In the latest sign of growing fears among large accountancy firms over reputational damage, PwC is set to resign as auditor of fashion retailer Boohoo.
The online clothing company has been under scrutiny over working practices, pay and conditions in its supply chain with a recent review by lawyer Alison Levitt finding that senior management knew about the issues and had failed to act.
The news came in the same week that the Commons BEIS committee on modern slavery wrote to Boohoo and other companies concerning its supply chains.
It has been widely reported that PwC, auditor since before the company went public in 2014, had signalled its intention to resign within the last month.
Levitt found that, “From (at the very latest) December 2019, senior Boohoo directors knew for a fact that there were very serious issues about the treatment of factory workers in Leicester.
“Whilst it put in place a programme intended to remedy this, it did not move quickly enough.”
Boohoo’s internal processes were “well below the standard which would be expected of a company of its size and status”, she said.
The company’s handling of executive pay has also attracted interest, with a third of shareholders opposing the remuneration report at the company’s last annual meeting. One incentive scheme could result in Boohoo chief executive John Lyttle being handed £50m if the market value reaches £5.6bn by 2023; it is currently valued at just under £4bn. Another plan – again based entirely on share price performance – could generate payouts of £150m for top executives at the company.
Boohoo has told the press that “a process has recently commenced to tender for a new provider of audit services”.
PwC has so far not commented on the issue.
In recent years the large auditing firms have shown themselves more sensitive to public concerns over governance.
Last week Deloitte resigned as auditor at EG Group, a petrol station empire built up by brothers Mohsin and Zuber Issa, because of concerns over its internal controls. The brothers have just been confirmed as buyers of a majority stake in Asda, the UK’s third-largest supermarket along with private equity group TDR.
Last year, Grant Thornton resigned as auditor to Sports Direct (now Frasers Group) after the company revealed it was under investigation by the Belgian tax authority.
Meanwhile, the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee has written to businesses in sectors including fashion, retail and information technology, to seek answers in relation to its inquiry exploring the extent to which businesses in the UK are exploiting the forced labour of Uyghur in the Xinjiang region of China.
The Committee’s request for information to these named businesses also includes an invitation to give evidence at the BEIS Committee’s public hearing on Thursday 5 November.
We are determined to ask prominent businesses operating in Britain in these sectors what they are doing to ensure their profits are not on the back of forced labour in China” – Nusrat Ghani MP, House of Commons BEIS Committee
The letters include questions around supply-chain transparency and regarding evidence of compliance with labour, procurement and anti-slavery laws. Boohoo, Gap, H&M, IKEA, Marks & Spencer, Nike, Puma, Victoria’s Secret and TikTok are among the firms that have been contacted.
Conservative MP Nusrat Ghani MP, lead BEIS committee member for the forced labour in UK value chains inquiry, said Australian research had named 82 foreign and Chinese companies benefitting from exploitation of Uyghur workers. He said: “The companies listed in the Australian Strategic Policy Institute’s report span industries including the fashion, retail and information technology sectors. We are determined to ask prominent businesses operating in Britain in these sectors what they are doing to ensure their profits are not on the back of forced labour in China.
“There have been a series of accounts of products being sold in the UK which can be traced back to forced labour at camps in China. We want to get a clearer sense of the extent of this problem.”