Managing risk to protect those who need it the most

According to Walk Free, a not-for-profit organization dedicated to eliminating modern slavery. There are around 40 million people living in slavery in the world, with 25 million of those workers engaged in forced labor.

With enterprises increasingly relying on extended supply chains and offshore manufacturing or production, there is a very real possibility that somewhere along those lines, there are vulnerable workers being exploited. There are serious implications for businesses associated with this.

Aside from the ethical issues of profiting from slave labor, a company could suffer significant harm to their reputation or be prosecuted under international conventions and laws. Market access could be dramatically affected by unethical labor practices, as could the security of supply or production from subsidiaries.

Any and all of these possibilities are a sobering reality. The International Finance Corporation’s Managing Risks Associated with Modern Slavery reports that one business had its imports detained by US customs following allegations that some of their ingredients were produced by prison labor.

Although those allegations were disputed, the company’s shares dropped by 10 per cent, and many of their customers were compelled to release statements that their products were not a product of slave labor. By the time the case was eventually reviewed and the imports released, the harm to sales and reputation was already done.

Protection against risk

As with all business risks, the issue of modern slavery in supply chains is one that needs to be managed. A recent study by Monash University found there is a significant variance within Australia’s top 100 businesses when it comes to their risk reporting around this matter. While some have robust processes and transparent reporting, others have a long way to go before they can confidently say they are not supporting forced labor.

Managing this risk is where good processes prove their worth, both by creating clear practices and procedures for examining supply chains, and by incorporating an awareness of the issue within regular operational activities.

Naturally, some of these processes include explicit guidelines for conducting comprehensive audits and investigations of suppliers and supply chains to identify areas of potential risk or exposure to risk.

Others should include processes for onboarding new suppliers, including the contractual provisions and codes of conduct the company expects providers to adhere to. Those responsible for sourcing new suppliers should have access to tools that support due diligence and give direction around high-risk contractors.

When discussing ethical hiring and labor practices, human resources processes should also be represented. There should be an awareness of slavery issues in onboarding and training processes, including making staff aware of company expectations and avenues of support for workers. Businesses should ensure that their employment processes include all the relevant legislative requirements around working conditions, hours and remuneration.

Risk management starts with business leaders

Ultimately, management teams have to account for how their organizations address the potential issue of slavery in supply chains. That comes down to robust reporting at every level and a high degree of transparency.

KPMG’s report to the Australian Council of Superannuation Investors recommends that C-suite executives and boards should make themselves familiar with the structure and operations of the business across all subsidiaries and geographic locations, leading the way with publicly visible information about the legitimacy of those operations. The consistent collection and reporting of such data is again a function of good processes that recognize the issue and work to mitigate the risk.

While at first glance it may seem archaic to consider slavery in modern business, the statistics prove that it is still a very real problem that needs to be addressed. By recognizing the issue, organizations can build processes to acknowledge the risk and minimize its potential impact on the business. With good practices and open reporting, both the company and the world it works in can be better off.