The start of the new financial year has seen many of Australia’s largest companies enter their first reporting period under the new Commonwealth Modern Slavery Act. And, in an unanticipated development, it has also seen new uncertainty about the future of the NSW modern slavery legislation, with the NSW act being sent back to the parliamentary committee for further consideration, writes Michael Milnes.
For those companies that are required to comply with the new Commonwealth act, there are certainly steps to go through to ensure the reporting requirement is met. Those requirements have been well signalled for some time, and for the most part, companies appear to have started updating their processes.
According to the Regulation Impact Statement that accompanied the act, the new reporting requirement will apply to about 3,000 corporate groups and other qualifying entities. The effect of the act will also be noticed more widely – companies that supply to those large enterprises are more likely now to be required to answer questions about their own efforts to eradicate modern slavery from their operations, as part of their customers’ suppliers onboarding procedures.
The ‘social licence to operate’
How companies respond to the new reporting requirement is part of the wider trend towards companies being required to maintain their “social licence to operate” – that is, satisfy stakeholder expectations that go beyond basic legal compliance.
We saw this in the financial services sector, where behaviour was tested against concepts such as “community trust” and “community standards and expectations”, during both the banking royal commission and in APRA's investigation into the Commonwealth Bank. We saw it also emerging out of the #MeToo movement, with growing criticism of legal “tactics”, such as the use of defamation law or onerous settlement and non-disclosure agreements that might be used to silence victims.
Increasingly companies are asking not just “can we” do something, but “should we”?
Australian companies are also currently adapting to a range of emerging regulations – covering topics as diverse as bribery and corruption, whistleblower protection and the modern slavery reporting requirement. Against this backdrop, many companies will also now be asking themselves – do we need to do more than just comply with the Modern Slavery Act? And if so, what? If modern slavery is found in the company's supply chain for products or services, will it be enough to say “we didn’t know”?
Strategies and approaches for the conscious company
There is a growing awareness by companies that there could well be human rights abuse happening in their supply chain and that outcomes for victims depend on actions taken by the company. For companies, going “beyond compliance” might mean implementing new strategies or adopting new approaches:
- The commitment of the company’s leadership to making change is key. Allocating responsibility and setting metrics are ways that the leadership team can make clear how seriously it is taking the problem.
- Undertaking assessments of the likely social impact of any actions that the company takes. For example, a “compliance” mindset might be to terminate a supplier contract the moment that modern slavery is identified. A kneejerk reaction like this might be more detrimental (it might force the immediate closure of a factory, pushing workers further into poverty). A more positive approach might be to work with the supplier on remediation and improving standards.
- Building relationships with NGOs who work in high-risk markets where companies source goods. NGOs can help with risk identification or assessment, and be a source of local advice on remediation if modern slavery is found.
- Raising staff awareness and understanding through training and internal communications. Some companies have organised for staff to visit areas from where products are sourced, to gain firsthand experience of the problems. Staff who understand the “why” of compliance are more likely to be motivated to push for change and improvement.
Modern slavery is an enormous global problem, and there is no expectation that the corporate sector will be able to eradicate it overnight. Instead companies should take stock and be honest about the company’s current state of progress, identify gaps, get started on initiatives and continuously re-evaluate and make improvements.
The cumulative impact of these steps will ultimately make a difference for the victims of this global problem.
Michael Milnes is the head of commercial and competition law at Practical Law Australia.