Transparency in supply chain statements will have a big impact

Posted on 20th November 2015
The Modern Slavery Act has come under a lot of criticism from campaign groups, NGOs and human rights lawyers. The main criticisms focused on the lack of victims’ remedies available and the very narrowed down definitions of human trafficking and modern slavery, which are not in accordance with established domestic and international law.

However the requirement for commercial organisations to prepare an annual ‘transparency in supply chain statement’ was much more under the radar than the rest of the Act, probably because s.54, where the requirement to prepare the statement is found, only came into force in October, some 6 months after the Act received Royal Assent in March. It was late October when we only found out (for sure) what size of organisation would be required to prepare the report (£36 million plus turnover) and when the first statements are due. Understandably then the requirement to prepare the statement was nowhere near the top of organisations’ to-do lists.

Now that s.54 is in force and the statutory guidance has been published, including the transitional provisions, we know that commercial organisations with a £36 million plus turnover with a year end on or after 31 March 2016 will need to prepare their first statements as soon as practical after the year end. The first statements therefore are due in around 4 months time and organisations are suddenly realising that they need to take action.

I have been advising a variety of organisations, from foreign multi-nationals to charities, and I am noticing a number of themes, the first of which is that no organisation I have spoken to is even contemplating taking the option of not doing the statement (which is possible under the Act). Indeed they want to do more than they are required. It is difficult to advise clients exactly what must be done as the Guidance is vague; but I suspect this is a deliberate ploy to make organisations not do the minimum! Whether that was the plan or not, it is the effect.

Another theme is surprise by the organisation as to how far it might have to go to prepare the statement. For example, one General Counsel in an organisation with tens of thousands of workers in the UK and overseas said to me: ‘well, it will be easy for us, as all our employees are well paid and looked after where ever they are’. I do not doubt that for a moment, but when I asked whether he could say the same for, say, the cleaners or the catering staff at all the business’s locations both within and out of the UK, whether employed by the company or by a contractor, he was understandably not as sure. Similarly when I talked to the General Counsel of a major airline, I could see her mind racing when we started talking about the supply chain in the 200+ airports they fly to!

The theme which is most impressive however is that after the relevant people in the organisations have digested what is required, and perhaps the extent of it, there has each time simply been a resolve to not just get it done, but to get it done properly. We are now beginning to assist organisations to do that, including the external and internal requirements, identifying high risk geographical and sector areas and suppliers, working out how best to approach suppliers, which questions to ask, and, crucially, what to do if evidence of human trafficking or modern slavery is found in the supply chain. Although if that happens it will need to be approached on a case by case basis, there is no doubt that if any of the organisations finds human trafficking or modern slavery in the supply chain they will take steps to eradicate it or to take that supplier out of its chain.

The requirement to prepare the statement is therefore going to make a difference. Never before has there been a legal requirement to look down at the supply chain in this way. I suspect that 99% of companies would root out modern slavery or human trafficking if they discover it, but the Modern Slavery Act forces them to look. It will also force organisations under £36 million but which are in the supply chain of a £36 million plus organisation to look as well.

Time will tell, but from my dealings with organisations so far I am confident that the transparency in supply chain requirements is going to make a real difference in reducing modern slavery and human trafficking world-wide.

I certainly hope it does.

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