Modern slavery is a big problem in construction so check your supply chain. That was the headline last week in Building magazine flagging how scrutiny of the construction industry is at an all-time high so firms must check they don’t inadvertently fall foul of the law. The message is - firms should be prepared to demonstrate they are conducting effective due diligence of their supply chains.
The problem in this sector is nothing new. The Chartered Institute of Building has long campaigned to raise awareness of this problem. Their 2018 report “Construction and the Modern Slavery Act, tackling exploitation in the UK” was their third report on this issue and highlights the aggressive business models and unethical procurement and recruitment practices present in the industry.
It is a problem across every sector, of course, not just construction, and it is high on the Government’s agenda. Towards the end of last year, the government published its response to its consultation on transparency in supply chains. It gives a commitment to introducing heavy fines for non-compliance although we have not seen any legislation yet. More recently, in March this year, it launched a new online registry for modern slavery statements, designed to make it easier for consumers and investors to search for statements, and to compare the actions that firms are taking.
Investors are also watching this closely. Led by CCLA Investment Management, a group of investors with more than £7tn in assets, have drawn attention through their initiative ‘Find It, Fix It, Prevent It’ which brings together investors, academics and non-governmental organisations to share knowledge, set targets and monitor the progress of the initiative.
An obvious question in light of all this scrutiny is so what? What is the risk of doing little, or nothing? Fiona Cameron addressed that point in her article for Outlaw back in March. So, currently the government can’t impose any monetary penalties for non-compliance, and, in fact, an organisation can comply with the letter of the law by simply publishing a statement that it has not taken any steps to address modern slavery in its business or supply chains. Notwithstanding the absence of the threat of being fined, the risk of reputational damage is certainly there. You only have to look at what happened to Boohoo last year to see the scale of the potential damage. Back in July, the firm's shares lost 46% of their value as a result of the allegations of malpractice at Leicester factories. In its defence the firm said it wasn’t aware of the problem and had struggled to identify the supplier that was underpaying staff. That case illustrates the problem perfectly - modern slavery in the supply chain but not spotted by the client. So how do you address this in practice? To find out I called Shaube Shabudin who is helping a number of clients with their due diligence. I started by asking Shuabe how to spot if you have a problem:
Shuabe Shabudin: “So, clearly that presents difficulties for the business because you can't know what you don't know and we therefore always have been advising businesses to undertake, first of all, an audit of their supply chain. It’s important to know who the key players are before you can then be going out to ask them the questions that you need to ask. Once you have done that, it's then about looking to the contractual agreements that you've already got in place with those suppliers to see if they adequately oblige the supplier to provide the information that you need. Quite often they don't, and where they don't, you then need to consider, I would say now even more strongly given the wave of compliance that there is, whether or not those agreements need to be renegotiated. It may be that there's break clauses in there, it may be that they're coming up to renewal anyway. Equally important is to look at template agreements that there may be to ensure that when you're entering into new agreements with suppliers, things are already in there, the terms are already in there, to ensure that the supplier is obliged to provide you with the information that you need. It is really important to just be on top of this and I think you could even go so far as to undertaking a spot check, or a site visit, to see what's actually happening on the ground at the supplier. In some industries, the construction industry, other industries as well, there are quite complex supply chains, those are common, and so where that applies, coming back to the audit point, it's about the business being sure of the various different entities within the chain so that you can do a bit of a risk assessment to identify where it may be that the particular risk lies, rather than just relying on looking at the chain as a whole.”
Joe Glavina: “As you know, Shuabe, the government is taking a fairly light touch approach to this issue. It’s just relying on guidance and hoping firms will, on a voluntary basis, take the sort of steps you’ve outlined. But I guess the big risk here is to reputation?”
Shuabe Shabudin: “I completely agree, Joe, yes, and I think it is important to say, that there is currently no criminal sanction or civil sanction, albeit there are proposals and I think we would agree that it is likely that there will be some form of sanction to be to be brought in, but even before that is the case, there is a real risk of a publicity issue here. Joe, you’ll be aware of the Boohoo case where it was found that an entity within their supply chain was not paying people at the national minimum wage - much lower actually – and that had a direct impact on their bottom line, I think something like £500 million was knocked off, so it is a real live issue. I think also where the business is part of a supply chain, so the business may not be the end user, if you like, there could be a risk around winning contracts. It could be that the client company that you are contracting with is wanting to know what your processes are, what your practices are, and if you're unable to demonstrate that you've got things in hand, that you are dealing with this importantly and sensitively, it may be that that also has an impact on the contracts you're able to win and, let's not forget, the underlying point is that it's just the correct and fair thing to do. So, I think publicity and winning contracts aside, it's just epically the right thing to do and I think that level of focus needs now to, all the more, come from board level down. This has to be something that is high on the agenda so that the company can be confident that it's able to demonstrate the supply chain is free of modern slavery or other malpractice that there may be.”
Joe Glavina: “It seems to me this is exactly the sort of issue that HR teams should be fronting?”
Shuabe Shabudin: “Yes, very much so. I think HR would be excellently placed to be able to assist with this and provide the information in relation to this because it relates to people, and it relates to the policies and practices that there are in relation to those people. So, for example, something in relation to the level of salary that people are paid, that kind of information would be very well within the reach of the of the HR team. So, I think it's something that HR teams needs to be aware of, and actually in some ways, HR teams perhaps need to be pushing and ensuring, as I said, that this message is high on the agenda all the way up to board and senior management level.”
We mentioned earlier the government’s online portal for registering modern slavery statements. So, any organisation with an obligation to produce a statement can add it to the registry, and whilst it’s not compulsory, it is a good idea because it demonstrates in a transparent way the steps you’ve taken. Also, worth saying, you can use the portal’s search facility to search for statements posted by other firms and read about the steps they have taken, or haven’t taken, as the case may be. We have put a link to that portal in the transcript of this programme.
- Link to government’s online registry for modern slavery statements