This autumn, executive boards should expect to see slavery and trafficking as compulsory board agenda items, with the introduction of Section 54 of the Modern Slavery Act.
Large UK companies are required to publish an annual statement, signed by a director, detailing actions taken to eradicate modern slavery within its organisation and its supply chain. The first round of companies required to publish a statement are those with a year end of 31 March 2016. Taking into account an informal six month grace period, the first main round of statements are due to be signed and published before the end of September.
Every company carrying on business within the UK with a turnover of more than £36m is affected.
This is where the UK law differs from comparable laws such as the California Transparency Supply Chains Act, which is limited to the manufacturing and retail sales sectors. For these companies, reporting on anti-slavery measures is either well established or relatively achievable with existing ethical sourcing and auditing procedures. However, the UK law applies irrespective of the underlying business. Banks, media companies, insurance providers, and technology giants are now legally required to consider issues of slavery.
Court of popular opinion
Currently section 54 is wide in remit but toothless.
It is a simple disclosure obligation and there are no penalties. The only legal requirement is to publish a statement and companies could simply sign a statement that reads “No slaves here, no action taken”. However, the response is designed to be market driven, a race to the top in improving standards and enforced by the court of popular opinion.
The law is already evolving with modern day slavery high on the government’s agenda. An independent anti-slavery commissioner has been appointed and the Prime Minister recently published an article for the Sunday Telegraph detailing her commitment to eradicating slavery. May was one of the original backers of the Modern Slavery Act and the government has just committed £33m to be paid into a five year international modern slavery fund.
Last month in parliament the second reading of the Modern Slavery (Transparency in Supply Chains) Bill 2016 was heard.
Issues debated included whether companies should publish statements as part of annual reports rather than online, if there should be a centralised location for statements for improved accountability and whether the public sector should also be included.
While this particular bill is unlikely to be adopted as it is a private member’s bill and not part of the government’s formal legislative process, given the current political interest it is likely to be seriously considered. Companies should be cognisant that section 54 is likely to be the first step of many towards a global push for greater corporate accountability.
How long is a piece of string?
The law is vague and imposes an undefined reporting burden on companies. For example, section 54 does not define supply chains or require any specific items to be reported on. This is likely deliberate given the political pressures surrounding the hasty introduction of the law in 2015.
Instead of imposing a “one size fits all” checklist across a large breadth of companies, parliament has left it to the discretion of each organisation to establish an appropriate level of reporting. Government guidance notes provide detailed but rather idealistic suggestions and as such are likely to be ignored. Many commercial organisations will have neither the appetite nor time to invest in anything other than a cursory review and risk any reputational fallout.
Even for those who are eager, the potential range of issues can seem insurmountable given the lack of clarity in the law. The nature of global supply chains is complex, and often inexperienced teams are left scratching their heads as to where to start.
For companies operating in high risk sectors and subject to public scrutiny, there is no easy get out of jail response. An appropriate balance must be found between providing sufficient transparency and future proofing against risk of speculative claims.
Teams will need to find the right executive level to lead the initiative and a sensible business case will need to set out an appropriate allocation of resources to review supply chains, develop training and implement whistleblowing policies.
Directors should be well versed in the benefits of proactively addressing human rights issues, such as improved stakeholder relations, reduced supply chain disruptions, minimised reputational damage and avoided costly litigation. It should not be overlooked that the anti-slavery movement is one that garners impassioned interest and there is an added benefit of improved internal engagement where employees feel aligned with company values.
Other resources available to organisations include third party accreditation schemes and a growing market of specialist external consultants.
It takes a village
Slavery continues to be one of the world’s most profitable criminal activities with an estimated 14,000 slaves in the UK.
As NGOs begin to critique and benchmark statements, large companies should expect growing public and political pressure to ensure they are not benefiting directly or indirectly via suppliers, and to demonstrate a strong but proportional response, within their spheres of influence.
Meaningful collaboration and engagement between companies, NGOs and the government is crucial, to ensure Section 54 is not a public relations or political exercise, but a landmark move towards the eradication of modern day slavery within the UK and globally.