In the wake of troubling revelations that prominent companies, including McDonald’s and several leading UK supermarkets, failed to identify modern slavery practices within their supply chains, it is evident that the importance of robust preventive measures cannot be overstated.
As detailed in a recent BBC News article, these oversights have considerable implications not only for the victims but also for the reputations and legal standings of these globally recognised brands.
The legal and reputational risks
Modern slavery, including practices such as forced labour and human trafficking, remains a pervasive issue that threatens the integrity of international supply chains. For large business and particularly those with a strong consumer facing brand, the discovery of such practices -particularly within their own supply networks - poses significant reputational damage. The modern consumer is increasingly conscious of ethical practices and is quick to criticise companies that fall short. When major brands like McDonald’s fail to detect and rectify instances of modern slavery, the backlash can be severe, leading to public outcry, decreasing customer loyalty, and ultimately, a negative impact on financial performance.
Such revelations can also damage stakeholder relationships and diminish trust among investors, partners, and employees, all of whom are critical to the long-term success of a business. Certain businesses may be subject to regulatory requirements around addressing modern slavery in their operations with penalties for non-compliance (including in the UK under the Modern Slavery Act 2015) Those with international supply chains could be subject to different compliance requirements in different jurisdictions. Therefore, taking proactive steps to understand modern slavery risks and taking action to mitigate those risks is not just an ethical imperative but also a strategic business decision. As an agenda item for the C-suite it falls between the “Social” and “Governance” pillars of ESG.
The key to success will be a suitable and sufficient assessment of risks associated with modern slavery across a business, including supply chains. A good risk assessment should identify key areas where mitigation measures may reasonably be required and any red flags. Like any risk assessment, it should be regarded as a dynamic document, subject to regular review. Any risk assessment should be informed by relevant guidance and there is lots out there, including the UK Government guidance: Transparency in Supply Chains etc. A practical guide
The legal necessities: strengthening supply agreements
To mitigate modern slavery risks in supply chains, most companies will need to enforce stringent checks within their supply chains. One of the most effective strategies for ensuring compliance is incorporating appropriate contractual terms in supply agreements. By doing so, companies can create a robust framework that holds suppliers accountable and provides remedies for any breaches.
Key contractual provisions can include any or all of the following:
1. Due diligence requirements: Contracts should mandate that suppliers conduct thorough due diligence to identify and mitigate risks related to modern slavery. This can include regular audits, employee interviews, and on-site inspections.
2. Compliance clauses: Clearly stipulate that suppliers must comply with all relevant laws and regulations concerning modern slavery. These clauses should also reflect adherence to corporate codes of conduct and ethical guidelines where appropriate.
3. Reporting obligations: Suppliers should be required to report any findings of non-compliance or potential risks as soon as they are identified. This ensures that companies can take swift action to address issues before they escalate and ultimately find their way into the mainstream media.
4. Termination clauses: Provide for the right to terminate the agreement immediately upon discovery of modern slavery practices. This deters non-compliance by highlighting the serious consequences of failing to uphold the required ethical and legal standards.
By embedding these provisions, companies reinforce a zero-tolerance stance towards modern slavery and enhance their ability to monitor and control their supply chains effectively.
The fallout faced by McDonald’s and UK supermarkets serves as a stark reminder of the reputational risks associated with inadequate risk assessment and in particular insufficient supply chain oversight. In an era where ESG and ethical practices are paramount, businesses must prioritise stringent protections against modern slavery. By ensuring robust risk assessment and fortifying supply agreements with comprehensive contractual terms, companies can safeguard their reputations, ensure legal compliance, and most importantly, contribute to the fight against modern slavery.
Burness Paull has a wealth of experience of advising clients on modern slavery compliance including legal requirements and risk assessment as well as managing supply chain risks through robust contractual terms, so do get in touch with us if you require assistance.
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