and is determined to meet) is that, in the fast moving industry that is fashion, as focus moves from the A4C programme, it will be too easy (and not at all unusual) for attention to move to other pressing issues and to drift from the new ways of working which A4C has introduced backwards into a place where less attention is paid to the critical issues which the A4C programme has sought to address. The determination exhibited by the Chief Executive, John Lyttle, and his team that this should not happen is beyond doubt but continued vigilance by the Board, by all senior executives and by management generally will be of critical importance
2. I have always made it clear that, initially, I was a reluctant recruit to the world of the fashion industry. I doubted that there was much of value that a retired judge could provide particularly as it was clear that boohoo was prepared to appoint management consultants to provide advice, assistance and oversight of the reform agenda. I was persuaded by the enthusiasm for change that everyone at boohoo exhibited, by their wish to be transparent and publicly to reveal their approach and their complete willingness to embrace the conditions which I imposed. These were, first, that I was permitted to appoint independent enquiry and enforcement specialists, together with an independent legal team to assist me. Secondly, I required a commitment by boohoo to put into the public domain such regular reports as I provided to the Board. I was clear that the independent enquiry and enforcement specialists should be led by Tim Godwin OBE, formerly Deputy Commissioner of the Metropolitan Police and include two other former police officers and a retired HMRC Deputy Director. The team of independent lawyers were to be led by Louis Browne QC. Each of these teams was provided with resources to undertake the necessary oversight.
3. The Group accepted each of these conditions notwithstanding that any failure in the process would not be hidden but would be exposed in a report submitted to the Board and then publicly available. To my mind, this demonstrated the extent of their willingness to take all possible steps to improve their approach and to represent a gold standard in fair treatment and issues of ESG - as both Mahmud Kamani, the Executive Chairman, and John Lyttle, the Chief Executive always identified as their ambition. Everyone at boohoo has been entirely open about their determination in this regard; both my teams and I have been afforded whatever access we have sought and such issues as have arisen as the work has progressed have all been taken on board. I have liaised regularly with KPMG (the management consultants that were appointed): they have been assiduous in the assistance which they have provided and in their willingness to check up and validate all the progress that has been made. I have been copied into the KPMG updates (and the A4C updates provided to the Board). Additional non-executive directors (one with a particular interest in the areas of sustainability) have been appointed and my appearances at the Board (as well as the virtual meetings that I have had with the Chairman and other non-executive Directors) have shown them all to be inquisitive, lively and committed to maintaining the change in work practices that have been introduced.

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1. This Review continues the analysis of the work undertaken by boohoo over the months since the last Review in September 2021. As with the other Reviews, it looks at the further work that has been completed in relation to the supply chain (both in the UK and the Rest of the World) as well as the ongoing development of the new processes to help ensure that orders are only placed with approved suppliers (involving the Supplier Hub and the Order App), Responsible Purchasing Practices (including training for buyers in relation to costing), Sustainability, Ethical Compliance and the training programmes in relation to Modern Day Slavery and NVQs for garment workers employed by suppliers. I also deal with the progress made in relation to the Trust and the commencement of manufacture at Thurmaston Lane. The approach to all these issues demonstrates the extent of the journey that boohoo has undertaken since mid-2020.
2. The Levitt Review made a number of recommendations which have led to substantial changes to corporate governance, the publication of supply chains for the UK and the Rest of the World, the development of Responsible Purchasing Practices (including in relation to sustainability and other ESG issues) and Key Performance Indicators with appropriate assurance mapping by Internal Audit. In addition, the last few months have seen the embodiment of the Garment and Textile Workers Trust along with the building and opening of a new manufacturing facility at Thurmaston Lane in Leicester demonstrating the determination of boohoo to stand behind the City. Finally, the Group has looked beyond the Review and the specific recommendations that it contains to envisage what boohoo should look like in beyond 2022: it is referred to as the End State Design. This should now be followed by a further End State Design which visualises the aspirations for the Group beyond 2024. The purpose of this review, however, is to paint the picture as it now exists, underlining the success of the Agenda for Change programme and to point to the challenges that are faced for the future.
3. To the Report dated 23 March 2021, I annexed a Review of the Criminal and Regulatory
   Regime and the challenges facing law enforcement in this area (along with boohoo's approach). In an Annex to the Report dated 14 September 2021 ('Beyond boohoo'), I brought those challenges up to date, referencing the Apparel and General Merchandise Public and Private Protocol (AGM PPP) and suggesting a potential approach to law enforcement that could be adopted. One of the features that is clear is that local authorities have no enforcement powers in this area and that, notwithstanding the challenges that are faced addressing the criticisms of what is going on in Leicester, a multitude of other agencies are responsible for policing the various aspects of the way businesses are run in the garment industry. That is not to say that Leicester City Council have been idle: they have not and under the City Mayor, Sir Peter Soulsby and the Deputy City Mayor with responsibility for Environment and Transport, Councillor Adam Clarke, funds have been raised, dedicated staff employed and a number of initiatives undertaken. Seeking to build on that work and squaring the circle of ways in which the authorities can assist, Annex A to this Report also addresses Beyond boohoo: the Approach in Leicester.
4. The Levitt Review was published in September 2020 and a transformation programme planned to implement its recommendations. The Agenda for Change has been undertaken with energy and at real pace such that it is now moving to business as usual. Although there are a very few number of the recommendations that constitute work in progress and have not been concluded, it is appropriate to conclude my oversight of this programme by going through the recommendations of the Review (both made by Ms Levitt and also emanating from the work completed by Grant Thornton), identifying what, along with KPMG, I consider can be marked as completed and identifying where work has been started, is continuing but has not yet concluded as, indeed, the Review anticipated. This includes the few cases where (with the approval of the Board) the recommendations have

