December 2019

Modern slavery emerges as a major reputational issue

A lack of legislative clarity may hamper Aussie companies tackling modern slavery in their supply chains, writes Michael Cossetto.

Throughout 2019 we’ve seen media reports on the use of forced labour in the manufacture of Australian goods.

This insidious form of modern slavery is why the Federal Government enacted new legislation in a welcome move to clamp down on this practice.

However while the intention is right, the reality is companies tackling the use of forced labour in their international supply chains face major challenges in adapting to these new laws.

That’s because the Modern Slavery Act lacks any real detail on what companies are expected to do in practical terms in ensuring their supply chains are slavery free.

Instead, a mandatory reporting system under the legislation puts the onus on large companies to self-report on their supply chain monitoring and risk assessment processes, with details then being available publicly.

Or to put it another way, the danger for many companies is that there is now a public compliance system in place with few or no compliance guidelines.

Companies acting in good faith in their self-reporting could still face significant reputational damage because of the actions of a third or fourth order supplier with whom they have no direct relationship, control or even knowledge of.

One option for Australian companies then is to ensure their direct suppliers are contractually liable for the actions of their own supply chain partners.

This in itself could pose challenges.

Unless you’re a major customer many suppliers won’t always be prepared to do that and others may just engage in a tick a box exercise. Ultimately Australian companies may therefore need to extend on-the-ground checks beyond a supplier's factory, and seek inspection access further down the supply chain.

That also won’t always be as easy as it sounds, not simply because of cost and access issues, but again because it is unclear exactly how far, or to what lengths, you need to go to comply with this legislation.

The vast majority of Australian companies understand the importance of doing the right thing by customers who are placing increasing importance on the issue.

We don’t see any lack of will from business but rather a lack of clarity as to what exactly is required of them. This risks leading to an inconsistent and uneven reporting regime.

For now we’d recommend that at a bare minimum companies covered by the legislation follow some practical steps to help to ensure compliance:

  • including clauses in contracts with suppliers obliging them to be familiar with and to comply with the requirements of the new legislation;

  • having procurement policies that require suppliers to complete periodical questionnaires relating to the sources of their products, materials and business practices and compliance with the requirements of the new legislation (the obligation to promptly and truthfully complete questionnaires should also be a mandatory contractual requirement for the company’s supply chain and other procurement contractors);

  • having policies in place that require the company’s relevant operational and procurement functions to periodically audit suppliers in field (ie. factory inspections) to ensure compliance and properly report on the findings to senior management so that they have the capacity to report under the new legislation – these policies should also address remediation steps to be taken where non-compliance is found to exist; and

  • providing regular compliance training to employees (especially those involved with the procurement and operational aspects of your business).

 
Author: Michael Cossetto