Modern slavery – what corporate governance can do

The topic of modern slavery is key not only to businesses but also to governments, and its importance is increasing within large, multinational corporations. The concept of modern slavery is frequently used to describe various exploitative activities: human trafficking forced and bonded labour, servitude and forced marriage. Modern slavery can increase where there is a lack of governance policies within business supply chains. In recent years, the issue of forced labour in the global economy has begun to attract increased attention in businesses’ governance policies and how they approach the coordination of their supply chains.

Nevertheless, forced labour remains common: from the production chain of clothes, food services and agriculture, to the construction industries. The introduction of mandatory due diligence can give stakeholders confidence that social abuse is not part of the price they are paying for a purchased product. Ideally, enforcing due diligence should start within the board rooms of large corporations. If the board put measures in place to regulate the behaviour and actions of their suppliers, this will set an example to smaller businesses too.

Why is the global business model in such a bad shape?

Over 50% of global trade is dependent on the supply chains of major companies, and the wealth generated by labour is certainly not being shared with the- exploited workers. Corporate greed has revealed its truth: people are exploited to generate profit. Just a few leading corporate CEOs, their boards and their investors could restore human rights and ensure a safe work environment. Previously 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 matters relating to environmental, social and governance (ESG) factors, including human rights and modern slavery. Considering ESG factors are now thought to be good governance practice. This means that if the business supply chain activities result in abusing environmental and social standards, it can easily lead to financial loss with a huge impact on the investment portfolio and damaged brand reputations. Failing to consider ESG elements can present financial loss, operational risk, possible litigation and again, damage to brand reputation, which may result in permanent damage.

Transparency: who is required to publish a modern slavery statement and failure to comply

Under the Modern Slavery Act 2015’s Transparency Clause, every organisation with a turnover of more than £36m operating in the UK are required to report on what actions have been taken to eradicate modern slavery and human trafficking from their supply chains for each financial year of the business. This is a similar regime to ‘comply or explain’ The report must be included in the annual statement and must be placed on the organisation’s website. If an organisation fails to comply with the requirements, it can receive increasingly stringent legal measures up to an unlimited fine.

This approach can quickly cascade down the supply chain; there is nothing to prevent other businesses, smaller organisations to report similarly, be open and transparent about recruitment processes, policies and actions taken concerning modern slavery even if they are not legally obligated to do so.

While the intentions are right, it needs a partnership between the company, its suppliers and customers working together: for example: do you know whether your suppliers audit their subcontractors as thoroughly as you? Will your standards be applied along the supply chain, or will it be someone else’s, perhaps, less stringent standards?

However, hopes are high that a partnership between the stakeholders underpinned by good corporate governance can encourage businesses to report and comply with the Act without needing to enforce legal actions.

Combatting forced labour can be very hard, as the global supply chains can be extremely complicated. Unfortunately, this fact does not relieve businesses from taking responsibility for making every effort to eradicate forced labour and modern slavery risks.

However, it can be done, and the recommendations are:

• Companies: Transparency in business supply chains, provide more opportunity for stakeholders to vote on important issues to improve investor’s confidence and enhance the business reputation and brand
• Investors: Increased focus on ESGs
• Auditing: Transparent accounting methods
• Companies in Supply Chain Businesses: Better transparency on modern slavery. The practice of supply chain mapping and compulsory reoccurring employee awareness at all levels throughout training
• Corporate Governance Professionals: Additional training to those professionals who work on areas that involve supply chain management and risk management as regulations can vary in jurisdictions and where the supply chain ends. Modern slavery should be a compulsory board room agenda regularly to all businesses and recommended to be part of the corporate strategy

Governance professionals have a very fortunate position to help guide boards and companies to endeavour for a supply chain free of modern slavery.

Boglarka Radi

Boglarka is a member of The Chartered Governance Institute UK & Ireland currently studying for a master’s degree in Corporate Governance.