Get out of jail free: Legal compliance - a game of Monopoly?
We have been running a series of Breakfast briefings in London and Brighton under our theme ¬~taking business beyond compliance¬"¢, featuring the Modern Slavery Act and the key changes to the ISO 14001.
It has been interesting getting to understand the drivers, incentives and thoughts of business in respect of these issues. A common theme is resource constraints, lack of internal expertise, lack of director buy in and needing a business case to ensure that the return for any investment is measured. Although the ISO14001 is not mandatory, for many companies they will be penalized in tender processes should they fail to renew their certification.
In a sense, ensuring that the system operates to the featured standard is ‘mandatory’ under the Modern Slavery Act, companies face a choice in the approach they will make to compliance. I wanted to explore the interaction between compliance and best practice.
Many companies seek to implement legislation simply to ensure that they are seen to be compliant and to prevent the risk of being liable for non-compliance in the form of fines, prosecutions etc. However, there are also companies that see compliance as simply a benchmark that once reached, will put the company beyond the realm of scrutiny from regulators or consumers. Meeting legal compliance requirements is key to ensuring that a company has a robust risk management process in place In the case of the the Modern Slavery Act (MSA), it is legally compliant for a company to state that it has taken. NO steps to comply with the provisions.
The MSA is a significant piece of legislation in so far as it seeks to get business to become more transparent about risk of human rights abuses in its own organisation and the supply chain. Companies are required to produce a ‘Trafficking and Slavery Statement’’.
Why do companies seek to go beyond legal compliance? After all, is it not enough to meet the requirements of the law (which in the case of the MSA is simply to provide reasons why no statement is being made)? What return will there be in the cost of investing in procedures and policies that the law does not require?
These were some of the questions that we were seeking to find answers for in the series of Modern Slavery Act briefings we have been hosting during October.
The first obvious answer to this question would be reputation management – ‘know and show’ - a concept used by Professor John Ruggie. He advocates that in order for companies to demonstrate that they are not complicit in human rights abuses they should have policies and procedures in place under the UN Guiding Principles for Business and Human Rights. From a legal perspective companies that can demonstrate they have robust policies and procedures in place are in a stronger position to defend themselves against any allegations of human rights abuses.
The inference is that companies that are not prepared to make the statement under the MSA cannot demonstrate good practice in tackling slavery and human trafficking in their supply chains.
Most companies, if asked, will tell you that they are seeking to do the ‘right thing’. By adopting a moral approach to business they seek to ensure a social licence to operate. This is another reason why companies seek to go beyond legal compliance.
‘Doing the right thing’ in the case of modern day slavery is understanding where the business or organisation might directly, indirectly or by association, promote slavery in its organisation or supply chains. Many companies still think this is not relevant to their organisation, particularly business-to-business companies.
The truth is that EVERY organisation can play a role in the fight against slavery. For example, is the company aware of the extent of child slavery in the harvest of cocoa beans? Does it know where the chocolate in the canteen is sourced from? Is it Fairtrade? Does the company know the cleaners it employs? Can the company be sure if they are subcontracted that their conditions of employment do not amount to debt bondage or forced labour?
It’s not only about direct or indirect impacts, the US courts have recognised where a company has leverage this should determine the actions/decisions that a company should make to try and prevent slavery in their supply chains.
However, saying that they are seeking to do the right thing and backing this up with not only an outward facing human rights policy or modern slavery statement, is entirely different to ensuring that the proper procedures are in place.
This is where many companies simply default to the minimum requirement – compliance . Compliance might be a back stop but those companies producing no statement are likely to find their approach backfire at some point from a reputational perspective.
A third reason why companies choose to go beyond compliance is to ensure that they are building a resilient business. Understanding value chains and risks facing the company, particularly potential human rights abuses, enables a company to ensure robust business continuity plans are developed.
The idea that compliance is enough no longer sits with many civil society movements and arguably the continued drive for more transparency and accountability in supply chains will mean a growth in putting the spotlight on companies disclosures and benchmarking these companies as has happened in the US in response to the California Transparency in Supply Chain Act.
It is a disappointment that the government included a ‘get out of jail free card’ for now. For those companies moving around the ‘board of global supply chains, and ‘passing go’ whilst collecting £200’ might find the rules changing if compliance is not considered to be enough by those with the Monopoly of Power.Colleen Theron