Does the vote at Boohoo suggest investors have a short memory when it comes to the ‘S’ of ESG?

Human rights focused resolution round-up

The ESG scandal that engulfed UK fast fashion brand Boohoo last summer was dubbed one of the “worst” to hit the UK by one British MP.

Shocking revelations about practices in the online retailer’s UK supply chain around worker pay and conditions resulted in its share price plummeting from £413 on 19 June 2020 to £229 on 17 July 2020 (it’s currently trading at around £309).

The scandal prompted investment manager Standard Life Aberdeen to drop the company from its impact and responsible investment funds – although questions were asked by some commentators at the time what a fast fashion brand such as Boohoo was doing in ESG funds in the first place. 

But despite the controversy, Boohoo’s share price has recovered as online sales during lockdown boomed. And last week – at the first annual vote since the scandal broke – just 12% of investors opposed the reelection of Boohoo’s co-founder and Executive Director, Carol Kane, who served as CEO of the firm until March 2019.

Both the big proxy advisors, Glass Lewis and ISS, recommended votes against Kane, with  Glass Lewis stating that it believed Boohoo’s founding executives had a “pivotal role” in establishing the firm’s “outsourced, hands-off supply chain model as well as the Company's corporate culture”. 

The advisor highlights the findings of an independent review commissioned by Boohoo, which found that senior directors at the company knew there were serious issues around the treatment of factory workers in Leicester long before the news broke. 

“We believe nominee Kane has had a direct role in contributing to inadequate governance practices which ultimately led to the present supply chain issues,” Glass Lewis concluded.

Despite this, the vast majority (88%) of shareholders backed Kane’s reelection (Boohoo management owns around 27% of the company’s stock). Not all though: the Office of the New York City Comptroller, Scott Stringer, which oversees the City’s five public pension funds, voted against Boohoo’s co-founder and the company’s remuneration report, as did Dutch fund manager APG.

Martin Buttle, Head of Good Work at campaign group ShareAction tells RI that Boohoo has effectively allayed investor fears around the policing of their UK supply chain through measures such as appointing Sir Brian Leveson to oversee its Agenda for Change programme, which seeks to follow the recommendations of the independent review.

But he adds that the company has not dealt with the deeper issues around its fast fashion business model and areas such as its “oversight of the pricing relationship with suppliers”. ShareAction raised these concerns at Boohoo’s annual meeting, but Buttle said he was disappointed with the depth of the answers. 

Perhaps timing around such scandals is key. If the shareholders had voted nearer the time of the scandal, would the opposition have been greater?   

One of the big themes of this year’s proxy season in the US was racial justice – an issue brought to the forefront of many people’s minds over the last 15 months following events like the killings of George Floyd and Breonna Taylor and the impact of the Black Lives Matter campaign. 18 proposals were filed on the issue for the 2021 proxy season. 

One of the key resolutions called for independent racial equity audits to assess the harmful impacts of business operations on racial equality. The timeliness of these proposals resulted in “unprecedented support levels, particularly for a new proposal”, according to Tejal Patel, Corporate Governance Director at union-backed CtW, which along with US union SEIU filed the proposal at eight US financial heavyweights this year, including JP Morgan (39% support), CitiGroup (37% support) and State Street (36% support). 

Investors shy away from human rights expertise push at tech giants

Earlier this month, RI reported that investors had shied away from pushing Californian tech giants to add human rights expertise to their board – a reticence that contrasts with their willingness to get behind the historic revolt against the board of Exxon in response to the oil major’s failure to plan for the low-carbon transition.

US activist investor Arjuna Capital was behind the proposal at Facebook, Alphabet and Twitter, which called each to nominate a human rights expert for election to their boards. It gave examples of the firms’ roles in controversies such as voter suppression, misinformation and hate speech.

Natasha Lamb, Arjuna’s Director of Equity Research & Shareholder Engagement, told RI at the time: “Human and civil rights abuses at the social media companies represent the same kind of existential crisis the big oil companies face on climate change – their social license to operate is at risk.” But just 4% of investors supported the proposal at Facebook; 10% at Alphabet; and 14% at Twitter (although dual class shares may skew these results, making them look lower than they are because of the dominance of company-owned votes).

There was a better outcome for the human rights proposal this month at Thomson Reuters, where more than 70% of independent shareholders in Thomson Reuters backed a proposal asking the Canada-based media-cum-data firm to assess the human rights risks posed by its contract with US law enforcement agencies such as Immigration and Customs Enforcement. 

It is the second year in a row that the proposal has been filed by the British Columbia Government and Service Employees’ Union’s (BCGEU) and this year’s result represents more than a doubling on last year’s tally (although the 70% of independent shareholders is just 19% when all votes are included, as the Thomson family holds 66% of voting shares).