3 Strategies for Company Boards to Address Modern Slavery Risks In 2022
Modern slavery is a broad term that encompasses human trafficking, forced or compulsory labour, wage theft, and child exploitation in any industry. The International Labour Organization (ILO) estimates that globally there are 89 million victims of forced labour. Approximately 50% of these are labour exploitation victims in private enterprises such as mining, agriculture, construction, manufacturing, and utilities. While Australia is committed to combating modern slavery, globalisation increases the challenges. For example, we do not want products that have benefited from slavery in their manufacturing process overseas to be sold in Australia.
To tackle this issue, the Australian government passed the Modern Slavery Act 2018, which now imposes mandatory reporting requirements on all companies with annual revenue over $100 million. However, as the Monash Centre for Financial Studies research reveals, legislation alone does not ensure universally high compliance standards. More than a third of the submitted reports received a fail score when assessed on several different criteria such as due diligence, slavery risk assessment and risk training. This is alarming and indicates that Australian companies do not fully understand the modern slavery risks in their supply chains and operations.
Company leaders need to proactively implement modern slavery risk management strategies to see a significant impact on the issue. Here are three ways company boards can strengthen their commitment and improve compliance for 2022.
Implement policies and procedures to manage modern slavery risks
Company boards can implement a risk management program that demonstrates their commitment to human rights to shareholders and customers. Just words are not enough – the commitment should reflect in all company operations and levels. This could include the establishment of a project team that manages and is accountable for the organisation’s anti-slavery strategy. They can work together with the team to:
Set yearly program goals
Establishing a baseline and setting goals are key components of an effective modern slavery risk management program. Plans should include action items around:
- Employee training
- Supplier review process
- Onboarding new suppliers
- Logistics review process
Map the existing supply chain
While most company boards are familiar with their first-tier suppliers, they often have very little or no visibility with regards to their tier 2 and beyond suppliers. Modern slavery risk typically increases exponentially towards the end of the supply chain – especially with contractors that work directly in sourcing raw material and manufacturing essential components. Over time the objective has to include transparency and visibility across the entire supply chain with an emphasis on the higher risk components.
Review existing processes
A diligent review of existing policies and procedures is necessary to find gaps and address them. The team can close legal loopholes and increase transparency in all dealings with external third parties. A review also helps implement more practical policies that enforce human rights and human safety. For example, suppose the risk management team finds that suppliers are unwilling to report or address human rights issues. In that case, they may decide to update supplier contracts that enforce specific terms and codes of conduct.
Implement modern slavery report and response mechanisms
Company boards can implement a communication plan for reporting and resolving any modern slavery incidents. The plan can include action items such as:
- Content of the report
- Reporting channel
- Who can make the report?
- How is the report verified?
- Who actions the report?
Relevant stakeholders in the business should be familiar with the communication plan and be adequately trained to respond appropriately to the slavery incident. The company’s response mechanism should take into account the following factors:
Needs of the victims
The victim’s safety should be the top priority in any response. Depending on the location of the incident, it could be a serious crime that requires the company to follow specific jurisdictional requirements. The legal team should be equipped to handle this without further harming the victims.
Companies may be legally obliged to compensate the victims or ensure they receive appropriate compensation from their owned or controlled entities. Efforts should be made to expedite the compensation process and ensure it reaches the affected individuals in full. Doing so can protect the company from further legal and reputational harm.
A solid internal and external communication policy about modern slavery incidents allows the company to take control of the dialogue and prevent reputational damage. The policy ensures that all communication is transparent, prompt and sensitively addressed. It is best to keep the message focused on remedying the situation and preventing future harm.
Implement monitoring mechanisms for existing modern slavery risk management policies
Finding meaningful methods to monitor the effectiveness of a company’s modern slavery risk management policies can be challenging. However, not doing so can render them meaningless. For example, a company board might implement the policy that all suppliers must pay fair wages to all their employees. However, if the supplier gets away without submitting or submitting fake reports, the policy is ineffective. Every policy must include mechanisms to verify policy compliance. Below are some suggestions.
Adopt appropriate KPIs
The setting key performance indicators with appropriate metrics to review policy compliance. Example metrics include:
- Employee training completion rate
- Supplier compliance scores
- Percentage of suppliers above a certain score threshold
- Year on year improvement in supplier performance
Using data and trends to measure performance can help company boards keep track of their progress and measure social impact. They can report positive KPIs to customers and shareholders to increase goodwill and continue implementing new policies where KPIs are low.
Ongoing stakeholder engagement
Company leadership should engage with internal and external stakeholders to receive first-hand feedback on the policies they implement. By talking directly to the people involved, company boards can improve their modern slavery risk management processes while also becoming aware of new risks in the ever-changing slavery landscape. For example, internal teams might be experiencing increasing workloads for modern slavery policy compliance without understanding its impact. Or they might require additional tools and technology to implement the policies more effectively at the grassroots level.
The three strategies outlined above will help company boards to address their slavery risks more effectively going forward and thus help improve the quality and content of the mandatory annual statement. Leading global research firm Gartner highlights here that the diverse range of approaches to responsible sourcing can “make things confusing”, and given that businesses don’t operate with unlimited resources, the key to responsible sourcing is asking yourself “what should we focus on”? Prioritisation is key – prioritising suppliers by risk or impact, to act where it matters the most.