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Beyond Ethics: The Business Case for Fighting Human Trafficking

Beyond Ethics: The Business Case for Fighting Human Trafficking

Business leaders and consumers need to take a stand against modern slavery

Ben Fouracre and Archana Kotecha

On any given day in 2016, modern slavery entrapped an estimated 40.3 million people around the world, according to the Walk Free Foundation’s Global Slavery Index (GSI) 2018. Forced labor devastates livelihoods and well-being, in many cases resulting in physical harm and even loss of life.

This human trafficking economy may seem remote to business leaders, as well as to anyone who lives comfortably in a developed society. However, it is likely that each of us has participated indirectly in it in some way, as either an unwitting consumer or businessperson.

According to the GSI 2018, G20 countries collectively import $354 billion worth of at-risk products annually. The imports include goods many of us rely on every day. The report also determined that approximately $200 billion worth of laptops, computers and mobile phones and $128 billion worth of garments were identified as being at risk of involvement in modern slavery, with the United States being the largest consumer of these at-risk products.

Behind these dismal numbers are the human beings at risk—desperately disadvantaged people who are exploited, abducted, cheated or traded and who are forced to work as a result of deception, threat, various forms of coercion or use of violence—as well as a long chain of others who knowingly or unknowingly exploit these people for profit. Organized crime groups are involved in this chain, but other unwitting participants benefit from the exploitation, often in the form of lower labor and production costs.

Companies often unintentionally play a critical role in perpetuating human exploitation. However, they have both the capability and the responsibility to assist in eradicating it—and by holding themselves accountable for their supply chains, especially in parts of the world where modern slavery thrives, they can vastly reduce the demand for coerced labor.

Some businesses are thriving on exploitation, often in long, complex supply chains, especially those extending to or located in jurisdictions where the rule of law is weak and where the most vulnerable have poor access to justice. The executives who ultimately control the supply chains, while recognizing the reprehensible nature of exploitation, must acknowledge and act upon the legal and financial imperatives to address this problem.

Yet the reality is that decisive, effective action will only come when business leaders start to understand that taking positive action to eradicate human trafficking is good for not just humanity but also business.

Source: International Labour Organization (ILO). Alliance 8.7.  https://www.alliance87.org/

Source: International Labour Organization (ILO). Alliance 8.7. https://www.alliance87.org/

 

Ensure your company is not involved

There are obvious reasons to ensure your company is not involved, on any level, with human trafficking. Governments are beginning to crack down, and deficient compliance could not only land companies in serious legal, reputational and financial trouble, but also conceivably result in imprisonment for executives who are found to be responsible.

The California Transparency in Supply Chains Act, passed in 2010, requires retailers and large manufacturers doing business in the state to disclose the extent of their efforts to combat slavery and human trafficking on their websites. The United Kingdom’s Modern Slavery Act (MSA), a criminal statute enacted in 2015, similarly requires organizations conducting business in the UK to publish annual statements detailing their efforts to ensure their supply chains are untouched by modern slavery.

It is important to note that obligations in relation to the publication of an annual statement can also be satisfied by a statement that the organization has taken no steps to ensure that human trafficking is not taking place in its supply chains or in any part of its business. The MSA has no sanction attached for noncompliance—only a high court injunction to force compliance.

The Devoir De Vigilance (Duty of Vigilance) law in France, passed in 2017, is the strongest iteration of transparency laws to date. It requires that companies identify risk and maintain a vigilance plan outlining remediation action. It also enables any third party anywhere in the world that is impacted by a French company’s supply chain to bring an action against the parent company in a French court.

The latest statute to come into force is the Australian MSA of 2018. Canada and Switzerland are also debating similar laws, while the Netherlands is on its way to enacting similar laws in relation to child labor. US federal laws have made it a crime to profit from human trafficking. Laws like these are likely to proliferate in the coming years. As attention to the problem grows, regulation is certain to increase.

And yet in spite of all those efforts, the GSI noted that a significant number of G20 countries have taken no regulatory action against modern slavery, and enforcement remains sparse and largely reactive, constrained by insufficient resources and the challenge of monitoring sprawling global enterprises across multiple jurisdictions. According to the public database Transparency in the Supply Chain (TISC), as of May 28, 2019, only 12,242 of the 16,834 UK-registered companies required to comply with the four-year-old MSA have actually published statements. The quality of the statements published also varies extensively, which is not surprising, as the MSA does not set mandatory requirements in relation to the contents of a statement, but merely suggests information that may be included.

