Can Shein finally be the call to action so many people are calling for? 

A letter in January from Liam Byrne MP, Chair of the House of Commons Business Select Committee, has drawn significant attention to Shein’s opaque business practices.  The letter, addressed to the Financial Conduct Authority (FCA) and London Stock Exchange Group (LSEG) called for stronger scrutiny as Shein eyes a potential UK listing.  

The letter highlights the Committee’s struggle to “receive transparent answers from Shein on their business practices”.  It urges increased checks before any listing process, particularly concerning human rights and labour abuses.  

Shein maintains it has a “zero-tolerance policy” regarding forced labour. A BBC investigation has found compelling evidence to the contrary. The interest in the media continues… 

Regulatory bodies: do they have the authority to ensure accountability? 

MPs have questioned whether LSEG has in place the procedures to “authenticate statements” made by companies.  The Financial Times reported that, “before a company can list in the UK, the FCA ensures that the prospectus contains all the elements it should do but does not verify the source or accuracy of information”.  This means that inaccuracies or omissions can lead to investor lawsuits and FCA enforcement action, but the lack of independent verification leaves significant gaps in accountability. 

Shein’s case has brought attention to a broader issue: the integrity of the current corporate governance regulatory environment. It highlighted a specific breach of integrity concerning forced labour but this is only the latest in a long line of companies making unsubstantiated commitments. As environmental and societal claims increasingly influence decision-making, the risk of such unverified assertions is only set to rise. 

These questions are well-known to governance professionals, many of whom already understand the challenges.  There are solutions available. 

Modern Slavery Act: falling short on accountability and assurance. 

The Modern Slavery Act 2015 was introduced to enhance transparency in supply chains and associated risks. However, it lacks enforceable assurance mechanisms. This oversight has allowed some organisations to make bold claims about ethical practices without any substantiation.  Despite its intent, the Act allows companies to create statements of intent without validating the source of the commitments or ensuring that the culture and processes support them. This oversight applies to all environmental and societal disclosures. 

And yet…  

Internal Audit offers an effective solution over the authenticity of such statements. Supported by tried and tested professional standards and a Code of Practice, it delivers objective independent assurance over all risks – financial and non-financial. However, even for the largest companies, Internal Audit is not mandated. Directors do not have to demonstrate or obtain assurance that appropriate internal procedures are in place.  This leaves a critical gap in governance and accountability. 

Directors’ duties: prioritising investors over stakeholders. 

Companies build value and profit from the commitments and statements they make to a wide range of stakeholders – customers, suppliers, regulators, employees, and society at large. Increasingly, consumers are making decisions driven by their principles and beliefs.  

However, profit still wins out. When tensions arise between financial returns, and doing the right thing by other stakeholders, the prioritisation of investors is enshrined in s172 of the Companies Act. Directors can justify their actions by framing them as protecting the reputation of the company in the interests of investors. 

And yet…  

The Better Business Act proposes a pragmatic way forward. With almost 3,000 leading businesses campaigning for its adoption, it proposes amending s172 to place all stakeholders on an equal footing. In a way that promotes sustainable business growth. Public support for this reform is strong, 77% of UK citizens want businesses to be legally responsible for their impact. This is achievable. 

External audit: a mandate focussed solely on protecting investors. 

Statutory audits are limited to financial reporting and a small number of non-financial data points. This framework, established over 100 years ago, prioritises investor protection, and often safeguards external audit firms as much as much as the businesses they audit.  

Beyond financial reporting, external auditors can provide assurance but only through the lens of limited to reasonable or limited assurance.  Such assurances often fail to address risks associated with company culture or processes, leaving gaps that many stakeholders do not understand. External audit firms are pressing to be more engaged in non-financial assurance.  However, this comes with risks of substantially higher fees and a lack of current frameworks or expertise to support these expanded responsibilities. 

And yet…  

Directors remain accountable for the businesses they manage. They cannot rely solely on external audit for oversight. The Corporate Governance Code Guidance outlines the ‘Three Lines’ model, which could be extended to more companies. But government plans to apply this to large Public Interest Entities have stalled. 

Whistleblowing: from silence to accountability. 

Employees are often the first to identify wrongdoing within organisations.  But scandals such as the Post Office Horizon and Rotheram abuse cases have exposed the inadequacy of the current whistleblowing regime.  A parliamentary enquiry has even criticised the FCA for failures in handling whistleblowing reports.  

The Solicitors’ Regulatory Authority (SRA) has also failed to investigate situations where legal privilege and Non-Disclosure Agreements were used as a shield to protect directors from reputational harm.  Meanwhile, thousands of whistleblowers face gaslighting and retaliation, often suffering deep emotional trauma and personal financial loss, despite their courage in bringing the truth to light. 

And yet…  

A proposed Whistleblowing Bill offers hope.  With widespread parliamentary support it proposes creating an independent Office of Whistleblowing to oversee all reporting and ensure thorough and independent investigations. This would shift the focus away from targeting whistleblowers themselves, and towards holding organisations accountable for misconduct. 

The Economic Crime and Corporate Transparency Act 2023 (ECCTA): a turning point? 

ECCTA introduces the ‘Failure to Prevent Fraud’ offence, requiring companies to establish adequate procedures to mitigate risks from misleading or inaccurate statements.  Directors and senior management can no longer claim ignorance of unsubstantiated or inaccurate claims or commitments. This provision marks a significant step forward in corporate accountability.  It applies to both financial and non-financial disclosures and provides for unlimited criminal fines. 

The Act is enforceable from August 2025, but authorities can retrospectively assess prior offences. The question is whether the government, regulators and prosecuting authorities have the teeth to use this Act to effect meaningful change. 

Will this be a time for change? 

Time will tell.  This moment presents an opportunity for a new era of transparency and authenticity – one that protects individuals from harm, whether as consumers or members of the workforce. It ensures that hard earned income is not wasted on products with dubious environmental claims. And at the same time promotes responsible companies that drive growth.  However, realising this vision requires decisive action: parliamentarians must enact robust legislation, regulators must respond with urgency and commitment, and prosecutors must be willing to pursue those who do not comply. The time for action is now.