FD Intelligence

Modern Slavery Act proves challenging for business

One year since the introduction of the Modern Slavery Act, companies are submitting their statements, and very few are complying.

It has been just over a year since the Modern Slavery Act came into force, applying to financial year ends from 31 March 2016. Companies are required to publish their statements within six months of year end, and we are starting to see the first round.

Perfect statements aren’t expected in the first year - it typically takes three to four years for companies to provide more detailed disclosures when new requirements are introduced. It appears that not many companies are providing compliant statements, or really embracing the spirit of the act. When we speak to clients who are preparing their statement, it’s clear that drafting the statement is proving challenging.

The act requires companies with a global turnover of £36 million who do business in the UK to write a statement - signed by a director or equivalent and published on the website – showing the steps they have taken to ensure there are no incidences of slavery occurring in their business or supply chain.

Despite the relatively minimal requirements, the Business and Human Rights Resource Centre found that the vast majority of statements do not meet the core obligations of the act. In October 2016, 700 businesses had submitted statements and only 62 of the statements complied.

The government’s guidance recommends that statements should include description of the:

  • business structure and supply chain.
  • policies and processes used to identify and tackle slavery.
  • parts of the business that are at risk of slavery and how that risk has been mitigated.
  • effectiveness in this mitigation and performance indicators.
  • training provided to staff.

Very few companies have covered all of these areas – of 27 FTSE 100 companies that have produced a statement, only two have met all of the recommendations.

Why is producing the statement so challenging?

It’s not just that companies are choosing to provide basic statements; many simply do not have the information required. Providing an assessment of the supply chain’s structure can be difficult. The task of having a clear idea of the number and location of all suppliers can be a bigger challenge than companies initially expect, especially in complex supply chains and beyond their immediate suppliers.

Lack of resources is also an issue. Although company activity in relation to writing the statement is increasing – writing and implementing policies, providing training for staff and conducting risk assessments - the amount of resource allocated is rarely increased. Instead the work is often picked up by individuals within organisations, such as the company secretary, head of supply chain, procurement, or sustainability.

Companies need to develop an understanding of how their business and operations are structured, and to allocate more resources in order to produce the detailed statements required by the act and to help tackle modern slavery.

Why should companies go beyond compliance?

Modern slavery statements are increasingly an important measure of the credibility and legitimacy of a business. While reputational risk remains the most important driver for action, human rights is also a factor as well as increasing pressure from customers and investors. Modern slavery is fast becoming a part of procurement processes, meaning they will be likely required by smaller companies further down the supply chain, even if not covered by the act itself.

The reputational risk is already starting to hit: a recent BBC Panorama investigation found that UK retailers such as M&S and ASOS were breaching the Modern Slavery Act through child exploitation. This is concerning given that M&S are leaders in this area – they have a standalone human rights policy, lead the way on supply chain standards, and have a detailed modern slavery statement – and have already been connected with a breach of the act.

In these cases, establishing how your organisation will react to potential breaches is crucial. M&S responded quickly, stating it was unacceptable and they would work towards ensuring it does not happen again. A quick and determined response means having confidence in the depth and quality of your statement, and knowing how to respond to potential reputational threat. This is easier said than done.

A recent survey of construction companies found that 51% had little knowledge about the measures they would take if slavery was occurring in their organisation. Writing the statement should represent a process, something that encourages your company to pay closer scrutiny over the supply chain, include the board or equivalent, and embrace the intention of the act.

With the government continuing to focus on this issue, spearheaded personally by Theresa May, and NGOs already starting to lobby government to strengthen the reporting provisions, companies cannot afford to avoid the issue or do the bare minimum for another year.

Further help and information

Managing the 3Rs in business – risk, responsibility and reputation – has never been under the microscope more than it is today. Managing businesses through an increasingly demanding legislative and regulatory environment is key to success as much as the quality of the products and services themselves. 

For more information on how you can manage, mitigate and eradicate such complexities and address the risks in your business, or for support and advisory services regarding the Modern Slavery Act, please get in touch with Oliver Bridge at +44 (0)20 78652229 or by email.