Draft Modern Slavery Bill - Draft Modern Slavery Bill Joint Committee

Draft Modern Slavery Bill - Draft Modern Slavery Bill Joint Committee Contents

5 Supply chains

166. Modern slavery is a global problem. One sobering example, given in our very first evidence session, was that such is the use of forced labour and slavery in the manufacture of clothing that "each of us is probably wearing at least one garment that has been made with some element of forced labour".[255] Given the length and complexity of major companies' supply chains, global slavery cannot be tacked by domestic measures alone. In this chapter, we consider a range of options for effective action on company supply chains. We also examine the case for reform of the Gangmasters Licensing Authority as a means of strengthening the domestic response to modern slavery.

Voluntary initiatives

167. NGOs have played an important role in raising awareness of the problem of modern slavery and especially in uncovering some of the worst examples of slavery and forced labour in companies' supply chains. The Walk Free Foundation's Global Slavery Index in particular has helped to provide much needed data on countries where slavery is most prevalent.

168. Major companies tend to employ ethical auditors to accredit their supply chains. However, given that "retailers have had ethical audit programmes for 20-plus years", this has clearly not been an entirely successful approach.[256] We heard a great deal about the steps that retailers take to validate their first tier suppliers, but the supply chains of major firms are extremely complex, involve many levels of outsourcing and subcontracting,[257] and potentially an enormous number of companies.[258] There is a danger that such complexity enables companies to absolve themselves of responsibility for how their goods are produced. As David Camp of the Association of Labour Providers told us, the "further you get away from the end user is where the murky stuff is".[259] The effect is that some international companies that had factories in the ill-fated Rana Plaza building in Bangladesh may not even have known that they did.[260] Wilful or unthinking blindness is no excuse.

169. We heard some encouraging evidence about the progress of voluntary industry-level initiatives such as the Stronger Together network.[261] However, Luis CdeBaca warned that voluntary agreements would not be afforded high business priority:

262

The CORE Coalition warned us that the purely voluntary approach has not been effective at eliminating modern slavery.[263]

170. We recognise the important role NGOs have played in raising awareness of the problem of modern slavery in supply chains. We also welcome the voluntary actions that have taken place at company and industry level. However, we do not believe that voluntary initiatives alone will be enough to ensure that all companies take the necessary steps to eradicate slavery from their supply chains.

Legislating for supply chains

171. Companies have an economic incentive to maintain and demonstrate ethical supply chains. Matt Crossman, of Rathbone Greenbank Investments, told us that:

264

IKEA told us that ethical supply chains were "absolutely" more profitable,[265] Tesco said that a good reputation "more than pays for itself" in the long run,[266] and Marks & Spencer told us that trust was "a key part of [their] competitive advantage".[267] Andrew Forrest, founder and CEO of Walk Free, added that he did not think that eliminating slave labour necessarily equated to more expensive goods.[268]

172. We were repeatedly told legislation could serve to "level the playing field" and raise the standards of companies that failed to tackle modern slavery in their supply chains voluntarily. This would ensure that companies who take eradication of modern slavery from their supply chains seriously would not be undercut by unscrupulous or ignorant competitors. Marks & Spencer told us "legislation could have a valuable role to play in encouraging more companies to take these issues more seriously".[269] David Arkless suggested that a "little stimulus" through legislation was all that was required to generate momentum for change.[270] Amazon, IKEA, Marks & Spencer, Primark, Sainsbury's and Tesco all told us that they could support legislation that was not unduly burdensome.[271]

173. Legislation on supply chains does not have to be burdensome for reputable businesses to implement. Proportionate legislative action can ensure that firms no longer turn a blind eye to exploitation occurring in their names and can therefore stimulate significant improvement. We welcome the support of major businesses for appropriate legislative measures. We also call on the Government to take a responsible lead in eradicating modern slavery from its own supply chains.

THE BRIBERY ACT MODEL

174. We considered legislation based on the Bribery Act 2010, which requires companies to carry out risk-based due diligence to prevent bribery in their supply chains. We were told that the Bribery Act had resulted in "a step change in compliance processes and culture".[272] The advantage of adopting this approach in relation to modern slavery is that UK companies would be able to utilise an already existing structure.

