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Boohoo facing potential shareholder revolt over ESG concerns

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UK clothing stock boohoo is discovering ESG isn’t a label that can be sewn into the company’s fabric fast enough to satisfy investors’ concerns.

The company is finding it hard to wave away the whiff of scandal over supply chain issues, which is hovering over today’s AGM like a bad smell. A shareholder revolt looks like it is on the cards, over concerns that current executives won’t propel the necessary changes needed at the company.

Is it too little, too late for boohoo?

boohoo appointed Sir Brian Leveson, a former high court judge, to overhaul its supply chain after allegations of poor working practices.

An earlier review led by a senior barrister had pointed out that boohoo’s business model wasn’t founded on exploiting workers in Leicester and did not intentionally profit from them, but there was no escaping the fact that the conditions unveiled showed a clear lack of oversight, dismal monitoring and poor governance at the company.

It’s made substantial changes, launching an electronic audit programme and consolidating its supplier list, by bringing on board those with good ethical and sustainable policies.

But Glass Lewis, a provider of global governance services, which advises institutional investors has proposed that investors should vote against the reappointment of executive director and co-founder Carol Kane today. It argues supply chain issues developed during her tenure as an executive are reason enough for her to be outed. The advisers have also raised concerns about company chair and co-founder Mahmud Kamani even though he won’t face re-election this year.

“Given the proportion of shares held by Carol Kane and the Kamani family, Kane is likely to still be re-appointed,” said Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown. “However a revolt would demonstrate again the growing demand for responsible investing. There is growing awareness among investors that investing with ethical concerns in mind is good risk management. Businesses are increasingly facing pressure from to force them to think longer term, and be mindful not just of environmental issues but also the way they treat their employees and the way they make money.”

Fashions change – quickly

Although boohoo has made good inroads into sorting out its supply chain and compliance issues, the really hard work is yet to come, Streeter thinks. “The challenge now for the fast fashion retailer is to ensure a change in culture is embedded right across the business. For now, its customers appear to have shrugged off concerns about the supply chain and the company is still in a good commercial position. But fashions change and brands with a sustainability tag are increasingly being sought out by ethical minded shoppers, so boohoo will have to deliver a lot more than just cheap price tags if it’s to maintain its dominant position in the fast fashion world.’’

We would agree. We are seeing ESG moving rapidly to the top of the agenda with institutional investors who will be able to bring yet more pressure on boohoo in months to come. The recent changes to the board at ExxonMobil, a much larger business than boohoo, effected by a relatively small hedge fund, demonstrate what is already possible.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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