As such, human trafficking remains both insidious and pervasive, often existing in plain sight:

  • In Japan, for example, GSI reported that women may be lured or threatened into signing modeling contracts that result in these women being coerced to participate in pornography.

  • In Arizona, a Walmart shopper in 2017 found a note in a new purse claiming the product had been made by unpaid laborers in a Chinese prison camp, detailing brutal treatment of the workers there. While the allegations were never proven, Walmart subsequently published an article on the US Chamber of Commerce website detailing how it was combatting human trafficking and what changes it was making within the company.

Large-scale events often generate headlines exposing human trafficking. The 2022 World Cup in Qatar has come under persistent criticism for allowing forced labor practices. As reported by The Guardian, in 2013 alone, 44 Nepalese construction workers died in Qatar preparing for the tournament.

Unfortunately, there continues to be money in exploiting vulnerable workers. The International Labour Organization estimated in 2014 that forced labor generated $150 billion in annual profits; it is the fastest-growing form of organized crime globally.

Sources:  ILO. (2014). Profits and Poverty: The economics of forced labour. Geneva. Available at:  https://www.ilo.org/global/topics/forced-labour/publications/profits-of-forced-labour-2014/lang--en/index.htm   HM Government. (2014). Modern Slavery Strategy. Available at:  https://www.gov.uk/government/publications/modern-slavery-strategy

Sources:
ILO. (2014). Profits and Poverty: The economics of forced labour. Geneva. Available at: https://www.ilo.org/global/topics/forced-labour/publications/profits-of-forced-labour-2014/lang--en/index.htm
HM Government. (2014). Modern Slavery Strategy. Available at: https://www.gov.uk/government/publications/modern-slavery-strategy

 

The business case

Large organizations with sprawling, intricate supply chains are particularly susceptible to becoming embroiled in modern slavery. A vendor or contract manufacturer with the opportunity to exploit workers is all it takes to create these risks.

With critical constituencies watching, a single incident is enough to alert investors, consumers, local communities, potential employees and stakeholders. Their avenues for enforcing corporate accountability extend from short-term concerns around reputational damage to threats of lost sales, towering legal costs and crippling operational disruption.

The risks are real, specific and escalating:

Legal Risk: The 2018 UK Annual Report on Modern Slavery notes that in the year to March 2018, police in England and Wales recorded 3,337 modern slavery offences, with a further 91 offences recorded in Scotland and Northern Ireland. In 2017, 130 defendants were prosecuted on a principal offence basis pursuant to the UK MSA. That does not include the cost of litigating a human-trafficking accusation, or the reputational damage to derive from any association with a modern slavery prosecution. But with meager dedicated resources for investigating potential human trafficking issues, a case typically needs to be made before law enforcement takes action.

Financial Risk: Investors want assurances that companies are taking steps to implement prevention strategies that address the occurrence of human exploitation in their supply chains. We have seen increasing activism and interest from US investors seeking assurances on the location of third-party suppliers, how they have been vetted and how ethical their business practices are. Growing numbers of investors are likely to avoid investment in companies that cannot demonstrate proactive actions and responses in relation to such matters.

Implication in human-trafficking scandals can also inflict damage to sales, as a consequence of consumer boycotts or of suddenly skittish enterprise customers who are seeking an ethical marketplace and do not want to risk their own reputations. Governments can also actively affect sales. For example, in the US, companies deemed to be ethically compromised on human-trafficking issues are being barred from doing business or taking part in state procurement requests.

Operational Risk: Workers often use labor-force issues, unrest and strike actions to seek enforcement of their rights. There is the risk of strikes and general labor unrest related to human trafficking allegations resulting in factories closing, fines and reputational damage. An example is a 2012 strike at a seafood processing factory in Thailand’s southern province of Songkhla. Burmese and Cambodian workers, housed in tiny barracks processing shrimp for export to major name retailers, refused to work when a daily 20 baht food allowance (about 65 cents) was taken from them after the Thai government raised the legal minimum wage by over two dollars in 2012. This revealed further issues of poor toilets and sanitation, insufficient bathroom breaks and recruiters that were being paid large fees to source and transport workers to the plant.

Operational damage can also come from outside. When the producer of a part or ingredient that a company relies on for its end product is implicated in human trafficking violations, the resulting supply chain disruption can have adverse consequences for both the supplier and its customer.