175. Not all our witnesses, however, were convinced that this was an effective option. We were told by businesses that requiring companies to carry out due diligence akin to that required under the Bribery Act would be much more burdensome than some of the other options for possible legislation we have considered. David Arkless gave us some flavour of the task involved by explaining that due diligence of three levels of Manpower's supply chain involved "17.8 million potential suppliers".[273] Paul Lister of Associated British Foods told us that:

274

Marks & Spencer argued that similar provisions for modern slavery would "result in an increased reporting burden without delivering any additional benefits.[275]

CALIFORNIA'S TRANSPARENCY IN SUPPLY CHAINS ACT 2010

176. Since 2012, retailers and manufacturers with annual worldwide gross receipts of more than $100 million and which do business in California have been subject to the provisions of the California Transparency in Supply Chains Act 2010 (TISC).[276] They are required to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale. The Act requires, at a minimum, disclosure of to what extent, if any, the company does each of the following:

Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure shall specify if the verification was not conducted by a third party.

Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure shall specify if the verification was not an independent, unannounced audit.

Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.

Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.

Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.

The disclosures must be posted on the company's website with a "conspicuous and easily understood link" to the information on the website's homepage.[277]

177. The United States Ambassador-at-Large told us that some companies had exceeded the reporting requirements and were keen to demonstrate progress over time. This, he argued, would not have occurred without the legislation.[278] We were also told that TISC had helped to raise consumer, investor and business awareness of modern slavery issues.[279]

178. TISC did not, however, meet universal approval. Sainsbury's, for example, argued that "any reporting requirement should build on existing reporting rather than add an extra level of burden".[280] Moreover, we are unsure whether incorporating similar provisions within wider legislation would have the same impact as the standalone TISC Act has had.

COMPANIES ACT REPORTING

179. Amending section 414C (7) of the Companies Act 2006 is a straightforward way to "build on existing reporting" as Sainsbury's suggested. Under this section, quoted companies are required to report on "social, community and human rights issues" in a strategic report every financial year, or explain why they are not doing so. To this list modern slavery should be added.

180. This approach was widely supported by our business witnesses. Primark told us that they would "have no issue with any extension to the Companies Act to include slavery",[281] while Tesco said they were "very comfortable" with the idea.[282]

181. There are several advantages to this approach:

· it is clear which companies have to comply (quoted companies except those within the small business exemption) and it builds on an existing process;

· it would not impose an additional burden on companies which are already tackling modern slavery;

· it would force companies which have not addressed the issue of modern slavery in supply chains to do so; and

· it would allow NGOs, consumers and investors easily to identify ethical companies.

182. Many companies which are addressing the issue of slavery in their supply chains already meet the requirements of this possible amendment to the Companies Act. Others may well do so as part of the requirement to report on human rights issues, though modern slavery is likely to have a higher profile in strategic reports if it is a distinct obligation. We share the Minister's desire not to impose additional burdens on companies who are already tackling modern slavery in their supply chains effectively.[283] This measure is consistent with that objective.

183. We recommend that, as a proportionate and industry-supported initial step, quoted companies be required to include modern slavery in their annual strategic reports. This could be done in a straightforward way by amendment of section 414C of the Companies Act 2006 to include modern slavery among the issues which companies are required to address in the strategic report.

184. We recommend that the Secretary of State, by Order, specify the requirements for the modern slavery section of companies' strategic report. These requirements must include explanations of how the company has, with respect to modern slavery:

a) verified its supply chains to evaluate and address risks

b) audited suppliers

c) certified goods and services purchased from suppliers

d) maintained internal accountability standards, and

e) trained staff.

The Order should also require that this information is published online.

185. We were attracted to the suggestion of designating a non-executive director with specific responsibility for the veracity of the statement on modern slavery, which would be "a useful addition" to a new reporting process.[284] This would have some attractive qualities in making an individual director accountable.

