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GOING LEGAL
WEDDING TRADER GOES LEGAL
Every issue we bring you the latest information on new legalities that could affect your business. This is where advice from the experts really matters...
Paul Taylor, Fawad Rashid and Steve Sidkin of Fox Williams explain what B Corporation status is and the growing interest from businesses who wish to change their way of working
This month, Ermenegildo Zegna announced that it was linking executive pay to climate targets as part of its new environmental strategy. Meanwhile Kontoor Brands appointed a new global head of ESG (Environmental, Social and Governance).
But some brands are going further and addressing becoming B Corporations as was the case in October 2021 when Chloe announced that they had achieved certification as a B Corporation. A legacy fashion brand has taken drastic steps to make themselves more transparent and reinvent their brand. Prada has also recently expressed interest in obtaining B Corporation certification, a move that could accelerate B Corporations to become the industry standard.
Many fashion brands and stores have been subjected to considerable scrutiny and criticism over their use of unethical practices and questionable supply chains, including: •the use of real fur by Canada Goose in their jackets •Uniqlo, Zara and Nike because of practices within their supply chains •And of course, the collapse of Rana Plaza in Bangladesh which resulted in the deaths of over 1,100 people and which Primark had previously been warned that the structure and working conditions within the factory were unsafe.
As such, becoming certified as a B Corporation may allow a fashion brand to stand out in a saturated marketplace as a company that is truly conscious of their environmental and social impact or, on the other side, to demonstrate that they are atoning for past unethical practices by overhauling their entire structure.
Are you B’ing real?
Inevitably, the recent trend of becoming certified as a B Corporation has been met with cynicism and criticism. The fashion industry is heavily geared towards
B Corporations And Fashion – To B Or Not To B marketing and PART 1 presentation, and competition is intense. Due to this, many have criticised the recent trend of becoming certified as a B Corporation as a method of ‘greenwashing’. (See [https://www.fashionlaw. co.uk/2022/03/22/fashiongreenwashing-and-esg-are-yousitting-sustainably/]. Greenwashing refers to a marketing strategy in which consumers are persuaded that a company’s products, policies and practices are environmentally friendly when they may not be. There is definitely a benefit to be had for a fashion brand to become certified as a B Corporation as it provides them with tangible evidence to market their products as environmentally friendly. The B Corporation status can be used across all marketing materials and can allow a brand to distance themselves from the controversies that plague the fashion industry. Whilst greenwashing may be a bold accusation to level at a fashion brand seeking B Corporation certification (due to the rigorous certification process), there are some criticisms generally of B Corporation status that do not help to address the matter. The first is that whilst B Labs require transparency from a B Corporation, the certification process is not as transparent as they may
make out. One example of this is that B Lab’s corporate governance board sets the standards that companies are assessed against but they do not show all of the results and performance of each company against these standards.
There is also no requirement to file an annual report detailing a company’s performance, except for those that are publicly listed.
The grass is greener
Despite this criticism, there are thousands of B Corporations that became certified in order to make a difference in the industry and ensure that they are running a sustainable operation. For example, Patagonia became certified as a B Corporation as they aimed to reduce their carbon footprint and change the way businesses operated in the fashion industry.
The criteria to become a B Corporation is also rigorous, and companies that voluntarily undertake this process do not do so lightly as it can involve an overhaul of their group structure and allow access to a B Lab’s analyst to review the entire dayto-day operations. A step that anyone attempting to greenwash would be unlikely to take, particularly if there are environmental or ethical issues within their supply chains.
As such, a company would need to restructure to remove any unethical or questionable environmental practices to even be considered for B Corporation certification, and in turn become ‘greener’ and more sustainable.
As the world continues to combat climate change, and consumers become more conscious of the environmental impact of corporations, the B Corporation may continue to be a popular way to prove that fashion brands are moving towards more sustainable practices.
What is a B Corporation?
A B Corporation is a business that meets the criteria set by B Lab, an international organisation that sets standards and policies for businesses. To become certified as a B Corporation, a company must meet B Lab’s standards of “social and environmental performance, public transparency and legal accountability”.
Many household names have restructured into a B Corporation and become more profitable and outperformed their competition. Ben and Jerry’s is a prime example of this. They achieved B Corporation certification in September 2012 and their profitability continues to outshine the majority of their competition in the food and beverage industry.
Becoming a B Corporation
To become certified as a B Corporation, you must fulfil the criteria set out by B Lab, who carry out an assessment (called a B Impact Assessment) of the business’ impact on its workers, customers, community and the environment. Businesses must score a minimum of 80 points (out of 200) to become certified.
B Lab will first meet with the business to review the completed assessment and responses provided. Publicly listed companies are treated differently to private companies in relation to their B impact assessments, with the assessments of public companies being made available online.
However, you will also need to demonstrate a legal commitment to becoming a B Corporation and certain language surrounding the commitment to having a material positive impact on society and the environment and requiring directors to prepare an annual impact report amongst other things, to be inserted into the articles of association of a UK company.
If you decide that after becoming certified, you no longer wish to remain a B Corporation, the certification can be surrendered, as Etsy did in 2017. At the time, Etsy reported that to maintain its certification, it would be required to change its corporate structure, which it would not do “because converting is a complicated and untested process for existing public companies.” However, this announcement came the same day the New York Times ran an in-depth piece about the transformation Etsy has been undergoing to a more profitdriven company under its new CEO.
