Boardroom Best Practices

Boards take on new fight against modern slavery

Modern slavery, including forced labor, domestic servitude and debt bondage, is no longer just a moral issue. New legislation and active investors focused on environmental, social and governance (ESG) issues have brought it into the boardroom.

Slavery is often thought of as a historical atrocity, yet it lurks in the Australian community and the supply chain of Australian businesses.

A recent statistical analysis by the Australian Institute of Criminology recently estimated that up to 1,900 human trafficking and slavery victims lived in Australia between 2015-16 and 2016-17 [1] , while other estimates are even higher [2] .

However, there are more and more victims of modern slavery in the supply chain of Australian companies. Supply chains can be complex and opaque, involving multiple parties across multiple sectors and countries, and certain industries present more risk than others.

New Australian legislation following a Parliamentary inquiry into the issues to be consigned to modern times where it belongs – to the past.

Now is the time for companies and their boards to act

Organisations with at least $ 100 million in annual consolidated revenue can no longer ignore the complex issue following the Federal Government’s Modern Slavery Act (the Act) which was introduced on January 1 this year.

The Act requires organizations to outline the risks of modern security practices in their operations and supply chains; modern slavery risks, including due diligence and remediation processes; and how they assess the effectiveness of those actions.

In New South Wales, similar legislation has been published and is expected to take effect from July 1, 2019. This applies to companies in the United States.

While non-compliance carries significant financial penalties, it also brings greater reputational risks. Australian companies subject to the Act will soon have to file their Modern Statements on a government-run central register. This will quickly highlight any laggards not genuinely tackling the issue.

The fallout from the recent Royal Commission into Financial Services Misconduct should serve as a reminder of what can happen when company ignore community expectations.

Meanwhile, investors are so demanding companies take action. The Australian Council of Superannuation Investors (ACSI), which represents organizations that own, on average, 10 per cent of every ASX 200 company, is using its power to drive business to do something.

ACSI chief executive Louise Davidson wrote in a recent ACSI / KPMG report about the issue. “Ultimately, finding evidence of failure and acting to be eradicate it . “Judging harshly – like the slave traders of old.”

Where the risks reside

The ACSI / KPMG report highlighted five ASX industry at high risk of modern slavery:

  • Financial services (including through IT procurement; logistics and property services such as facilities management or cleaning)
  • Mining in high-risk geographies or have complex supply chains
  • Construction and property (partially driven by complex subcontracting arrangements, the short-term nature of projects, and sourcing raw building materials from countries in Asia where children and forced labor have been common)
  • Food, beverage and agriculture (driven by short-term work that attracts migrant workers, who are often exploited in the supply chain across production, processing, packaging and transport)
  • Health care (high risks are present in the procurement of medical goods, including electronics and surgical equipment and medical supplies).

The retail sector continues to grow consumer pressure to disclose and improve the ethical business practices across their supply chain. For six years, the annual Ethical Fashion Report has been spanning modern slavery, working conditions and environmental responsibility.

What boards and companies should do

Australia’s new legislative reporting requirements are aimed at promoting, managing and remediating modern security risks and impacts.

Each company’s annual progress will be announced on their annual modern statement. This must be approved by the board. An effective governance process for this approval requires a deeper understanding of risk and new controls.

These are the principles of modern business and how to assess the risk factors of their business faces. Key questions at the start of the modern process for each board, according to the ACSI / KPMG report, include:

  1. Is the company able to report at a group level on behalf of all geographies and across geographies?
  2. Does the board receive regular updates on changes to the structure, operations and supply chain of the company?
  3. Has the board been prepared for its purpose?

The next stages involve:

  1. Specifically assessing the modern security risks in the organization’s operations and supply chains,
  2. Outlining the actions taken to fix any problems, and
  3. Assessing the effectiveness of actions taken.

Many organizations want to be surprised at what they discover once they dig deeper for the first time. However, their response is more important than these first findings. This begins to become known.

Mirvac Group’s non-executive director, Sam Mostyn, said in the ACSI / KPMG report: “Collectively we must acknowledge that modern slavery exists – and property is no exception.” “Non-executive directors of all companies need to make sure that they are taking practical and accountable steps to reduce the risk of modern slavery.”

More resources for boards and companies

Diligent is at the forefront of supporting boards and organizations to effectively manage their growing corporate governance responsibilities. To find out more about how Diligent Boards and Governance Cloud can help your organization, contact us at info@diligent.com or request a demonstration .

[1] Estimating The Dark Figure Of Human Trafficking And Slavery Victimization In Australia. Australian Institute of Criminology. Retrieved April 17, 2019, from https://aic.gov.au/publications/sb/sb16

[2] Country Data | Global Slavery Index. Global Slavery Index. Retrieved April 17, 2019, from https://www.globalslaveryindex.org/2018/data/country-data/australia/

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