Yahoo Finance It would be a crying shame if Boohoo's chairman kept his post after this scandal
Boohoo’s share price has returned to the level seen before examples of pay abuses and terrible working conditions in the company’s supply chain in Leicester were exposed in July. Trade has not been dented by the scandal. And the independent report by Alison Levitt QC – which found Boohoo knew about serious examples of failures likely to be “endemic” months before they were revealed – was sufficiently even-handed to allow the company to champion the bits it liked. For example: some reforms had already started last year and the business model does not rely on exploitation.
All over then? Is it a case of Boohoo accepting Levitt’s recommendations and moving on? Friday’s 15% jump in the share price suggested that’s how the investors see things, and Boohoo seems similarly minded. No one has resigned. In its formal response, the company did little more than express “regret” about its shortcomings; an apology to the garment workers of Leicester only followed later. The report does say the company is now using new, ethical suppliers.
However, outside shareholders – those who are not members of the family of Mahmud Kamani, co-founder, executive chairman and 12.5% owner – should read the Levitt report in full. The nine pages of “discussion and analysis” are damning. They paint a picture of a company that refused to recognise uncomfortable facts even when they were staring it in the face.
The company 'has not felt responsible for conditions in the Leicester factories on anything but a superficial level'
Alison Levitt QC
The first paragraph is withering: “One of the aspects that I have observed is a tendency by the Boohoo board to treat every piece of negative publicity about the Leicester garment industry as though it was the first time they had ever heard it.”
Quite. It was that mindset that led Boohoo to declare in July that it was “shocked and appalled” by the allegations in the Sunday Times. But the board cannot have been shocked. An auditor had already told Boohoo that conditions in some factories were among the worst they had seen in the UK. Chief executive John Lyttle had been to inspect the premises himself. Boohoo’s response was “to concentrate on disproving minor elements of the story”.
Levitt found the deep failures “did not arise from intentional exploitation” but were caused by “weak corporate governance”. In short, the company concentrated on driving revenues and “has not felt responsible for conditions in the Leicester factories on anything other than a superficial level”. She views that as a failure to act in the interests of all shareholders.
At this stage, the finger should point at Kamani, as chairman of the board. Indeed, Levitt remarked: “As Mahmud Kamani told me, he knows how to sell clothes and leaves it to others to deal with the other aspects of running the company. I have concluded that for too long, Mr Kamani’s priorities have been allowed to dictate company policy.”
But then she let Kamani off the hook, inviting him to lead Boohoo’s reform. “If he chooses to do so, the chairman could become an icon in the industry and the company he created will go from strength to strength,” she said.
Well, maybe, but what’s wrong with a conventional governance set-up that requires a few checks and balances in the form of an independent chairman? Kamani seems determined to resist that route. He tried it once and ended up falling out with Peter Williams. The new plan is to appoint two new non-executive directors and a senior outsider in a non-board role to oversee the clean-up of the supply chain.
That’s better than nothing, but outside shareholders should insist on more. Kamani’s 12.5% stake is large, but Boohoo is not a private company. He should stick to the retailing role he knows about and stand down as chairman.
No signal about the future of the railways
Rail franchising is dead, the Department for Transport has declared. What should succeed it in governing Britain’s railway is less obvious.
For now, rail is subject to emergency recovery measures agreements, or Ermas: six-to-18-month contracts signed at the 11th hour last week. Bar the optimistic insertion of the word “recovery”, and a lower margin for train operators, it is unclear how these differ from the contracts announced in March, at the dawn of Britain’s lockdown.
Only lawyers and accountants might perceive much difference in a railway where the DfT continues to specify services provided by the same private firms – albeit firms that are now shielded from bankruptcy, and do not have the theoretical possibility of earning money hand over fist should passengers come rushing back. Covid-19 has merely accelerated the structural crisis in rail, where falling patronage was undermining the franchising model of the past 24 years.
In the midst of a pandemic, government could be forgiven for concentrating its focus elsewhere. At the same time, ministers will arguably never have more power to implement reform, with the whip-hand over operators’ contracts and an apparently oven-ready review of the industry, delivered last autumn by Keith Williams but still unpublished.
Two plausible scenarios suggest themselves. First, that Williams had envisaged little more radical than the kind of management contracts now in place. And second, that the huge subsidy required to maintain a railway carrying half as many passengers could lead the Treasury to prune services, rather than invest.
The U-turn from a government that is no longer exhorting commuters to return to workplaces underlines the uncertainty. The era of the Erma may yet prove a longer interregnum than the DfT dare admit.
Cineworld needs Bond to help it die another day
The latest rescue act by James Bond involves shareholders rather than Queen and country. If the latest outing for 007, the already much-delayed No Time To Die, joins other tentpoles in being pushed back even further, then the cinema industry’s troubles will deepen.
Last week Cineworld, the biggest cinema chain in the UK, said that another lockdown could force it to tap shareholders for more money or, in extremis, threaten its survival entirely. This was underlined by the company’s admission that it expected to breach debt covenants at the end of December this year and in June 2021 – but expected a stay of execution from its lenders.
Cineworld is a classic example of a business that gorged on debt in a world of low interest rates, no pandemics and an expectation that Hollywood would continue to throw out premium product for its audiences. It owes $8.2bn (£6.5bn) and it is not just capacity restrictions and lockdowns that pose a threat to servicing that debt.
The example of Mulan – a major Disney release which bypassed cinemas and was sent straight to digital release on the studio’s streaming app this month – poses an existential threat if repeated by other studios.
Even further delays to releases pose a serious problem, and that is where Bond comes in. Russ Mould, the investment director at stockbroker AJ Bell, warns that if No Time To Die is pulled again – a distinct possibility given rising infection rates around the world – then “the cinema industry is really in trouble”. Disney has just pushed back Black Widow, its latest Marvel feature, for the second time, until May next year. Other upcoming big releases – Dune, Wonder Woman 1984 – are now bunched around Christmas, a period facing the possibility of tighter government regulation worldwide.
Constant release delays will eventually push studios into taking the Mulan option. At that point, not even the world’s best-known secret agent may be able to bail out Cineworld.
