The only way is ethics for modern businesses

Companies are now required to scrutinise the behaviour of their business partners more closely. Picture: Getty
Companies are now required to scrutinise the behaviour of their business partners more closely. Picture: Getty
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Firms face new human rights duties, write Paul Marshall and Niall McLean

Behaving ethically, and being seen to be behave ethically, is an increasingly important aspect of doing business. In a climate in which businesses are subjected to unprecedented scrutiny and growing regulation, we can only expect that the ethical treatment of customers, local communities and suppliers – both in the UK and abroad – will continue to rise up the corporate agenda.

The Bribery Act, which came into force in 2010 and was described as the world’s toughest anti-corruption regime, heralded a new era in business ethics. Under its terms, companies and the individuals that run them are required to scrutinise the behaviour of their business partners more closely than ever before. The act imposes strict penalties for a failure by commercial organisations, their employees or their business partners, to behave ethically whether in the UK or abroad.

The level of scrutiny is now about to be ratcheted up another level with a new duty on businesses to ensure there are no human rights abuses in their supply chains. One of the last pieces of legislation passed by the Conservative and Liberal Democrat coalition builds on this theme and introduced a new duty on businesses to ensure their supply chains are slavery free. Using a combination of business ethics and more traditional enforcement measures, the Modern Slavery Act 2015 is an innovative -– and most would say laudable – piece of legislation and is the first of its kind in Europe to specifically address slavery and trafficking in the 21st century.

By targeting supply chains, the act aims to ensure that businesses do not fuel demand for slave or forced labour, or put UK consumers in a position where they purchase goods produced by workers under duress.

The act does this by placing an obligation on commercial organisations to ensure transparency throughout their supply chains to demonstrate that they are slavery free. The government will hold businesses to account by requiring commercial organisations in the UK to produce a slavery and human trafficking statement each financial year. Similar to the conditions of the Bribery Act, a “commercial organisation” is defined as a body corporate or partnership that carries on a business, trade or profession concerned in the supply of goods or services in the UK. This means the requirement could also catch organisations that have their registered office abroad but carry out some part of their business in the UK. Statements may include information about the commercial organisation’s business structure,supply chains, anti-slavery policiesand areas of the business at risk of slavery and trafficking.

The reporting requirement will only apply to commercial organisations over a certain turnover threshold, which the UK government has yet to announce, though all businesses in the supply chain are likely to feel the impact of this obligation. If, as predicted, the reporting requirement is reserved for larger businesses, it is expected that its trickle-down effect will mean that those larger businesses will in turn impose new requirements on their supply chain in order to demonstrate that they have taken appropriate action.

The obligation to produce a slavery and human trafficking statement are enforceable by the Secretary of State, who can apply to the court to enforce compliance and impose an order to compel the commercial organisation to report. It is possible that the court could also impose a fine or imprisonment for non-compliance of any order it makes, with the maximum penalty for the most serious offenders being a sentence of 14 years to life.

In the short term the potential for reputational damage is likely to be critical to ensuring compliance by businesses. As most large companies in the UK now place ethical behaviour at the heart of what they do, we can expect they will look closely at their supply chain in response to the new reporting requirement. In anticipation of the new provision coming into force, all business leaders should therefore be assessing the risks of people trafficking, slavery and enforced labour in their own business, and the businesses they work with. Ignorance is not a defence.

Paul Marshall is a partner and Niall McLean is an associate in the business ethics team at Brodies LLP. www.brodies.com