Companies face fines, reputational risk if ugly truth surfaces
Tempe, AZ, June 23, 2016 – Modern-day slavery possibly practiced by suppliers is a growing concern among corporate compliance executives as they scrutinize the compliance risks posed by third parties, according to a leading global integrity and compliance firm.
“Companies are responsible not only for their own integrity and ethics, but also for acts of their third parties,” said Scott Lane, CEO at The Red Flag Group. “A company that uses suppliers engaged in actions such as bonded, forced migrant or child labor or human trafficking could sustain significant fines and reputational damage.”
Significant evidence of the worldwide problem was revealed last month, when the Walk Free Foundation issued its 2016 Global Slavery Index, which estimates that nearly 46 million people today are trapped in modern slavery. This is an increase of 28 percent from when the group last issued its index in 2014.
“Based on such numbers, it’s critical that companies recognize the kinds of suppliers that are at high risk for engaging in modern-day slavery,” Lane added. “These are likely to occur with suppliers that use a large labor force or are located in countries that are developing and where margins are typically low.” Examples include:
- Suppliers of food, particularly seafood, with workers who are restricted to long hours and forced labor, especially in Southeast Asia
- Construction companies in China, India, Pakistan and the Middle East that often use employees that are migrant workers where working conditions are poor and restrictions of movement are in place, such as removing passports from their owners
- Garment industry manufacturers, who often are considered involved in restricted labor and unsafe working conditions
- Electronics manufacturers
One high-profile example of a company that encountered such problems is Nestlé, which revealed in November 2015 that poor workers from developing countries such as Thailand, Myanmar and Cambodia often ended up trapped in illegal and brutal working conditions as part of the company’s supply chain.
“The unusual disclosure concluded a yearlong investigation by the Swiss food and beverage company following allegations by various media outlets and nongovernmental organizations,” Lane said.
What measures should companies follow to best manage the risk? Lane suggests:
- Conducting reviews of suppliers’ employment, human resources and hiring practices; pay rates; and working conditions, often through on-the-ground audits
- Enlisting the use of new, specialized databases that effectively conduct due diligence on companies and their work practices, and checking suppliers against known companies and people involved in modern-day slavery
The issue has become so prevalent that governments have enacted regulations to protect the rights of individuals. Examples include the United Kingdom with its Modern Slavery Act, the United States with the 2015 amendment to the Federal Acquisition Regulation on human trafficking and California’s Transparency in Supply Chains Act.
About The Red Flag Group
The Red Flag Group is a global integrity and compliance risk firm. It applies its unique set of advice, technology and business intelligence applications to manage the integrity and compliance risks of its customers. The Red Flag Group assists companies in developing and maintaining efficient and effective corporate governance and compliance programs and has a proven track record in providing integrity due diligence investigations in 194 countries. For more information, visit www.redflaggroup.com.
