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PKF Australia

Accountants and Business Advisers

Lush Cosmetics – Lessons Learnt

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Baidy Laffan

Partner

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Lush Cosmetics – Lessons Learnt

We are currently riding the wave of conscious consumerism where trust is a bottom line requirement for business, and ethical brands have serious pull. But not even the best intentions can protect you from brand and reputational damage. Lush Cosmetics recently publicly announced they had underpaid employees by $2 million. This is a brand that is 100% vegetarian, pro-ethical buying, fighting against animal testing and anti-packaging. It is one of the most ethically conscious brands in the retail space, and it is not immune from the type of payroll problems we have seen from others.

But the Lush story is very different from those we have seen from for 7-Eleven, Dominos and Red Rooster, where the story became a scandal and reputations were put at risk. So, what makes it so different and what can others learn from this:

  1. Accountability – unlike the organisations that came under fire before them, Lush were first to the table to make the announcement. What is really interesting about the Lush story is the way they framed it to the market and the media response. The CEO’s statement reads:

“We are deeply sorry to our valued staff and customers that we’ve failed to uphold the values that we have always believed in and the high standards that we’ve always sought to achieve. We would never knowingly underpay. This was not deliberate. It goes against everything we value and believe in.”

Lush went the extra step of publishing an open letter to their customers that outlined the nature of the underpayment in detail and disclosed that they have engaged a provider to “enter 200,000 historic handwritten timesheets onto a new payroll system to re-run the last 8 years of payroll”.

These messages fit with the Lush brand and have had the effect that consumers aren’t rallying against them and believe that the brand genuinely made a mistake.

The effect of this has been that media and press have been surprisingly positive compared to the “underpayment scandals” of others.

  1. Being proactive and willing to ‘fix’ the problem – not only is it the media, the press or consumers who are supporting Lush. The Retail Association Chief Executive, Dominique Lamb echoed industry concerns about the complexity of the wages framework with her statement that "we would certainly hope that the relevant authorities will recognise that Lush has taken a very transparent and honest approach to addressing the issue, and not tried to sweep it under the carpet”.

The Retail Association’s statement resonates with PKF’s experiences with regulators. We have assisted major national groups and corporates facing similar concerns to Lush and have found that it’s imperative that the organisation can demonstrate that it has taken steps to triage this matter, through identifying, reviewing and putting in place a remediation plan with respect to any controls which were found not to be operating effectively – before the regulator arrives.

Of course, this affords you another benefit; the opportunity to take at least some control over the process and the narrative from here, rather than being at the mercy of others.

    1. A great communications team – your communications team need to join you at the table when designing your strategy and narrative. Your message needs to be: simple, clear and authentic. Lush’s communications team are on point and have won everyone over.
    2. Growth is great but, you need to keep up – Lush’s National Director has blamed the underpayment on Lush’s internal payment systems not keeping pace with its growth. It appears that the process was manual leaving huge room for error in a complex area dealing with thousands of employees. There are a lot of organisations that grow at a rapid rate. Ensuring you have the right technology and support around you is essential. What worked for your business yesterday, may be putting it at risk today.

The real message

Having a crisis management strategy in place is beneficial but employing it should always be a last resort, these situations are entirely avoidable if the right steps are taken. Due to the complexity of Australia’s awards system it is important to ensure you are obtaining the right advice from the outset from your HR advisers and employment lawyers. It is then imperative to be validating that the advice has been correctly applied across your business on a recurring basis through an appropriate governance and audit framework that is tailored to your brand.


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