If you are a company that is global, or is part of a global supply chain, there is a likelihood that you will be caught up by the Australian Modern Slavery Act, the UK Modern Slavery Act or the California Transparency in Supply Chains Act.
That’s the warning from Mark Devadason, a board member of anti-slavery group the Mekong Club, a Hong Kong not-for-profit organisation that works with the private sector to fight modern slavery in Asia.
Devadason, who notes that anti-slavery legislation is also being considered in Hong Kong and New Zealand, says the trans-national legal risk to businesses is now very real. But it’s not the main reason for boards to take a closer look at their supply chains. That reason is simple – slavery is wrong.
“It is just an ugly crime, right? If you are an ethical board and you are responsible for the culture of your company it is quite an easy decision – this is not to be tolerated.”
What is modern slaverly?
The concept of modern slavery includes forced labour, child labour, debt servitude, low or no pay, threats of violence or actual violence, human trafficking and domestic slavery.
“The indications of slavery can be withholding of wages, restricted movement (on a boat, or even shackled), threats of physical or sexual violence, threats to their families, the taking of identity documents, migrant workers paying an agency to get work and often borrowing to get work.
“Somewhere between 6 and 10 million people in slavery are potentially associated with the modern supply chain – the clothes we wear, the food we eat, some of the goods that we consume. Slavery figures are at an all-time high in human history, which is a function of the size of mankind at this point, but which is also an unacceptable statistic,” Devadason says.
“When surveyed, 77% of companies believe there may be some slavery in their supply chain. It is not an academic issue.”
The complexity and length of modern supply chains makes it very difficult to be certain that a product has been produced without slavery somewhere along the line. Devadason says if you see a product at a price that is too good to be true, there is a reasonable chance that slavery in the supply chain is the secret costcutting ingredient.
Identifying problems and liability
Devadason’s Mekong Club provides tools and advice to businesses to help identify and reduce slavery. The Mekong Club has 37 member businesses including highprofile names such as The Walt Disney Company, Skechers, KPMG, EY, Adidas and Hallmark Cards.
||Estimated annual profits from modern slavery
||This region accounts for 62% of the world's slaves
|40.3 million people
||Enslaved across 167 countries
|16 million people
||Are in forced labour
|manufacturing, fishing, construction, sex work
||Are industries known to have high levels of slavery.
In July 2017, the Mekong Club launched The Business Pledge Against Modern Slavery, which provides a mechanism for companies to monitor and improve their anti-slavery activities. The Pledge includes recommendation to publicly commit to fighting modern slavery, to ensure this commitment is captured in a code of conduct that is signed off at board level, and to conduct audits of suppliers that include questions on modern slavery.
Devadason knows of one high-profile international manufacturer that discovered debt-slavery in one of its factories in China after a supply chain review. While reluctant to name the corporation, he says they resolved the issue by paying off the debts of the factory workers “so that wages were actually going to the workers rather than to debt”.
“We are finding that companies that dig deep in their supply chains find opportunities to do better.”
The Mekong Club encourages boards to commit to eliminate modern slavery and to ensure their companies report on what they are doing to ensure the scourge is reduced. But in complex global markets, how far down the chain does a company’s responsibility reach?
“At what point does our liability, our responsibility, start and stop? To be honest, that is one for the conscience of the board. It addresses the values of the company.”
Opportunities and risks
There is an increasing expectation that businesses will accept some responsibility for what flows up through their supply chains, Devadason says.
Times have changed since the 1996, when Nike founder Phil Knight dismissed images of children sewing Nike brand footballs as not Nike’s responsibility. In fact, it was the backlash against Nike – now a leader in ESG efforts (and marketing) – that helped
to kickstart the modern anti-slavery movement in the West.
“Phil Knight of Nike asked ‘What’s that got to do with us? That’s not our company.’ Basically the whole world said you can’t be the owner of a supply chain and not feel responsible for what happens.”
But Nike came around to the prevailing world view and sought to reduce the slavery in its supply chain, including through introducing a supplier code of conduct. When a similar story broke in 2006 – Pakistani children sewing Nike footballs – the company sacked the supplier outright.
Devadason says this type of approach can benefit a company in many ways. Firstly, good companies attract good staff.
“There are statistics that suggest over 70% of staff expect to see companies have some form of purpose. Being on top of this issue will attract better people.”
Secondly, it can reduce the risk of scandal.
“The millennial generation are approaching 40 years old. They are the bulk of your workforce and also make up an increasing part of your customer base. That generation, and the younger generation, are very socially [media] active. If they see a scandal, or are unhappy that your company is exposed, they could set up a major social media campaign that could destroy your reputation.”
The rise of socially conscious investment is also a consideration.
“A larger and larger portion of that investment base is looking to see ESG practices and looking to see socially responsible businesses. You cannot be associated with slavery and slip under the radar.”
It could even impact a company’s ability to raise finance. Devadason has background in banking – country CEO of Standard Chartered Bank in Japan, then Thailand, before finishing his time at the bank as global head of sustainability – and says the banking industry is becoming very cautious about exposing itself to antimoney laundering regulations.
Modern slavery is a US$150b problem. Every single dollar of that US$150b is by definition the proceeds of crime. Which therefore means that if it has flowed through a regulated banking system, that bank is exposed to the risk of prosecution. So banks are becoming alert to this issue. It is inconceivable that some of those proceeds are not flowing through regulated banks.
“Banks are cautious lending to companies that may be exposed to ESG legislation or money laundering.”
What can a board do?
“It’s one for a board to debate and it’s really important,” Devadason says.
“You don’t really want to be part of an organisation if a scandal blows up. Do you really want to put your staffing at risk, your customer base at risk and your reputation at risk? It’s not worth it.
“No one wants the title ‘chief slavery officer’, but companies need to resource this issue if they are serious about this. Companies that have deep, core values of doing the right thing will not find this too challenging.”
Anti-slavery governance tips
Appoint a dedicated human resource or team to the company’s anti-slavery strategy implementation, for example an ethical trading/global sustainability team.
Establish a “modern slavery task force” to bring company members across different sectors and locations together in a collaborative effort.
Assign specific responsibility to key company departments, such as internal audit, compliance. Update and escalate modern slavery strategy-related decisions to the company’s top level such as the executive management team, the CEO or the board.
Create a responsible committee at the board level.
Source: The Business Pledge Against Modern Slavery, published by the Mekong Club