Modern slavery and supply chains – what’s your approach?

May 2016 | PROFESSIONAL INSIGHT | COMPANY LAW

Financier Worldwide Magazine

The transparency in supply chains provisions contained in the Modern Slavery Act 2015 came into force on 29 October 2015. Companies are taking a varied approach to compliance.

Background

Companies with a turnover of £36m and above who supply goods or services as a business or part of a business in the UK are required to publish a statement on their UK facing website setting out the steps they have taken to ensure their business and supply chain is free from slavery and human trafficking or that they have taken no such steps. The statement must be approved by the board and signed by a director.

There is no criminal penalty under the provisions but the risk to brand is real. The government and Kevin Hyland OBE, the anti-slavery commissioner, have stated they may name and shame those who fail to comply.

Transitional provisions are in place which give companies time to risk assess and put policies in place but like the statements themselves, there is no ‘one size fits all’ approach.

If a company is required to comply with the transparency in supply chains provisions, the board must decide which approach to take in order to risk assess their supply chain, develop policies, write a statement and track compliance.

How are companies addressing their responsibilities under the transparency in supply chain provisions?

Research by Peter Montagnon, ‘Culture by Committee – the Pros and Cons’, published by the Institute of Business Ethics, reveals that companies are adopting disparate approaches. A theme has evolved that companies are either keeping all responsibility at board level or forming a separate committee or amending existing committee mandates which then report back to the board.

The research states that 67 percent of FTSE 100 companies have a committee mandated to advise the board on values and ethics. However, within committee mandates, there is scant regard paid to supply chains themselves. The focus is on ensuring suppliers are treated fairly through measures such as prompt payment rather than the culture of the suppliers to ensure they comply with the company values. The advent of the transparency in supply chains provisions means the focus of the mandates must change. Regardless of whether a committee is appointed, we are seeing more companies appoint a person, who sometimes heads up a core team, to monitor and report to the board on compliance with the transparency in supply chains provisions.

Board responsibility

The days where boards abdicated responsibility for leading the way and setting core values for their companies have gone. Companies without separate committees consider that the issues of risk and compliance are too important to be delegated.

The board will agree strategy, policies and codes of conduct and set KPIs to underpin that strategy.

This approach involves expanding audit committee mandates to an investigative and advisory role for modern slavery compliance.

Committees

While some companies do not wish to fragment board responsibility, some have chosen to set up separate committees responsible for sustainability, values and non-financial regulation and compliance. Companies are amending committee mandates to include modern slavery compliance particularly if they are in high risk sectors such as construction, retail, hospitality, mining, agriculture or oil.

Who is on the committee? Committees tend to be made up of independent non-executive directors, one of whom is usually the chairperson. The company chief executive and directors may be members but will not have voting rights. The committees meet a minimum of twice a year up to a maximum of six times a year in high risk sectors.

Why have a committee? Companies form committees with a variety of purposes. Common priorities include ethics, risk, compliance, reputation, sustainability, conduct and ethics. Compliance with modern slavery requirements and managing associated brand risk and reputation is high on committee agendas. Having a committee with a specified mandate, such as modern slavery, allows companies to focus on the issue through a specialised systematic approach and report to the board.

What does the committee do? The overall responsibility of the committee is to advise the board on compliance issues (including modern slavery). Very few companies have resources to form a committee with a sole modern slavery mandate but it remains an option.

The committee will monitor policies, strategy and KPIs set by the board. It will monitor progress and report to the board. Reports are wide-ranging and can also include details of training rolled out connected to modern slavery, risk assessments carried out, risk measures connected to auditors, suppliers, agencies, subcontractors and other third parties, policy implementation and tracking.

Some companies have chosen to ask committees to instigate and investigate modern slavery risk in their supply chains. In such cases, the committee will monitor the board response to their report and the changes implemented. However, other companies have decided that if an instance of modern slavery is found, investigations should be undertaken by an external third party or by the full board itself.

Typically, the chair of the committee is required to attend the AGM to report to and answer questions from shareholders.

What next?

Companies required to comply with the transparency in supply chain provisions should decide: (i) the type of statement they wish to make; (ii) what policies and procedures are necessary to underpin the statement; (iii) if they want to establish a committee to report on modern slavery compliance issues; (iv) if a supply chain code of conduct is required; and (v) what documents require amendment to include anti-slavery provisions (including contracts and tender documentation).

Whichever approach is chosen, companies must be prepared to answer questions from shareholders, consumers and stakeholders.

Above all, companies must not promise what they can’t deliver. The statement is a document which will evolve over time as progress is tracked. The race to the top to drive up standards is a marathon, not a sprint.

Ron Reid is a partner at Shoosmiths LLP. He can be contacted on +44 (0)3700 86 8471 or by email: ron.reid@shoosmiths.co.uk.

Ron Reid

Shoosmiths LLP