Australian businesses must address gaps to manage modern slavery risks
Presenting with a panel of experts at a recent Modern Slavery Forum hosted by the Catholic Archdiocese in Sydney, I was asked how prepared Australian businesses are to manage modern slavery risks. We also dived a little deeper into understanding some of the gaps Australian businesses face in meeting their modern slavery reporting requirements. This article provides an overview of my responses to the questions posed at the Modern Slavery Forum.
Level of preparedness
Most of the businesses I’ve spoken to and am working with, which include large multinationals, do not have the systems and processes in place to effectively assess human rights or modern slavery risks in their own operations let alone across their complex, multi-tiered supply chains.
Many Australian companies are still struggling to work out who within their organisation will be responsible for preparing their Modern Slavery Statement and what that actually means in terms of tasks that need to be completed over the next 18 months or so leading into publication of the first statement.
Some companies have delegated the responsibility to their CSR or sustainability teams, others to procurement, some say it belongs with risk and compliance. The only thing companies seem to agree on is to keep it as far away from their legal people as possible.
There’s no doubt the new reporting requirements will impose a regulatory burden on businesses, but there are opportunities too.
Reporting entities can use the Modern Slavery Act as an opportunity to review their procurement and risk management processes and check whether they are effective in identifying and addressing not just modern slavery risks but other legal, commercial and reputational risks in their operations and supply chains.
Companies with policies and well-established due diligence, governance and risk-management systems in place will be better prepared to face the reporting and transparency requirements of the Act.
Companies with existing supplier pre-qualification and assessment processes have already started assessing their suppliers against additional human rights and modern slavery requirements. Supplier Codes of Conduct and Contract Clauses are being amended to reflect their expectations around modern slavery risk management. Suppliers to these businesses will need to respond to these new requirements and the challenges they bring.
Having assisted a number of large businesses in Australia undertake modern slavery gap analyses and develop modern slavery risk management strategies, I’ve developed a clear understanding of the current gaps and opportunities. This blog post focuses on the gaps. A future blog post will focus on the opportunities or actions businesses can take to better identify and manage modern slavery risks and address the reporting requirements.
From my perspective, the gaps fall into five key categories:
· Organisational Culture and Business Models
· Governance and Due Diligence
· Supplier Visibility and Understanding
· Labour and Employment
· Training and Communications
Below is a brief summary of what I have found under each of these categories:
1. Organisational Culture and Business Model
Australian business culture is still very focused on keeping shareholders happy, rather than being accountable to stakeholders. Under this model, businesses are driven by profit rather than purpose and executive decision-making does not effectively consider factors beyond the financial bottom line. However, in a climate where stakeholders, including investors, are increasingly demanding that companies have a purpose beyond making a profit, global business leaders are recognising that a company’s future success and competitiveness will hinge on its commitment to helping solve society’s problems.
For the majority of businesses I have worked with, the risk focus tends to be on risk to business, not risk to people. Effective human rights due diligence focuses on risk to rights holders rather than the risk to the company (such as the current focus on corporate reputational risk when human rights impacts are identified).
The responsibility to respect human rights (as per the UN Guiding Principles) is not embedded into Australian corporate culture, knowledge and practices. Furthermore, the salient or most severe risks to human rights are not understood, documented, addressed or reported.
2. Governance and Due diligence:
Overall Board engagement on modern slavery risks remains low. There is an urgent need to engage and educate Board members and company executives and to review the composition of Boards. Business should consider whether their Board members have the knowledge and skills to effectively address modern slavery risks and sign off on their Modern Slavery Statement.
Company policies, procedures and codes of conduct largely do not incorporate specific modern slavery issues and risks. Roles, responsibilities and accountabilities for identifying and managing modern slavery risks within an organisation’s operations and supply chain are not defined or documented. Most businesses I have worked with do not have clearly defined modern slavery strategies or action plans for getting things done.
3. Supplier Visibility, Understanding and Management
For many organisations there remains a limited understanding of the supply chain and there is generally no visibility beyond Tier 1 (or at very best Tier 2) suppliers. There remains a huge amount of uncertainty of where products/raw materials are sourced which results in high risk to rights holders and to the business.
Australian businesses generally have poor supplier engagement processes and little or no engagement around modern slavery and other human rights issues. While a number of businesses include broad human rights requirements in supplier contracts, very few businesses I have worked with include specific clauses on modern slavery. Even fewer business assess the levels of compliance with contract clauses
Supplier Codes of Conduct (where they exist) are often not signed (or signed only by a limited number of Direct/Tier 1 suppliers), are not enforced and there is little or no verification of their effectiveness.
4. Labour and employment
The biggest modern slavery issue in terms of labour and recruitment is around labour hire contractors who are often unregulated and unmanaged. The supplier surveys I have conducted reveal a lack of labour rights policies across organisations and poor communication of worker rights to employees. Even among Australian companies there is a reliance on government websites to communicate employee entitlements to workers.
Australian businesses have limited if any evidence of responsible recruitment practices among their supplier base. Suppliers are largely unable to provide evidence of employment contracts for their workers, or documentation of their entitlements. Australian businesses have very little insight into the recruiting practices used by suppliers meaning that issues around recruitment fees, dishonesty and luring individuals with false promises remain prevalent throughout the extended supply chain.
5. Training and communications
Existing employee, management & Board training programs largely do not incorporate modern slavery issues and only provide limited broader human rights information.
While many Australian businesses have well established WHS incident management procedures, most of the businesses I have worked with or spoken to have not implemented employee or supplier grievance and whistleblowing policies on human rights or modern slavery issues.
There remains very limited commitment to Worker Voice processes among Australian businesses and considerable uncertainty and lack of understanding of what remedy looks like in an Australian context. Businesses remain unclear about who to call if/when slavery is found in their supply chain – either within Australia or internationally. It is hoped that the soon to be released government guidance material will shed some light on this.
So, while companies may not have the necessary tools and resources in place yet – all should have a baseline for moving forward.
While I have presented a number of gaps, there are also numerous opportunities to integrate modern slavery risk management into existing business processes. These opportunities will be covered in a future blog.
Please get in touch with us if you require support to identify the gaps in your business. Our Modern Slavery Gap Analysis Tool will help you identify where improvements can be made and provide you with an action plan to get started.