• The London Financial

What did the independent review of Boohoo find?


By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets


Boohoo investors have had a wild year. The share price declined around 50% a few months ago when the journalists alleged that modern slavery was taking place at several suppliers that Boohoo uses.


In response, an independent review was initiated by Boohoo, although it was limited in scope. The findings of this review were published on Friday morning alongside a response from the company. The initial release caused the share price to gain 20%, but it retraced over the day and closed around 9% up.


Significant parts of the review are positive for the company, including the headline. Boohoo was not found legally responsible for the problems in the supply chain. The review also stated that the business model was not built on exploiting workers. These positive headlines caused the stock to pop on release.


However, large parts of the document paint a very different picture. I encourage anyone interested to read the analysis and conclusion segments themselves to gauge the tone and findings of the review.


Three major problems are highlighted in the document. The first is the lack of understanding that management and the board seem to have had regarding the operations of the business. No one could name the exact number of suppliers that Boohoo used in Leicester, which was around 500. Nor could any management say where the clothes were actually made due to the extent of sub-contracting. One example given was clothes that were contracted in the UK but made in Morocco, then packaged in Leicester. Boohoo had no idea that any clothes were being made in Morocco. This is a concerning admission of managerial negligence. The CO-CEO also previously testified regarding the operations of the compliance department; the information she gave was wrong. Another problematic admission. This is not a sign of good management.


The second major problem is the sole focus on profits and growth beyond all else. The company showed no concern about how or where the clothes were being made. They made no attempts to enquire about how the suppliers would ramp up production during the height of the pandemic. The executive team seems to have adopted a 'do not know, do not care' policy, which frankly is not good enough for a publicly-traded company.


The final problem is arguably the cause of the issues described above. Boohoo is effectively run like a family-owned business, not a public company. The chairman has almost total power and is rarely challenged by the board. He dictates the company’s policies and direction without considering anything beyond sales. This shows a clear lack of corporate governance that caused the company to move slowly despite knowing about the issues in Leicester since December at the latest. The team also feels more beholden to the chairman than to the wider shareholder base. As an investor, this is a major red flag. The company’s response also contained no remedy for this problem.


Boohoo is a high growth company but it contains problematic elements that should scare long-term investors away. I have little doubt that they will recover and thrive from here. However, that does not make them a good investment or a well-run company. For now, I would steer well clear.


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