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been adapted or modified to fit with boohoo's ways of working. This analysis is Annex B to this Report.

Executive Summary

1. Over the last 17 months, boohoo has embarked enthusiastically on the Agenda for Change programme and, as the Reports that I have written demonstrate, has sought to deal with each of the recommendations of the Levitt Review. In a few respects, it continues to be work in progress, but the transformation is such that it is now at the point at which it can move into business as usual. The engagement of all at boohoo with all involved in providing independent oversight has been exemplary.
2. In summary, the list of UK manufacturers first published in March 2021 and augmented with overseas manufacturers in September 2021 has been updated periodically to reflect the onboarding of new suppliers and the outcome of financial, ethical and compliance audits completed by Bureau Veritas and Verisio. From February 2022 boohoo will launch the Supplier Hub system adding increased resilience and control to these processes. Each new supplier will require independent approval from Sourcing, Ethical Compliance, Factory Approver and Finance, and buyers will be unable to raise any purchase order from a factory or supplier outside the system.
3. The assurance processes are overseen by the Group's ethical compliance team who undertake visits to manufacturers in order to assess order management, capacity, quality, training and progress on any remediation steps that audit has previously revealed as necessary. boohoo have also employed staff in a number of foreign countries (in particular, Italy, Turkey and China) who can follow up on issues that arise and to mirror to such extent as is possible the visits that are now common in the UK. KPMG have confirmed that these measures continue to be remain effective and progress is regularly reporting through an appropriate internal governance forum providing transparency to the Board.
4. The cultural change programme has seen senior management appointments in Learning and Development and introduced mandatory training on ethical compliance, anti-bribery and modern-day slavery. 23 distinct Key Performance Indicators (KPIs) have been designed to ensure that boohoo is managing against the issues that arose during the course of the Levitt Review. Some, but not all of these are operational, with a fuller set of reporting expected to commence later this year as data from new systems becomes available.
5. Of the published Responsible Purchasing Practices the commitment to ensuring that buyers across the group "understand what a fair price is for garments" has been in focus since the last reporting period. Thurmaston Lane is being used as a template for open costings and, at the same time, the Group's Sourcing teams are actively engaging with suppliers in an open costings exercise which has the primary goal of focussing on enhanced production efficiency to ensure that suppliers remain competitive and retain a reasonable profit. A training programme to support buyers (intended to be based at Thurmaston Lane) is in plan but remains work in progress.
6. Outside of the organisation, boohoo has made a significant investment within the garment and textile sector in Leicester. The Group has helped to establish and fund the Garment and Textile Workers Trust to focus on individuals directly or indirectly connected with the garment industry. A factory at Thurmaston Lane is now open as a centre of excellence in ethical manufacturer of garments, providing employment for a team of 200. Local training providers are delivering accreditations in the manufacture of textile products and Workers

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Rights training. And a partnership with De Montfort University ('DMU') has been established that provides students with insight on design, sustainability and buying in the garment industry.

