Unspoken issues in Due Diligence – lifting the lid on human rights and modern slavery

Matt Farnsworth, Associate Director for Transaction Advisory / Due Diligence Services, highlights the risk that many businesses face when failing to address potential human rights abuses in their supply chain.

You may never expect to encounter abuses of human rights and modern slavery in a 21st century supply chain. That was me, five years ago, when I was brought in to manage ethical trade issues at 600 suppliers globally. Although not ignorant to its existence, I was not prepared for the reality and the experience left me with a lasting impression. Compared to some, the figure of 600 suppliers could be considered relatively small, but the implications across affected individuals and their families cannot.

Modern slavery is a risk that affects the supply chains of most major commercial businesses. This may seem surprising, but perhaps less so when you consider that some of the most commonly cited industries for people in forced labour are construction, manufacturing and agriculture – sectors that feature in a majority of supply chains one way or another.

It is recognised that much work has been done by businesses to tackle issues but it does require continual resource and unfortunately a significant majority remain blind to the labour standards and working conditions in their international supply chains. Whether this is due to a lack of expertise in-house, a general awareness or financial resources, some important issues are remaining hidden, often for years.

Following the introduction of the Modern Slavery Act in the UK in 2015, companies or partnerships with an annual turnover of over £36m and supplying goods or services in the UK were obligated from 31st March 2016 to prepare a transparency statement on the state of their supply chain with respect to slavery and human trafficking.

However, according to the Chartered Institute of Procurement and Supply (CIPS) in late 2017, 34% of businesses have failed to complete their statement, with 37% of those having completed them not actually having read the Government issued guidance.

This outlook is concerning. Not least in respect to the people suffering, but also for business leaders who need to consider the risk of significant brand and operationally damaging issues materialising, when carrying out their due diligence.

No financial penalties are yet in place for failing to complete a Modern Slavery Statement, however it is recognised, through recent exposure in the media, that failing to address issues in the supply chain or within the production environment can lead to damaging headlines that affect share prices, investor confidence and contracts and not least the workforce themselves.

Businesses are being bought and sold every day globally, yet if over a third of businesses are yet to address the legal requirement, there is a real possibility that a high proportion of deals may have failed to appropriately assess whether an issue exists or have hidden issues in their production sites or supply chain.

It would be interesting to know how many business leaders or CFOs have properly considered this; and for those awaiting change, it needs to be addressed sooner rather than later.

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