Respect for human rights as regards workers in the business across all jurisdictions, and those involved in the supply chain, is now a key feature of the UK corporate governance regime, alongside fair treatment of smaller businesses in the supply chain. Companies are more accountable than ever for these issues, both legally and reputationally.
The UN Guiding Principles on Human Rights makes clear that: “The responsibility of business enterprises to respect human rights applies to all enterprises regardless of their size, sector, operational context, ownership and structure” and respect for the human rights of all workers in a business across all jurisdictions, and those involved in the supply chain, is now recognised as a core part of corporate compliance and accountability.
The UK Government expects UK businesses to comply with the UN Guiding Principles and has introduced legislation to support this, including the UK's Modern Slavery Act and certain non-financial reporting regulations designed to drive increased transparency at corporate group level. The English courts are also increasingly willing to hold the parent companies of global organisations to account for unlawful ethics breaches committed their overseas subsidiaries. Read about the Vedanta case.
Responding appropriately to these legal developments amidst new social dynamics is key to successfully managing a company's brand, investor relations, access to finance and litigation risk.
The Modern Slavery Act 2015 (MSA) requires organisations conducting business in the UK, with a global annual revenue exceeding £36m, to publish a transparency statement describing the steps they have taken in the last financial year to ensure their business and supply chains are free from modern slavery and human trafficking. The impact of this disclosure obligation on corporate behaviour can be profound. To publicly admit or imply that your organisation does not consider, manage or seek to address these human rights issues, and is not proactively working with suppliers down the chain to do so, could significantly tarnish a company's brand, limit funding opportunities and open the door to NGO, shareholder and investor activism.
The Home Office has written to entities threatening to "name and shame" those that do not comply with the reporting requirements under the MSA. NGOs, such as the Business and Human Rights Resource Centre (BHRRC), as well as the press, are publishing rankings and surveys on MSA compliance, and the extent to which companies incorporate modern slavery into their risk assessments and provide employees with adequate training. For example, the Transparency in Supply Chains (TISC) website (maintained by Semantrica Ltd, a small independent UK social enterprise) and the Modern Slavery Registry (maintained by the BHRRC) make it easier for the public to access MSA statements.
On the other hand, to companies who are proactively seeking to tackle these issues this represents an opportunity. Accordingly, some organisations are choosing to report on a voluntary basis even though they do not meet the turnover threshold, demonstrating how important it now is to be seen to be conducting business ethically.
Whilst the Modern Slavery Act requires larger companies to engage proactively in the management of supplier relationships, they are also under an obligation to treat suppliers themselves fairly. The Reporting on Payment Practices and Performance Regulations 2017, which require companies to disclose payment terms and practices, are designed to address the problem of late payment of suppliers, which is a particular issue for SMEs.
Breach of these requirements attracts criminal liability, and more recently, for organisations bidding for Government contracts, the Government has set a standard of 95% of all supply chain invoices to be paid within 60 days in at least one of the two previous six-month periods.
The Modern Slavery Act 2015 came into force in October 2015 and applies to commercial organisations (corporate bodies and partnerships, wherever incorporated or formed) that (1) have a total turnover, or gross receipts, of £36 million ($50 million) or higher, and (2) “carries on a business or part of a business” in the UK. The Act will therefore catch both UK and non-UK- incorporated or registered entities.
Determining whether a cross-border business conducts business in the UK for these purposes may not be straightforward. The Government recommends that where an organisation is incorporated outside of the UK, a common-sense approach should be adopted, but organisations should have at least a demonstrable business presence in the UK to be caught by the legislation.
The Reporting on Payment Practices and Performance Regulations 2017 introduced a duty on the UK’s largest companies and LLPs to report on a half-yearly basis on their payment practices, policies and performance as regards suppliers for financial years beginning on or after 6 April 2017. The information must be published through an online service provided by the Government and is available to the public.
Modern slavery - The adverse reputational consequences of failure to comply or of making a negative modern slavery report are serious. In our experience, the majority of organisations comply, but every organisation should build the following into its governance processes:
Supplier payment practices – Compliance as far as possible and publishing information on a timely basis in line with the requirements of the Reporting on Payment Practices and Performance Regulations 2017, particularly for organisations bidding for Government contracts for whom the prompt payment of suppliers may be the gateway to the tender process.
The range of our work includes advising a wide variety of businesses, including retailers, manufacturers, private equity houses and banks on:
Our corporate governance team also focuses on governance regulation and best practice guidance for companies in the context of human rights and ethics obligations, including advising on corporate culture, directors' duties, management of board-level responsibilities and activist shareholders.