The Supply Chain

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The United Kingdom

1. The initial preparation of the published list of UK manufacturers depended, first, on a satisfactory ethical and compliance audit by Verisio or Bureau Veritas against the requirements of the Group's terms of contract. This included a requirement to comply with all legal and ethical requirements, ensuring not only that there is no form of labour abuse within the manufacturer but also that compliance could be evidenced: examples of how this might be achieved are biometric time cards, proof of payroll and an inspection of conditions for health and safety. Secondly, financial and corporate due diligence also had to be demonstrated for which purpose investigations through Companies House and utilising other data analytics were also important. Previous reports have described this process and there is no purpose in repetition. Suffice to say that this process appears to be holding up and KPMG have confirmed that the spot check audit process continues to remain effective along with the work undertaken by the Supply Chain Compliance Committee and the forensic work undertaken by the Supplier Due Diligence Financial Review Forum (also described in previous reports). Furthermore, boohoo continue to retain the ability to undertake financial due diligence on any manufacturer wishing to be on-boarded into the supply chain: this will include open source investigation of the type that was used during the last year to determine which manufacturers should remain in the supply chain.
2. The list of approved UK manufacturers is dynamic and over the last year has been updated as new manufacturers are approved and others drop away: this is of particular relevance following the acquisition of new brands, including heritage businesses which have previously sourced from overseas and which are now being introduced to new UK based manufacturers thereby underlining boohoo's commitment to supporting UK manufacturing. Suffice to say that the changes that have been made to the supply chain are periodically published and thus transparent. It is, however, important to underline that it would be wrong to conclude that a manufacturer that is no longer on the list has necessarily been found wanting in its approach to legal and ethical compliance. In what I have previously described as the fast-moving world of fashion, commercial considerations also play an important, if not critical, part. The Group is clear that efficiency in operation will generate more competitive pricing and seeking to help manufacturers to improve efficiency while at the same time complying with legal and ethical standards is seen as an important part of the interaction and relationship with their suppliers.
3. In my last report, I noted that the Group had now committed to adopting the Fast Forward methodology across its supply chain. As I explained, this is a labour standards improvement programme operated by an independent organisation which supports suppliers with the training, guidance and resources they need to improve, using forensic audit processes to uncover audit evasion and hidden exploitation of labour. The collaborative approach ensures that the supplier is fully aware that Fast Forward will undertake checks in relation to VAT, payroll, documentation and worker welfare: pre-audit checklists sent to the retailer ensure that significant issues can be and are addressed before the audit, making the process collaborative between retailer, manufacturer and auditor. At the end of January 2022, 25 manufacturers in boohoo's supply chain have commenced the supplier engagement process with Fast Forward, and 8 others have

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completed pre-audit checks and scheduled their first Fast Forward audit to be completed by Bureau Veritas. This will be followed by all others approved in the supply chain.

1. What is now apparent, however, is that it will only work with manufacturers who are sponsored by a retailer who is then responsible for checking on lapses in standards. The difficulty with this approach is that it then becomes impossible for a manufacturer to achieve recognition from Fast Forward if it is not sponsored, that is to say, it is not on an approved supplier list. It is not, of course, for boohoo to seek to check up on manufacturers that are not within its supply chain to do business but given the importance of supporting Leicester as a manufacturing centre, it may well be that there is at least some responsibility on the Group (and other garment retailers who either work in Leicester or would like to place orders in Leicester) to support the general improvement of standards throughout the City. I address this difficult issue in Annex A to this Report but I readily recognise that it will be for the Group, the City and other retailers to decide whether and if so to what extent the suggestion in the Annex is worthy of support.
2. In addition to audit, boohoo has taken training into its supply chain in Leicester. Through a local training provider, KTL, a nominated group of suppliers and a number of boohoo employees are being helped to obtain SEG Awards Level 2 Certificates in Manufacturing Textile Products. This is an NVQ qualification which educates participants in operational skills including garment sewing and manufacturing as well as covering issues such as employment rights and responsibilities, health and safety, equality and diversity and safeguarding. A further 135 individuals are to undertake this training over the next year all intended not only to provide a broader appeal to further recruitment into the garment industry but also to deliver the following benefits:
3. 1. Recognised accredited qualification to enhance skillset
   2. Awareness of key aspects of ethical compliance audit standards
   3. Improved efficiency with an energised and skilled workforce
   4. Improved job satisfaction and motivation, reducing staff turnover
   5. Improved job knowledge, and skills to take on a wider range of responsibilities
4. In addition to training through KTL, boohoo has entered into a collaboration with Fashion Enter which is a not for profit, social enterprise striving to be a centre of excellence for sampling, grading, production and for learning and development of skills within the fashion and textiles industry. Thus, during 2022, Fashion Enter will deliver Workers Rights NCVQ
   L1 training to all employees in 10% of the boohoo group's Leicester supply chain. In addition, with the assistance of £85,000 from boohoo's apprenticeship levy, up to 10 individuals from the local area (chosen, selected and placed with apprenticeships by Fashion Enter) will have the opportunity to undertake either a level 3 fashion studio assistant course or a level 4 product technologist course. The only stipulation that boohoo has made is that the candidates must be local and, where possible, should have previously been prevented from undertaking further education qualifications due to personal financial circumstances.

Thurmaston Lane

20. The factory at Thurmaston Lane is now open. It is intended primarily to be a centre of excellence providing employment for a team of 200 working across two shift patterns, in both ethical manufacture and, in the near future, digital printing enabling the Group to print a variety of designs for use across T-shirts and sweatshirts manufactured with sustainable materials. Second, boohoo has opened a product performance and testing laboratory at the factory which, besides ensuring the highest standards for garments, provides the opportunity to educate and inform both suppliers and brand buying teams.

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