186. The British Retail Consortium, however, told us that this proposal could "duplicate what is already in place and add a further level of bureaucracy without adding any value."[285] Other witnesses suggested that assigning responsibility to a particular non-executive could detract from collective responsibility. Primark told us that its Board had taken joint responsibility for eradicating modern slavery from its supply chains,[286] while ethical trading at Tesco is considered by a committee chaired by the Group Chief Executive, reflecting "the gravity of the obligation".[287] David Arkless stressed that holding CEOs accountable was the route to achieving meaningful change.[288]

187. We see merit in companies making individual non-executive directors responsible for the company's annual statement on slavery in supply chains. However, we have no desire to reverse some of the effective alternative approaches some companies have already adopted. At this stage, legislating to specify companies' internal accountability arrangements for modern slavery eradication is not justified. Nonetheless, whether specific, individual responsibility at board level for modern slavery issues should be mandated should be considered by the Government in its statutory review of the Modern Slavery Act recommended in chapter 9 of this Report.

The Gangmasters Licensing Authority

188. The Gangmasters Licensing Authority (GLA) is the Non-Ministerial Departmental Public Body responsible for regulating the supply of workers to parts of the agricultural, horticultural and shellfish industries. In order to operate, employment agencies (described in the Act as labour providers) working in those sectors have since October 2006 been required to be licensed by the authority.

189. There was consensus from our witnesses over the excellent reputation of the GLA. Sainsbury's said that the system "is working",[289] while Anti-Slavery International told us that "across Europe, the GLA has been held in high regard as an example of good practice."[290]

190. We heard from the Authority itself that there are limitations to what the GLA can currently do.[291] Its Chief Executive, Paul Broadbent, told us that the GLA's underpinning legislation was "good up to a point", but did not provide for the GLA to carry out what he described as "hot pursuit": on discovery of a licensed labour provider using trafficked workers, the GLA is currently unable to do more than remove the license, and it is restrained from both pursuing intermediaries and securing the best evidence quickly.[292] The GLA is also unable to fine businesses which have deliberately sought to evade licensing over a period of time,[293] and is not currently able to conduct joint investigations with the police or the National Crime Agency.[294]

191. Several witnesses made the case for widening the industrial remit of the GLA to other sectors where forced labour is prevalent. The Forced Labour Monitoring Group told us that this should include social care, hospitality and construction.[295] A group of academics went further, advocating extension to encompass "all workers at or near the minimum wage.[296] We note that any such extensions would significantly extend the scope of the GLA's work at a time when the Government has recently chosen to restrict further its industrial remit.[297]

192. While supportive of expanding the GLA's scope, Dr Sam Scott, co-ordinator of the Forced Labour Monitoring Group, cautioned that "one of the great strengths of the GLA is its [food] sector-specific insight" and that its existing financial model would not equip it to take on a much-expanded role.[298] We heard suggestions that the GLA might be better funded through contributions from retailers at the top of supply chains or by being permitted to apply—and keep the proceeds of—civil fines.[299]

193. We also heard representations that Defra may not be the most appropriate sponsoring department for the GLA.[300] This argument would be particularly salient if the GLA's industrial remit was extended beyond Defra's areas of responsibility.

194. The Gangmaster Licensing Authority (GLA) has been much praised as an internationally-respected model of good practice. The weight of evidence we received suggested that expanding the GLA's powers and industrial remit would yield positive results. At the same time, we recognise that its resources are already over-stretched, and any expansion in its role would require additional resources.

195. We are aware that the Government is currently undertaking a routine triennial review of the GLA under the Public Bodies Act 2011. We note that such reviews are "to ensure that non-departmental public bodies are still needed and are complying with principles of good corporate governance".[301] The extent to which changes to the GLA may contribute to tackling modern slavery warrants broader consideration than this. We recommend that the Government conducts a review of the GLA including its:

a) powers;

b) industrial remit, which might include risk-based analysis of sectors;

c) funding model and levels;

d) sponsoring department; and

e) collaboration with other agencies.

The review should be completed in time for any necessary amendments to the Gangmasters (Licensing) Act 2004 to be made before the Modern Slavery Bill receives Royal Assent.

255 Q 31 (Aidan McQuade) Back

256 Q 224 (Catherine Pazderka) Back

257 Written evidence from Professor Nicola Phillips Back

258 Q 345 (David Arkless) Back

259 Q 251 (David Camp) Back

260 Q 1196 (Paul Lister) Back

261 Q 1186 (Giles Bolton) Back

262 Q 699 (Luis CdeBaca) Back

263 Written evidence from CORE Back

264 Q 356 (Matt Crossman) Back

265 Written evidence from IKEA Back

266 Q 1213 (Giles Bolton) Back