Fashionista is a listed retailer of fashion clothing based in Europe which specialises in sales to teenagers. Following considerable success in its home country since its establishment 12 years ago the company has expanded and now has outlets in ten different European countries. The emphasis of the company has always been to provide a fast-changing range of cheap clothing which enables customers to keep up with the latest fashions.

Initially the company purchased inventory through distributors. However, as the company grew the decision was taken to work directly with manufacturers and the company now has suppliers from across the world, including a large number from Africa and Asia.

Last month the company was taken over by Regalia, a retail chain based in the United States which is listed on the New York Stock Exchange. Fashionista has therefore become a wholly-owned subsidiary of Regalia. The finance director of Fashionista has been given responsibility for ensuring that the company complies with the corporate governance requirements in the US. The country in which Fashionista is based has a principles-based system of corporate governance. He is not sure what difference that is going to make to the activities which he manages.

Required:

a)   Explain the difference between the existing and future corporate governance requirements facing Fashionista.

b)   Recently newspapers have printed a number of exposés of large clothing retailers who have been importing goods from sweatshops in developing countries which use child labour. The issue has been concerning Fashionista who import significant quantities of clothes from such countries and could be importing goods made in sweatshops without the company being aware of this. Some members of the board believe that it is Fashionista responsibility to ensure that it is not happening. Others take the view that they need to respond to teenagers who want cheap clothes and until customers of retailers such as Fashionista are prepared to pay more the use of sweatshops will continue - if it turns out that some of the Fashionista clothes are produced in them they will deal with any bad press at the time.

Required:

Discuss the extent to which companies such as Fashionista should, or do, apply ethical values to business behaviour and take responsibility for issues such as the manufacture of goods using child labour.