 Multinational corporations (MNCs) have in recent years been facing increasing pressure to ensure high standards of social compliance in their supply chains. In 2016 alone, media reports alleged potential supply chain links between western retailers and bonded labour in the Thai fishing industry, as well as between tobacco producers and child labour in Indonesia. These and other reports illustrate both the blurring lines between unethical and illegal labour practices, as well as the difficulties faced by MNCs in maintaining strict supply chain social compliance standards in developing markets.Countries in Asia-Pacific (APAC) have recently been under particular scrutiny for potential supply chain social compliance violations. Statistical data illustrates that the region is significantly exposed to these risks, with the International Labour Organisation (ILO) finding that APAC accounts for both the largest absolute number of forced and child labourers globally, which it estimates at 11.7 million and 77.7 million individuals, respectively. This may be due to APAC being a source region across a variety of labour-intensive industries, including agriculture, fishing, manufacturing, mining and logging.MNCs that are found to knowingly or unknowingly benefit from child labour, forced/bonded labour and human trafficking in their supply chains face potentially significant reputational damage from an increasingly informed public. In addition to the potential damage to their brand, this may also translate into concrete business disruptions. In 2016, one MNC that admitted to having sourced ingredients linked to bonded labour and human trafficking was forced to temporarily suspend its operations at one of its production sites due to demonstrations by local activists.Legislation in some developed countries, especially the US and the United Kingdom, is beginning to catch up to supply chain social compliance violations, raising the disclosure requirements for some firms. For example, the California Transparency in Supply Chains Act of 2010 and the UK’s Modern Slavery Act of 2015 require corporations of a certain size to publish their policies with regard to slavery and human trafficking, and to document actions taken to reduce corresponding risks in their supply chains. Western businesses are also increasingly exposed to civil claims from victims of human trafficking and exploitative labour practices. The US Victims of Trafficking and Violence Protection Act of 2000 was in a recent case used to invoke the jurisdiction of a Federal Court in California in relation to the claim for damages by Cambodian migrant labourers against Thai firms operating in the US. Heightened regulatory scrutiny coupled with heightened public scrutiny makes a compelling case for corporations to think carefully about where to put supply chain social compliance in the context or their organisational matrix — treating it purely under the remit of corporate social responsibility may no longer be the answer, and a more robust cross-functional program may be in order to mitigate and avert the potentially serious reputational, operational and legal risks associated with supply chain social compliance violations. However, companies that decide to proactively seek out and address potential issues in their supply chains face a number of challenges. Direct and overt audits of a firm’s principal suppliers may be a useful starting point but cannot necessarily or always be regarded as sufficient in providing an accurate picture of conditions on the ground. Global supply networks are increasingly multi-layered, frequently involve undisclosed subcontracting relationships and extend to opaque jurisdictions in which public records and media information is either often not readily available or is unreliable. Kroll has been handling an increasing number of discreet investigations into supply chains. This has included reviewing the reputation and compliance track record of suppliers, mapping out subcontracting relationships, and looking at the true labour practices on the ground, which overt audits are unlikely to reveal. We regard this as a compliance necessity, much like traditional pre-investment due diligence. The stakes for firms have never been higher and are increasing, with the regulatory environment tightening and civil society — the power of the customer — able to do potentially enormous damage to companies perceived to be operating in an unethical manner. ––––––––––––– |
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