What has the Modern Slavery Act done to improve supply chains?
On 31 March 2017, the reporting requirements for companies that fall within the threshold of the Modern Slavery Act will have been in place for a year.
Huffington Post published the thoughts of Kevin Hyland, the UK antislavery commissioner on what progress has been made since the Modern Slavery Act received royal assent on 26 March 2015.
Hyland highlighted the fact that there are sill an estimated 10-13000 victims of modern slavery in the UK, but said that the adoption of the Modern Slavery Act in 2015 and the ongoing commitment by the Prime Minister to fund the root causes of modern slavery overseas in countries where victims originate as indictors of change, and to provide more funding for the police to tackle the crime were just some of the positive actions that were being taken to tackle slavery in the UK. He also points out that there are examples of some companies starting to take the lead in responding to modern slavery that goes beyond compliance. However, he rightly points out that there is a danger of complacency and that we must ‘remain driven to fighting the injustice of modern slavery’.
It is noteworthy that the funding is going to programmes outside of the UK despite the increasing awareness of issues within business supply chains within the UK. Sports Direct being one of the few recent examples to come under scrutiny for the slaves found working in their warehouses. Perhaps some of the next tranche of funding should address the UK supply chains?
I recently gave a webinar to a group of organisations and lawyers in Australia setting out my insights about the effectiveness of the UK Modern Slavery Act in relation to supply chain issues, to help them consider the nature of submissions to make to the Australian Government for their consultation on adopting a modern slavery act. I will share some of these insights here.
I think its right to recognise that the insertion of clause 54, Transparency in Supply Chains Clause (TISC) has been a marker for change. It has certainly raised consciousness about the issue amongst business and set an expectation relating to reputation management.
However, there are still limitations with the application of the legislation by business, which arguably may not be contributing to addressing the root causes of slavery in supply chains. One of the key issues has been the ‘lack of teeth’ relating to enforcement or penalty measures should a business be found to have slaves within its supply chains and fail to disclose these issues. This was a hotly debated issue throughout the development of the Bill and remains an area that is criticized by NGOs and others as directors cannot be held criminally liable for the offences of slavery in supply chains under the TISC provisions. Directors still have fiduciary duties and perhaps this needs to be explored more (look out for my blog in April on this issue on our website).
The other limitations of the TISC clause is that the reporting requirements did not extend to the public sector. Given that the UK public sector spends over £716bn pounds a year and the influence they would have over supply chains this omission is contrary to best practice. The Welsh Assembly has issued a Code of Practice ‘Ethical Employment in Supply Chains’ requiring all Welsh Public Sector organisations , and organisations that receive funding from the Welsh Assembly to sign up to the 12 commitments set out in the Act and encouraging business to do so too . This kind of proactive step is what is needed and will filter down to business looking to receive funding or continue to supply goods or services to the Assembly. The proposed private members Bill introduced into the UK Parliament to extend the scope of the Act to the public sector has been withdrawn this week.
Other limitations in relation to the TISC provisions has been the failure of the government to take responsibility to host a central repository of statements from companies. At the moment the government supported repository (Tiscreport.org) requires payments for statement to be published and there is no list available of the supposed 12000 companies that have to comply. The Business and Human Rights Resource Centre hosts a list of statement and sets out whether or not they comply with the legislation. What is needed is a neutral, open, easily accessible platform that will give access to all to read what companies are stating they are doing. This should encourage a ‘race to the top’.
It is known that collaboration and shared learning is a powerful initiator of change. What we lack in the UK are funded multi agency programmes to allow for this and to draw business into the fold.
The level of engagement from consumers in raising issues about companies whose products or services are tainted by slavery has arguably been less of a driver for change than was anticipated in creating a disclosure obligation that would be publicly available. But this might just be a question of time as there is definitely a shift in the requirements for transparency by companies, evidenced by the media around prawns and Thai fishing.
Looking at the level of non compliant published statements of companies there is a sense that many of the statements have been a ‘tick box’ exercise and in some cases a ‘cut and paste’ job! ( see our findings in our recent research: Modern Slavery Act: Act into Action) Complacency is still rife where some directors fail to see the risk of reputation damage or legal liability in the form of civil suits.
Collaboration within some sectors is also beginning to grow.
The positive impact of the insertion of this provision into the Act is that it is requiring business and more particularly boards of companies to consider what approach they will take to identifying and managing the risk of slavery in their supply chains. The legislation requires that the statement has to be approved by the board and signed by a director. The levels of engagement are different within organisations as evidenced by the lack of legally compliant statements but arguably as more civil cases are brought in both the UK and abroad by victims of slavery, boards cannot afford to ignore the issue. There has also been a shift in that many in-house lawyers are now having to add this to their list of risks to manage. Those lawyers that work with outside support or across the company are in a great place to help steer a company’s approach and develop the required due diligence processes. We have seen a proliferation of ‘experts’ providing advice on the Act who do not understand the broader issues, leaving companies with a fragmented approach driven solely by compliance.
The disclosure requirements of the Act are also impacting companies with turnovers below the £36m threshold who are having to address their supply chains in response to buyers requesting visibility of supply chain risk. This has a positive trickle down effect.
If the recent French ‘vigilance act’, and the decision this week of the French Constitutional court to maintain the law of the text for a corporate duty of vigilance (to ensure the protection of human rights and the environment) is anything to go by, this increasing pressure on companies will continue to grow to ensure that they create policies and procedures to tackle issues of abuse in their supply chains. Whilst the French Constitutional Court removed the proposed civil penalty of €10-30m in the Act, liability continues to apply when companies default on their duty of vigilance obligations, including failure to publish a vigilance plan or fails to implement the plan. This decision highlights that companies are increasingly faced with how they intend to future proof their business and develop the right procedures to withstand scrutiny and reduce the risk of legal liability. There is a definite expectation by the Home Office that companies will be improving their statements annually. This will require a hard look by companies and their boards at what is missing from this year’s statement and what needs to be done over another 12-year period to ensure robust procedures underpin any public statement. I suspect competing priorities, particularly with Brexit underway will be a factor that will influence the approach.