Iconic New Zealand merino clothing brand Icebreaker was sold to a company with a less-than-squeaky-clean history around worker conditions.
Icebreaker’s new owner, Pennsylvania-based VF Corp, whose brands include The North Face, Timberland, SmartWool, Vans, Wrangler and Lee, has been caught up in several cases of bad worker treatment in Asian factories producing its clothes over the last three years. In one incident reported by the Guardian newspaper in 2017, 360 Cambodian women collapsed in a Cambodian factory supplying to VF Corp, Nike, Puma and Asics. An investigation found the women worked 10 hours a day, six days a week, in temperatures of 37C and with inadequate food.
Another report showed more than 500 workers were hospitalised over a 12-month period in four Cambodian garment factories used by VF Corp.
At the time, VF Corp, which works with around 1000 supplier factories internationally, said that it worked hard “to make certain that working conditions in our contract supplier factories, including temperature or working breaks, are followed per local laws and regulations”. The Guardian report made no mention of any pro-active attempts by VF Corp to go beyond legal requirements in these countries.
Icebreaker has put significant efforts over the last year into improving its own supply chain practices. The 2018 Ethical Fashion Report, which grades 407 local and international fashion brands, gave Icebreaker its “most improved retail brand” award, after its grade jumped from D- last year to A+. The findings are based on four categories: human rights policies; traceability and transparency through the supply chain; whether supplier factories are audited; and worker empowerment, including living wages, access to unions and a functioning grievance mechanism.
While Icebreaker achieved an A or A+ across all for categories in the 2018 report, VF Corp got a B overall, and that grade was mainly because it scored highly for policy. Less impressive were its grades for auditing (C) and for worker empowerment (D+).
More than 500 workers were hospitalised over a 12-month period in four Cambodian garment factories used by VF Corp.
This damning information on VF Corp came out in the NZ Overseas Investment Office report into the $288 million Icebreaker-VF Corp sale, obtained under the Official Information Act.
The report also revealed VF Corp has been party to at least 29 civil lawsuits in the US. However the Overseas Investment Office concluded these were not a reason to turn down the sale of Icebreaker to VF Corp. Rather they were a normal part of doing business and don’t reflect badly on the company, the OIO said. The sale was approved in February.
Icebreaker’s shareholders, including founder Jeremy Moon, had sought a tie-up with “an established international entity or group for global market access, logistics and management opportunities” to “fully realise Icebreaker’s growth potential”. They picked VFC as its preferred buyer after a competitive tender process, a summary of the decision said.
The report includes the good character tests the OIO must apply to an applicant and its officers under the Overseas Investment Act, including a check on whether the ROP (relevant overseas person) and IWC (individual with control over the relevant person) are listed on the Offshore Leaks Database of the International Consortium of Investigative Journalists which includes the leaked data used in the Paradise Papers, the Panama Papers, the Offshore Leaks and the Bahamas Leaks investigations. No connections were found with the ICIJ database.
The OIO is required to consider all allegations of offending whether or not it resulted in a conviction. The decision lists nine lawsuits against various directors of VFC although they all related to their involvement with other companies and none were deemed to reflect poorly on their character. For one director, Robert Hurst, mention is made of a New York Times article about unpaid art sales tax in 2002. The OIO said it was “akin to an audit related to sales tax” and no money was found to be due.
Such articles and lawsuits are to be expected considering the range of directorships held by Otis in large corporates, and the litigious environment in North America.
In another instance, in 2017 Hurst was sued in his capacity as a director of a company called Oxbow, having been appointed by his private equity firm Crestview Partners. There had been no outcome in that case by decision time, the OIO said. Four involved director Clarence Otis but related to his roles as chair or chief executive of Dardin Restaurants, which owns a number of US restaurant chains. All but one (which ended in a settlement) were dismissed.
“Such articles and lawsuits are to be expected considering the range of directorships held by Otis in large corporates, and the litigious environment in North America,” the OIO said.
The decision lists about 29 lawsuits involving VFC, some dating back to the 1990s, and many were dismissed. They include a number of copyright or patent infringement suits, or licensing and employment disputes. The OIO also considered the reports relating to poor employment practices, including the two articles about conditions in factories in Cambodia that produced VF Corp garments.
With regard to the incident involving workers collapsing from heat, hunger and exhaustion, the OIO said VFC “has had multiple experiences in Cambodia with situations of a mass fainting”, which it said was a phenomenon unique to that country. It said VFC had “robust protocols and programmes in place to ensure all workers within the global supply chain receive fair working conditions”.
Another article the OIO looked at concerned an investigation by the Fair Labour Association that said a VFC garment factory in Cambodia was guilty of freedom of association violation. The OIO said VFC put corrective measures in place including reinstatement and backpay of workers who had been dismissed, and ensuring unions could operate in the factory.
Other cases included VFC settling a California case for selling products containing certain chemicals without the required warnings, and fines paid for making unsubstantiated public health claims for the anti-bacterial properties of North Face footwear.
“As expected, VFC has been party to a number of civil lawsuits in America,” the OIO said. “This is to be expected of a large, publicly listed company in the States and we don’t believe it reflects negatively on its character. The lawsuits arise in the normal course of business.”
Icebreaker had annual sales of $220 million in the last financial year, of which 86 percent were from overseas markets. It is expected to immediately add to VFC’s earnings.
NYSE-listed VFC has a market capitalisation of around US$32 billion. The company lifted 2017 revenue seven percent to US$11.8 billion, generating a profit of US$615 million. The Icebreaker deal didn’t amount to a material transaction for the company.
Icebreaker signed a 10-year, $100 million supply contract with New Zealand merino wool growers a week after the deal was first announced in November, with the clothing company paying a premium to recognise grower loyalty and let the firm use farm imagery and storytelling in its global marketing efforts.
Icebreaker did not respond to requests for comment.
