Large companies will have to file modern slavery statements. What do directors have to do?
In our blog last week Modern Slavery - you may have to take action, we discussed the new mandatory reporting obligations companies and other entities with at least AUD100 million annual revenue will have from next year under the Modern Slavery Act 2018 (the "Act"). In this blog, we comment on obligations directors of reporting companies will need to consider.
Designing and implementing a process to identify modern slavery risks in a company’s operations, in the operations of any entities it controls and in the operations of any parts of its supply chains will be a substantial exercise. Modern slavery statements will be public information. Preparing a statement that safeguards the company’s commercially confidential information but still complies with the extensive requirements of the Act will need substantial and careful consideration. We are urging our clients not to take these obligations lightly or leave them to the last minute before statements are due to be filed.
There is a real probability of a flow-down effect. A reporting entity (AUD100m+ revenue) will likely ask its suppliers to identify any modern slavery risks they have in their operations or their supply chains. Many suppliers will be smaller companies that aren’t required by the Act to report. However, they will be under pressure to conduct investigations so that they can report to their customers. Failure to do so may expose them to adverse responses from their customers.
Questions for directors
Modern slavery statements filed by companies will have to be approved by company boards and signed on behalf of the board by (in most cases) either the chairman or another director. In considering reporting on the slavery risks an entity has itself or in its supply chains, the following are the types of questions directors will need to consider:
- Does the company have in place resources – personnel, training, financing – to assess modern slavery risks in itself or the entities it controls and in its supply chains?
- Has the company done due diligence on its supply chains? Does it understand what its supply chains are and how they operate with respect to modern slavery risks/issues?
- What enquiries are made and at what levels in the company to identify modern slavery risks and issues?
- Has the company trained staff to be aware of and to detect modern slavery issues?
- What is the reporting structure to senior management and from senior management to the board regarding supply chains, their structures and operations and their exposure to modern slavery risks?
- Has the board determined how it will report, what information will be contained in the statement and what form the statement will take? Companies can expect that their reports will potentially attract substantial public attention.
- Section 16 of the Act requires a reporting company to address the following in its statements:
- the identity of the reporting entity;
- the reporting entity's structure, operations and supply chains;
- the risks of modern slavery in its operations, the operations of entities it controls and in its supply chain;
- actions taken by the company to identify, assess and address modern slavery risks or issues;
- how the company assesses the effectiveness of the steps or actions it has taken to identify and address modern slavery risks or issues;
- the process of consultation which the company has with its controlled entities or with entities in its supply chain;
- other relevant information.
- Has the company determined what actions it will take if modern slavery is identified in it or its group or its supply chain? How will the company ameliorate or eliminate those risks?
- Has the company consulted with other entities that may be more advanced in assessing these issues? The UK Modern Slavery Act was passed in 2015 and a number of companies have established benchmarks in this space.
A company’s approach to modern slavery-related matters needs to be included in a company’s risk assessment/matrix. A downfall in the modern slavery area is likely to impact a company reputationally both with its own personnel and from the public’s perspective, even if there are no statutory penalties at this stage. Identifying and addressing modern slavery risks and reporting on the risks and actions taken is likely to be an iterative process for companies. We doubt anyone thinks the highly complex issues associated with modern slavery will be fixed quickly or easily or by any one company but we hope that the Act will be seen to introduce a regime that makes a start.