Take home points
To summarise, the key advantages of becoming certified as a B Corporation are: • You can take the first step to becoming more socially and environmentally conscious about the impact of your business • Your company is able to market a social and environmentally friendly image with real substance to support its claim • B Corporations can still remain profitable and in fact are some of the most profitable companies in their respective markets • It may help to rehabilitate any prior unethical practices by demonstrating real steps that the company is taking But… • The process to becoming certified is robust and can be time consuming, and require significant resources • The entire structure of the company will require an overhaul which will require significant time and cost • There is no guarantee that the company, even restructured, will pass the B Impact Assessment to achieve certification • Some may be concerned that becoming a B Corporation can deter the focus of a company from profitability.
PART 2
Price Fixing
‘Be ye never so high, the law is above you.” Although stated in a High Court ruling 45 years ago, this statement could also be made today about the King of Trainers, JD Sports. Stephen Sidkin, partner and Anna Agbebi, an associate at Fox Williams LLP explain
In June 2022, JD Sports confessed to “cartel activity” after it had been found to fix the prices of Glasgow Rangers FC’s replica football kit that lasted between September 2018 and July 2019.
Price fixing is condemned under both UK and EU competition laws. The underlying reason is that where price fixing occurs, consumers lose out.
Price fixing itself comes in two varieties. Firstly, in what are called vertical agreements where a brand agrees with a stockist that, for example, there will be no discounting from recommended retail prices. However, resale price maintenance can occur at any stage of the supply chain, such as when a retailer agrees – or is persuaded – not to discount from a brand’s RRP.
Secondly, in horizontal agreements. This occurs when two parties at the same level in the supply chain agree to sell at a particular price. In this way, neither is undermining the other’s turnover by engaging in a price war.
This is what happened in the case of JD Sports. The only difference being that as an agreement between JD Sports and Elite Sports (which operated the Gers Online website), it also involved Glasgow Rangers.
The three parties allegedly agreed that JD Sports would raise its price from £55 to £60, to align with the prices being charged by Elite Sports on the Glasgow Rangers’ website.
However, as the Competition and Markets Authority has only published its provisional findings, it remains uncertain whether the CMA will decide that Glasgow Rangers has infringed competition law and will fine the football club.
Fines
JD Sports has announced that it expects a £2 million fine – a significant sum of money although less as far as JD Sports is concerned given its turnover and profitability than Dar Lighting, which was recently fined £1.5 million by the CMA for breaking competition law by restricting the level of discounts retailers could offer online.
This amount was almost twice its net profit in the last financial year, which should act as a warning of the financial impact these kinds of fines can have.
The findings come after the CMA fined JD Sports £4.3 million for breaching an order which prohibited JD Sports and Footasylum (after their merger was blocked) from exchanging commercially sensitive information without prior consent, and forced them to alert the CMA if any information had been shared.
In addition, still to come is the result of the CMA’s investigation of JD Sports involving alleged price fixing reelating to the replica soccer strip of Leicester City football club.
Price fixing in fashion
The decisions of competition law regulators across Europe demonstrate that price fixing occurs in a swathe of industries. But possibly because of the role fashion plays in society, the industry accounts for more than its fair share of price fixing occurrences.
Twenty-two years ago, JD Sports was engaged in the price fixing of Man United replica kit. Then, in May 2022 the European Commission undertook a number of unannounced dawn raids of some fashion companies amid concerns that they were engaged in anti-competitive activities.
This followed on from its announcement earlier this year that
it was investigating Pierre Cardin for alleged restriction of cross-border and online sales of Pierre Cardinlicensed products, as well as sales of such products to specific customer groups.
Belle Lingerie v Wacoal
Meanwhile, back in the UK, Belle Lingerie has commenced an action in the Competition Appeal Tribunal against Wacoal for various anticompetitive and discriminatory measures
Belle Lingerie (Belle) sells products on eBay and Amazon as well as via its own website. Wacoal is a leading global manufacturer and wholesale supplier of luxury branded lingerie and swimwear.
Belle has claimed that an assortment of discriminatory measures were imposed on it selectively. These included: • a retail price maintenance policy • a minimum retail price policy • an online platform ban.
The online platform ban required Belle to align its advertised and retail prices with Wacoal’s recommended retail prices on all eBay sites around the world. If that was not the case.
Wacoal wanted Belle to delist Wacoal’s products from eBay sites so that they were not visible in consumer searches in third countries. Belle claimed that there was a common aim of maintaining or stabilising retail prices for the Wacoal products, which would certainly have an effect on competition in the UK.
The case is currently headed for trial in mid-September.
Changes in competition law
The beginning of June saw the introduction of changes in both UK and EU competition laws. Whilst these changes have implications, particularly for the selective distribution business model, there is no change in the law as far as price fixing is concerned. An agreement by two parties at different levels of the supply chain to fix prices will result in an infringement of competition law. Nor is there any change in the consequences.
The inclusion in an agreement of an unlawful price fixing provision will render the agreement void and third parties will be able to claim damages. What will be interesting to see is whether, given JD Sports’ share price performance, any group litigation is brought by shareholders.
Guarding against price fixing
For many businesses, fixing prices can appear attractive. It can provide comfort that your competitors will not be engaged in a price war (having price fixed) or that brand positioning will not be undermined.
Sometimes price fixing can occur without management being aware (for example, where an area manager decides that price fixing equals increased sales equals improved annual bonus). But the risk of being found out exists.
Sometimes outing will occur as a result of whistleblowing after a distributorship agreement is ended or a supplier decides no longer to supply a particular stockist. Being alert to price fixing – which can come in a variety of forms including agreements as to when a brand is to go on sale – is important.
Contact us
We regularly advise companies on competition law issues and how to comply.
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