Review of Modern Slavery Act – culture not just compliance: can you be sure there is no modern slavery in your supply chains?
The Modern Slavery Act 2015 was the first national legislation on the matter of slavery and human trafficking. It requires businesses with a global turnover of at least £36 million, with a presence in the UK, to prepare and publish a modern slavery statement in relation to each financial year, summarising the steps the relevant organisation has made that year to ensure that there is no human trafficking or modern slavery in its business or supply chains, or stating that it has taken no such steps.
Whilst the legislation was ground-breaking at the time, there is concern that compliance with the need to produce a statement has thus far been inadequate. According to the Government, only about 60% of companies falling within the requirement had published a statement by October last year, causing the Government to write directly to the chief executives of 17,000 businesses to up their game or risk being named as being in breach of the law.
What is modern slavery?
Modern slavery as a term encapsulates slavery, servitude and forced or compulsory labour. A key element of slavery is the offender behaving as if he/she owned the person, which deprives them of their freedom. So, for example, poor working practices, paying below minimum wage, combined with threats to the worker or their family, or control of the worker's passport or identity papers, are likely to fall within the concept.
Examples include Kozee Sleep, the bed making business which supplied companies including Next and John Lewis, which in 2016 was found to have been exploiting its 'slave workforce' brought over from Hungary on the promise of good wages, food and somewhere to live but who in reality were forced to work up to 16 hour days for very little pay.
Why the lack of compliance?
It may be that the lack of enforcement and penalties (to date there have been no injunctions issued by the Government to force compliance, which is currently the sole penalty for non-compliance), and possible confusion regarding a company's reporting obligations are behind this lack of compliance. Is it just seen as an irritating box-ticking exercise by larger companies with other issues on their plates?
How is this being addressed?
Things are changing. An independent report commissioned by the Government in July 2018 to review the Modern Slavery Act 2015 has reported its findings. Its general conclusion is clear: recommending that the Government takes tougher action to ensure companies are taking their responsibilities more seriously to eradicate modern slavery from their supply chains. Large companies which fall within the scope of the Act and which have thus far viewed modern slavery as not really relevant to them therefore need to start to take note.
The Review made a number of specific recommendations, which are being passed on to the Home Secretary for approval, following which the report will be laid before Parliament.
Proposed recommendations for change
The independent Review made the following key recommendations:
- Clarifying the companies within scope – the Government should establish an internal list of companies falling within the scope of section 54 of the Act (i.e. needing to produce a statement).
- Improving the quality of the statements – by including in the statutory guidance a template for companies to follow and by making mandatory the six areas covered by section 54 of the Act which Government guidance currently just expects companies to cover in their modern slavery statements. These are:
- the structure, business and supply chains of the organisation;
- the organisation's policies in relation to slavery and human trafficking;
- its due diligence processes in relation to slavery and human trafficking. It is worth noting as an aside here that due diligence does not equate to audit. The fall-out from high profile cases, such as the collapse of the buildings in Rana Plaza, highlights the disadvantages of relying on a 'box ticking' audit rather than conducting an in depth due diligence process;
- the parts of its business and supply chains where there is a risk of slavery or human trafficking taking place and the steps it has taken to assess and manage that risk;
- Its effectiveness in ensuring that slavery and human trafficking are not taking place in its business or supply chains, measured against whatever key performance indicators it considers appropriate (this is an area which to date has not been well covered in the published statements); and
- training available to its staff.
- Embedding modern slavery reporting into a company's culture – by requiring businesses to have a named designated board member personally accountable for the production of the statement.
- Increasing transparency – by creating a central, Government-run repository to which companies would be required to upload their statements (as well as publishing them on their own websites). This would be accessible by the public and would clearly outline the minimum standard reporting requirements. The adverse reputational impact on those companies who fall short in their statements (or fail to publish a statement at all) is clear and should act as a warning.
- Monitoring and enforcing compliance – monitoring should be carried out by a public body and penalties should be introduced for non-compliance. The Review recommends initial warnings, fines as a percentage of turnover, court summons, and directors' disqualification. This would be a significant change to the current situation and clearly could have a serious impact on a business, not only in terms of the bottom line but also regarding the directors' duties as set out in section 172 of the Companies Act.
- Extending the scope of section 54 to include the public sector - this would include a strengthening of the Government's public procurement processes to ensure that non-compliant companies are not eligible for public contracts.
- Commission research into consumer attitudes – the Review noted the power of consumer opinion to change corporate behaviour and recommends research into how consumer attitudes in this area can be influenced. The Review highlights the best practice of those companies who work proactively to identify and address modern slavery, including adding training on modern slavery to new joiner induction programs.
Corporate culture is key
Engaging staff through training and increasing awareness align with the greater emphasis being placed in the business world on corporate culture. Whilst often an intangible concept, the 'culture' of a company is of increasing importance, being a key theme of the new UK Corporate Governance Code and the GC 100 Guidance on directors' duties.
Whilst the Review's recommendations have not (yet) been enshrined in further legislation, it is clear that Government and the independent review body are in agreement that the existing legislation is inadequate. In our view, changes to improve compliance are inevitable and large (in-scope) companies who are not already compliant should start to act now to anticipate these.
For guidance on Modern Slavery issues, please contact Sarah Mitchell.