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The Growing Pressure on Supply Chains to Eradicate Slavery and Human Trafficking

Laws and regulations to eliminate human-rights violations in global supply chains are multiplying. But companies shouldn't consider their current lack of "teeth" as a license to ignore them.

New rules against modern-day slavery and human trafficking are emerging at the state, federal and international levels. Among the most prominent measures to crop up in recent years is the California Transparency in Supply Chains Act, which took effect in January of 2012.

The California act is a reporting requirement, targeting retailers and manufacturers with worldwide annual revenues of at least $100m. Affected companies must disclose on their websites initiatives they have launched to eradicate slavery and human trafficking from their direct supply chains. Specifically, they are required to detail the extent to which they:

-- Verify their product supply chains to evaluate and address the risks of slavery,

-- Conduct audits of suppliers,

-- Require direct suppliers to certify that materials used in their products comply with local laws on slavery and human trafficking,

-- Maintain accountability standards and procedures for employees or contractors that fail to meet company standards on the practice, and

-- Provide employees and management with training on slavery and human trafficking.

The act’s reporting requirement is estimated to affect some 3,200 companies either based in California or doing business in the state. But it contains no fines or other penalties for failure to comply, relying instead on the negative image that will attach to miscreants. “It’s a ‘name and shame’ law,” says attorney John Kloosterman, co-chair of the Business and Human Rights Group at Littler Mendelson.

Opportunities for “shame” are abundant. Human-rights groups regularly scrutinize corporate websites for information about what companies are doing to prevent slavery in their supply chains. Third-party websites post lists of those that are falling short in such efforts. Businesses will frequently receive letters asking why they aren’t complying with laws such as the California act, or come under intense public pressure for failing to adhere to certain standards of corporate responsibility. In theory, those tactics percolate down to buyers, and can even result in large-scale consumer boycotts. They can also scare off major institutional investors, such as public pension funds.

Mindful of their public image and its relationship to profits, many companies are moving to comply with the law. You’ll look long and hard for a major global manufacturer or retailer that doesn’t have some form of a supplier code of conduct in place.

That’s a big improvement over the situation prior to passage of the California law, says Kloosterman. Then, a letter of inquiry sent by non-governmental organizations (NGOs) to 100 companies garnered just 10 responses. Of those, eight were bland public-relations statements, leaving only two that constituted a serious response.

Today, companies offer lengthy documents detailing their efforts to conform to human-rights standards around the world. At the same time, the pressure to do so is increasing. The Dodd-Frank Wall Street Reform and Consumer Protection Act included a requirement that manufacturers disclose the presence in their products of conflict minerals from certain mines in the Democratic Republic of the Congo. Broader in scope is the U.K.’s Modern Slavery Act of 2015, which does have some enforcement provisions, including the ability to seize the assets of human traffickers.

Additional remedies have been sought in the courts. In recent years, litigants have attempted to use the Alien Tort Claims Act of 1789 as a basis for suing U.S. multinationals for alleged human-rights abuses in countries where products and raw materials are sourced. Laws against unfair competition have also been cited, Kloosterman says, but those efforts have had little success to date.

Mere statements of compliance and corporate responsibility don’t tell the whole story. Many companies make grandiose claims about worker protection that they can’t back up, says Kloosterman. Even the most dutiful businesses can discover that their products are being sourced in countries and factories that regularly violate strictures against mistreatment or slavery. “We’ve seen codes of conduct and supplier codes that seem to have been drafted by the summer P.R. interns,” he says. “They never got legal and supply chain involved.”

Rights groups and plaintiffs’ lawyers are constantly on the lookout for companies that are insincere in their claims of compliance and responsibility. Kloosterman offers three recommendations to help avoid lawsuits and public shame:

-- Don’t make unfounded or extreme claims about your code of conduct and adherence to human-rights practices throughout the supply chain.

-- Don’t automatically adopt tough standards on forced labor, such as those set forth by the International Labor Organization. Even the U.S. hasn’t signed on to the ILO’s Convention 29, which was enacted in 1930.

-- Use the California Transparency in Supply Chains Act as a roadmap for implementing initiatives that allow for keeping tabs on multi-tier supply chains.

Few if any companies have achieved perfection in eradicating slavery and human trafficking from their supply chains. It’s an ongoing effort that requires constant surveillance and close communication with often-distant suppliers. But existing laws can point the way – and might eventually do more than that, if they become mandates with severe penalties for non-compliance.

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