Combating Modern Slavery: It’s More Than Compliance, It’s Ethics!

Thomas Frénéhard

Australia, like many other countries, is currently reviewing its response to exploitation in supply chains, and this could take the form of new legislation: the Modern Slavery in Supply Chains Reporting Requirement. It’s not the only country to combat this scourge with legislation; the U.S. already has the Dodd-Frank Act’s rules on conflict mineral disclosure (California even has a Transparency in Supply Chains Act). The UK passed the Modern Slavery Act, the Netherlands have a Child Labour Due Diligence Law, and France adopted a law imposing due diligence to prevent human rights abuses in supply chains.

More widely, the EU has Directive 2014/95 that addresses social responsibility and treatment of employees, but also respect for human rights. This directive is consistent with the U.N. Guiding Principles on Business and Human Rights and the OECD guidelines from the Forced Labour Convention.

Why more, and why now?

Why this move to new legislation? Well, because there were an estimated 40.3 million people in modern slavery, according to the International Labour Association (ILO), in 2016. Of these people, 24.9 million were in forced labor in various industries: domestic work, construction, manufacturing, agriculture and fishing, hospitality, retail, mining, and so on. Forced labor in the private economy generates US$150 billion in illegal profits each year.

So, it’s a global issue at a massive scale that is difficult to combat effectively. It can no longer be simply treated as a corporate social responsibility challenge.

When mentioning the word “slavery,” the first image that comes to mind are people in shackles. But modern slavery can take various forms. The NGO Walk Free Foundation defines it as “situations where one person has taken away another person’s freedom—their freedom to control their body, their freedom to choose to refuse certain work or to stop working—so that they can be exploited. Freedom is taken away by threats, violence, coercion, abuse of power, and deception.” It includes “crimes of human trafficking, slavery, and slavery-like practices such as servitude, forced labor, forced or servile marriage, the sale and exploitation of children, and debt bondage.”

Most regulations have adopted very similar definitions. A worker whose passport has been confiscated or who is asked to work to repay extortionate travel or cost-of-living fees would de facto fall under this definition. Examples of such behaviors are numerous.

Where to start and how to go about it?

Step 1: Describe the supply chain. Most regulations or guidelines have the same first step: Describe the supply chain. It might seem simple, but there are more than enough studies showing that most organizations have direct contact and knowledge of their first-level suppliers but little to no information about their suppliers’ suppliers, and so on. Documenting the entire chain is critical in ensuring a sound process.

Step 2: Document their policy. The second step for companies is to document their policy on the matter, including describing their sourcing and procurement process. They must ensure that this policy is acknowledged and applied internally and externally by their suppliers. Only with shared responsibility can this process work well.

Step 3: Enact continuous monitoring. Applying this policy via due diligence and continuous monitoring is then key. It cannot be a once-a-year exercise; it must be continuous!

Step 4: Report to the public. Last but not least comes the public output, with a report approved by the Board so that it is endorsed at the highest level.

What’s next?

Of course, the MSA is a step in the right direction (and here I’m referring not to the Middle Stone Age, even though it could feel like it, but the Modern Slavery Act). Some might argue that a lack of fines translates into a lack of “incentive” for organizations to implement these requirements. But, as stated in the consultation paper from the Australian Government, “There is no silver bullet to end modern slavery.”

So it’s up to every company to exercise its influence to make this change and improve the conditions of workers in the supply chain. And here, end consumers also have a role to play—via public scrutiny, of course, but also because we can vote with our purchase decisions and our loyalty to brands that work for a better tomorrow.

To me, it’s clear that there will be more regulations to come, they will be more stringent, and they will have more “teeth.”  When they arrive, companies that have already embarked on a transparency exercise will have a dual benefit:

  1. Their supply chain will already be on continuous improvement—more efficient and already compliant.
  2. They will already be benefiting from increased brand image. Some recent studies indicate that reputation contributes up to 37% of the customer loyalty decision. And consumers are not the only ones for whom this is an important criterion; investors also rank reputation high on the scale.

The bottom line? After KYC (Know Your Customer), it’s time for KYS (Know Your Supplier)!

I look forward to reading your thoughts and comments either on this blog or on Twitter @TFrenehard.

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This article originally appeared on SAP Analytics.

Thomas Frénéhard

About Thomas Frénéhard

Thomas is part of the Global Centre of Excellence for Finance and Risk solutions where he has a focus on Governance, Risk, and Compliance topics. Prior to that, he was a Senior Director in the Governance, Risk, and Compliance Solution Management team. His particular responsibility was with Risk Management but other functional areas of focus were in Internal Control & Compliance Management and Audit Management. He is also a regular contributor on social media and presenter at various SAP and non-SAP conferences on GRC matters.