Australia, like many other countries in the world, 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 USA 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 low 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 respects for human rights that is consistent with the UN Guiding Principles on Business and Human Rights and also the OECD guidelines from the Forced Labour Convention.
Why More and Why Now?
So, why this move to new legislation? Well, because there was an estimated 40.3 million people in modern slavery according to the International Labour Association (ILO) in 2016 and of these people, 24.9 million were in forced labour in various industries: domestic work, construction, manufacturing, agriculture and fishing, hospitality, retail, mining, and so on. Forced labour in the private economy generates $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” and includes the “crimes of human trafficking, slavery, and slavery-like practices such as servitude, forced labour, 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 that is asked to work to repay extortionate travel or cost of living fees would de facto fall under this definition and examples of such behaviours are numerous.
Where to Start and How to Go About It?
- Step One: 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 have little to no information about their suppliers’ suppliers, and so on. Documenting the entire chain is critical in ensuring a sound process.
- Step Two: 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 Three: Enact continuous monitoring
- Applying this policy diligently via due diligence and continuous monitoring is then key. It cannot be a once a year exercise, it must be continuous!
- Step Four: Report to the public
- Last but not least comes the public output, with a report approved by the Board so that it is really endorsed at the highest level.
SAP Solutions Help Automate Supply Chain Documentation
SAP has solutions that can help customers automate this process. While this isn’t an exhaustive list, here are the ones that come to my mind first:
- SAP Business Partner Screening: With this solution, customers can rapidly—and automatically—screen their vendors against multiple criteria. This includes by country of course, but also databases such as World-Check from Thomson Reuters.
- SAP Process Control: Yes, this enables the recording and sending of policy acknowledgements. But it also allows relevant automated monitoring to be included in the internal control framework directly (meaning, this becomes a “business as usual” matter).
- SAP Audit Management: This solution helps organizations document and follow their due diligence and their regular audits to ensure that no action items fall through the cracks.
The MSA (and here I’m not referring to the Middle Stone Age, even though it could feel like it, but the Modern Slavery Act) is, of course, a step in the right direction, even if some would 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 decision 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:
- Their supply chain will already be on continuous improvement—more efficient and already compliant
- 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 which 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
Read the other blogs in our GRC series to learn more about topics like this one and our GRC solutions.