Human rights, governance and modern slavery in the UK

The following article considers the potential impact of modern slavery as a governance issue. Lack of relevant governance framework or even just the underdevelopment of it can cause fundamental insufficiencies. It can further cause extreme limitation to the business effectiveness, which can affect business revenue and their stakeholders. The price to pay for corporations for being associated in their supply chain with modern slavery can be very high. Company secretaries and the corporate governance function of the business can act to deter modern slavery effectively within a company’s supply chain, and it can point out the challenges and issues faced by most companies.

Understanding the relationship between human rights, corporate governance and modern slavery

Slavery has been recognised as a crime for many years, yet it was only addressed 70 years ago by Article 4 of the Universal Declaration of Human Rights. Sadly, modern slavery does not only exist in developing countries, but it is also present in developed economies: the UK, Germany, Canada and the USA, according to the Global Slavery Index. Unfortunately, as some of the world’s consumer goods are produced by enslaved persons, global businesses and corporate leaders are expected to do more to protect human rights and prevent slavery.

Media attention, brand reputation pressures, anti-slavery activists and investor concerns pushed the regulators to take real actions and protect people affected by any form of slavery. Corporate governance defined this aspect very narrowly and only reacted to the necessary regulations and enforcements. However, over the past couple of years, we can see that the role of corporate governance has become vital in addressing concerns concerning human rights and modern slavery. As Environmental, Social and Governance (ESG) factors are now seen as good governance practice, this can mean that if the business’ supply chain activities end up abusing environmental and social standards, it can easily lead to financial loss and damaged brand reputation.

Therefore, modern slavery is not only a human rights and governance issue, it can become a financial issue with a huge impact on the investment portfolio too. Failing to consider ESG elements can result in financial loss, operational risk, possible litigation and again, damaged brand reputation which can be very costly to restore. These challenges require very different strategies and a specific governance framework to be able to tackle the problem on a long-term basis. Large, global corporations such as Nestlé and Unilever are starting to take significant responsibility and embark on a journey to own their due diligence and supply chains. A few large corporations could drastically change the attitude of the corporate world.

Should they all choose to act with a higher degree of ethics?

The recipe for the change can be down to a few CEOs, their boards and their shareholders acting as a leading example to the rest of the world.

Reporting obligations in the UK

As per Section 54 (Transparency in Supply Chains) of the Modern Slavery Act 2015, commercial organisations that supply goods and services are incorporated in the United Kingdom and have a £36 million or more annual turnover, are obligated to publish an annual statement. This statement has to set out the steps they make to prevent modern slavery in their supply chains.

According to Section 172 and Section 174 of the Companies Act 2006, directors have a duty to promote the success of the company in good faith and have a duty to exercise reasonable care, skills and diligence.

Principles A, E and O of the UK Corporate Governance Code 2018 further highlights the responsibilities of businesses led by an effective board.

Principle A: A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

Principle E: The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern.

Principle O: The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.

Mandatory human rights and due diligence

The European Parliament voted to adopt the introduction of Mandatory Human Rights and Environmental Due Diligence (MHREDD) requirements for companies domiciled or operating in the EU on 10 March 2021. This law certainly will be game-changer as currently, most attention in the European Union is focused on the ‘E’ with the increasing awareness to the ’S’ of the ESG trends.

The mandatory human rights due diligence is still to be decided in the UK.

The Modern Legislation assumes that exposing organisations to public scrutiny would help them become more proactive and would get better in their supply chain management; however, there is still no legal duty to implement onsite auditing or a regulatory mechanism for greater disclosure.

The MSA 2015, indeed a landmark law at the time, helps to raise awareness but does it bring meaningful changes to corporate practices?

Modern slavery legislation does not always match with the society's views. Although stakeholders are aware of issues related to this topic, a lot more training and education need to be done in this area. There is also a need to develop better supply chain management to discover the underlying forced labour causes and implement solutions from an executive level.

Boglarka Radi

Boglarka is a member of The Chartered Governance Institute UK & Ireland and completed a master’s degree in Corporate Governance.