Reputational Risk: Consumers are demanding more transparency and accountability, causing most companies to feel pressure to take tangible action. In 2018, 70,000 consumers signed a petition originating with the #GoTransparent campaign, urging major brands to disclose which factories manufactured their garments—a step that many global retailers had already taken. In February 2018, Primark, in an effort to demonstrate transparency in its supply chains, published an online map giving details of its suppliers in approximately 30 countries worldwide.

The reputational risk attaching to human trafficking issues does not arise exclusively from compliance failures or legal actions. Failures to disclose efforts proactively and transparently to mitigate human trafficking can also create cause for concern. Investigative journalists are often the first to break stories of exploitation in supply chains, and there is a great deal of media interest in covering such stories.

Steps toward diligence and awareness

The specter of risk around human trafficking demands that business leaders all over the world exercise diligence and awareness. Wherever global commerce goes, modern slavery follows in some form—and no country in the world is immune from this problem.

At some organizations, combating trafficking falls within the purview of corporate social responsibility (CSR) and is delegated to one or two people who often are not decision makers. To increase awareness and the organization’s response, efforts to combat human trafficking need to be streamlined across every business function with leadership by decision makers across business lines. To relegate the issue to a token CSR approach or activities leaves a business open to significant liability.

Key initiatives that can be put in place include:

Audits: Regular audits to identify risks in the supply chain are the only way to ensure that leadership knows whether and where they may be exposed to the human trafficking economy. Adequate due diligence on third parties requires regular investigation of their policies for mitigating human trafficking issues and establishing that those policies are active and implemented. Additionally, engagement with workers and their representatives and members of the local community is a vital way of providing valuable corroboration to an audit.

Communication: Leadership has to be responsible for providing training and educational support to the entirety of a workforce to ensure the issues are understood and proactively avoided. Communication on ethical initiatives is also critical in contracts and tenders, which should include clauses that ensure business partners have specific protocols in place.

Third-party mapping: Where are your third parties? Do they sub-contract? What issues do they clearly have, and which do you suspect they have? What happens in their supply chains? How much are their employees and contractors paid? Are there collective bargaining agreements in the sector? Are they enforced?

It is vital not only to carefully vet contract manufacturers and other third parties to ensure that they are not exploiting workers, resulting in forced labor situations, but also to establish the origin of every part or product your organization purchases from a third party. This may be an onerous challenge for larger organizations that rely on hundreds of third parties, but these companies also have powerful leverage with their suppliers. Larger companies often have purchasing practices that drive suppliers to cut corners with workers in a bid to be as cheap and competitive as possible. Accordingly, those companies should bear the responsibility to review their purchasing practices and the pressures these create on suppliers and related businesses.

Technology: Software and other available technology can vastly streamline data-gathering by helping to collect supply chain information and identify potential abuses, according to Jesse Nishinaga, Program Lead of Human Rights and Business Initiative at the University of California, Berkeley. For a source of resources, you could start with BSR, a global nonprofit that works with a network of companies to fight for a “just and sustainable world.” It recently created a coalition called Tech Against Trafficking, with the goal of working with “civil society, law enforcement, academia, and survivors to identify and create technology solutions that disrupt and reduce human trafficking; that prevent and identify crimes; and that provide remedy mechanisms for victims and support survivors through innovation, collaboration, guidance, and shared resources.”

Other potential steps to reduce human trafficking exposure include:

  • Post a whistleblower hotline number or the Modern Slavery Helpline number to employees and sub-contracted workers.

  • Conduct periodic and proactive social audits by interviewing a significant proportion of the workforce away from management oversight. Use either an external agency or an internal team with true independence.

  • Work with expert non-governmental organizations, worker groups and local communities on the ground to identify and take appropriate steps to remedy issues.

  • Rather than pressuring suppliers to squeeze labor costs, make a point of arriving at a fair price in third-party contracts.

  • Collaborate with other businesses working in your industry and geographic areas to share best practices, highlight compliant (and noncompliant) contractors and create a unified front against human trafficking.

Corporate accountability and moral obligation

Business leaders have a moral, human obligation to ensure their organization is not exploiting vulnerable people in the name of lower costs and higher profits. They also incur a fiduciary duty to steward their organizations on behalf of their shareholders and are subject to the laws of the jurisdiction in which they operate.

Far more compelling for business people is the criminality attached to crimes of exploitation such as human trafficking and forced labor. Corporate criminal accountability and legal, financial and reputational impact should be weighed as a rationale for action alongside the moral imperative. It is high time to frame this issue in light of the long-term commercial risks that can be avoided by eradicating the illicit business of modern slavery.

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