Protecting reputation - why understanding your supply chain is so important

The recent case brought against Biffa by three individuals who were victims of human trafficking and slavery has emphasised, yet again, the importance for businesses of carrying out effective due diligence on their supply chains. 

In this case, it seems that the individuals were placed with Biffa by an employment agency and were paid for their work by Biffa.  However, the organised crime group that had trafficked the individuals into the UK had set up the bank accounts for the trafficked individuals, meaning that, in practice, those individuals had no access to their wages.  The claim, brought by the trafficked individuals, is that Biffa had a responsibility to prevent forced and trafficked labour in its workforce. 

Biffa has since instituted significant measures to ensure that its practices are robust to avoid modern slavery in its labour force and supply chain going forward.

So, what can businesses do to protect themselves? 

The Modern Slavery Act 2015 (the Act) was introduced to tackle modern slavery and human trafficking.  One element of the Act is that it requires annual reporting on modern slavery risks (often referred to as S.54 Transparency Statements).  The S.54 requirements apply to 'commercial organisations' supplying goods and services with a turnover of £36 million or above. There are specific provisions and guidance issued by HM Government with respect to the calculation of the turnover level and the extent to which the turnover of other group companies should be taken into account.

Due dilligence

S.54, and accompanying government guidance, sets out what the Transparency Statements should include.  In order to make the statement, businesses need to carry out checks (due diligence) on their supply chains.  This extends to sub-tier suppliers to the business. Indeed, S.54 requires a business to set out its due diligence processes and also to report on its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or its supply chains. As the Biffa case demonstrates, businesses should pay attention to their entire supply chain and consider causes, such as lack of capacity, training, pricing, absence of worker protections in source countries and other factors.

In order to carry out effective due diligence, it is essential to understand a business’s exposure to risk.  Mapping your supply chain will help you to assess the level of potential risk and to manage that risk.  Business sourcing or supply chain management teams should be central in adressing modern slavery, through the collection of data and 'intelligence' about the supply chain. An inquisitive mind is also needed. What sort of labour is involved? Is there a heavy reliance of low-skilled migrant labour? Where has that labour come from? How has it been engaged in the supply chain? 

One challenge is that social audits have historically been the primary means of used by businesses to conduct checks on the treatment of workers. However, in many instances these have been ineffective in leading to sustained improvements in working hours, overtime, wage levels and freedom of association. 

Some lessons to learn from

The collapse of the Rana Plaza garment factory in Bangladesh in 2013 took place within a certified, audited supply chain.  In 2016 in the UK, Mohammed Rafiq became the first company owner to be convicted of human trafficking. His firm Kozee Sleep and its subsidiary Layzee Sleep supplied many leading British retailers, all of which, despite carrying out regular ethical audits, failed to spot any wrongdoing.  It's clear then that proactive and sustained supply chain due diligence is needed to move businesses towards a more proactive approach to protecting human rights. Similarly, labour practices which fall short of modern slavery can cause significant issues with respect to the reputation of a business.  For example, an independent report has recently been carried out on the online fashion retailer, Boohoo, found that Boohoo was aware of the poor working practices of its factories in Leicester and that Boohoo’s monitoring was inadequate due to weak corporate governance.  The brand has since pledged various reforms.

A positive example of a business identifying risks and taking steps to mitigate those risks is the retailer, Mothercare.  The company reported difficulties in obtaining genuine data through audits and recognised that “sensitive issues… such as retaining workers’ passports, forced overtime or bonded labour’ cannot be easily spotted”. Mothercare responded to the difficulties by implementing a team of in-country sourcing specialists and multi-stakeholder groups to provide feedback on risk mitigation. they demonstrated its work to combat modern slavery with a case study of action taken following reports from NGOs regarding the particular vulnerabilities of female workers in Tamil Nadu’s garment and textile industry. Mothercare gave details of increased training and a widened scope of internal assessments, due to the discovery of additional risks.

Further steps

In addition to carrying out regular due diligence, there are additional steps that businesses can take, such as examining internal business procedures to avoid making demands of suppliers or subcontractors that might lead them to violate human rights. These types of demands include making late payments or not paying a sufficient amount and placing orders at the last minute and/or under high pressure.  Low profit margins and high flexibility and speed requirements may push suppliers to subcontract part of the production to smaller, less trustworthy manufacturers who have not been previously vetted or screened. Analysing production and buying cycles, working with suppliers to reduce detrimental buying practices and establishing mechanisms to mitigate the risk of irregular subcontracting will help companies to stay in control of their supply chains.

In a world dominated by social media, and the rise of the 'consumer with a conscience', there is much to be gained by businesses taking proactive steps to ensure that they are a 'force for good' and advocates of human rights.