February 10 2022

How seriously are companies taking their reporting under the Modern Slavery Act?

New research by MDX academics suggests companies focus on the risk to their reputation instead of labour rights when following laws on Modern Slavery

As a lesser known element of the agenda to deal with ‘modern slavery’ (commonly seen as a problem of people trafficked into the UK to work under ‘unfree’ conditions) has been a reciprocal concern over the abuse of workers in overseas operations of companies in the supply chains of UK companies. To this end, the Modern Slavery Act 2015: section 54 (MSA) was introduced to entice companies to ‘get to know’ their supply chains more. Specifically it requires companies to report on what actions they are taking to uphold supply chain labour rights in an ‘Annual Slavery and Human Trafficking Statement’ (ASHTS).

However, new evidence from a study by a Middlesex University research team led Dr Sepideh Parsa and Dr Chandima Hettiarachchi together with Dr Ian Roper from Essex University, suggests that this ‘soft law’ approach may be granting companies with too much flexibility, leading to inconsistencies in reporting where many challenges and complexities related to labour rights never get reported.  

While concerns have been voiced before over the credibility of information reported on ASHTS, little has been known on how companies select and focus on their reporting options. So researchers carried out a detailed examination of the largest 100 companies’ statements to shed light on some of the nuances in their reporting.

The research team developed a comprehensive index. Under the MSA, companies have the option to report on a number of categories. Based on these together with the recommendations by the CORE (2017), the team concentrated on five main categories: Organisation and Structure of supply chains (OS), Due Diligence (DD), Risk Assessment (RA), Codes of Conduct, Policies and Strategies (CPS) and Training and Collaboration (TC).

Each category included sub-categories that were informed by the recommendations of the CORE (2017) and in consultation with The Business and Human Rights Resource Centre.

The findings revealed that just over half of the companies prioritised reporting on their Risk Assessment and Due Diligence processes, followed by Codes of Conduct, Policies and Strategies and then Organisation and Structure of their supply chains being reported by similar number of companies. Upon closer examination of the two latter categories, reporting on CPS were closely linked with reporting on RA and DD processes (Figure 1). The hierarchy of priorities reported suggests, maybe unsurprisingly, an emphasis on those issues which are of more concern to investors, with an emphasis on risk to reputation, rather than to other institutional stakeholders – for example those concerned directly with labour rights. These three aspects (RA/DD/CPS) were at the epicentre of reporting, forming a strong, mutually supporting triangular relationship (Figure 1).

Figure 1 Correlations between different reporting categories

Notes: Figures in brackets show the percentage of companies reporting on each category.

Falling outside the reporting focus, Organisation and Structure of Supply Chains was linked, but to a much lesser extent, to RA and CPS. For example, only 60% of companies that raised their reporting on their RA or on their CPS also provided more information on the Organisation and Structure of their Supply Chains (OS). Details on how companies organised and structured their supply chains, especially in geographical locations that were identified as being at ‘high risk’ to violations of human rights combined with the challenges companies can face in certain areas were unreported. These were often in areas that fell outside their national jurisdiction. Similarly, just more than half of companies (57%) that increased reporting on the organisation and structure of their supply chains enhanced their information provisions on their due diligence processes. This conveys further hesitation by companies to disclose details about those part of their supply chains that were more at risk and hence had due diligence processes specifically devised for them.   

Maintaining a low profile on their supply chains is an illustration of companies’ reluctance to draw attention to challenges and problematic areas that may be hard to resolve within a business context or simply too complex and politically too sensitive to report on. In the UK regulatory environment for corporate governance where shareholders’ interests are prioritised, releasing information that may lead to uncertainties could adversely affect share prices, so there is an incentive for companies to avoid drawing attention to problematic areas. While this can be acceptable in the absence of any mandates for reporting on complex and sensitive issues, the same justification somehow falls short of explaining why companies made limited efforts to report on their Training and Collaboration programmes, where solutions could potentially be proposed to address problems identified.  

Training and Collaborations was the least reported category. Companies remained largely silent about their collaborations with external organisations, such as trade unions or labour NGOs. All this raises questions over how in-depth corporate efforts have been in finding out and understanding and dealing with challenges they face on this labour-rights issue, or how willing they have been in reporting on such efforts. It is unclear how much effort has been put into raising and changing corporate awareness and culture on labour rights issues and whether or not all the relevant issues have been identified and responded to. This can ultimately have implications for how risks are managed and due diligence processes are devised.

While it is convenient to prescribe the need for companies to engage with external ‘social partners’ who can inform their processes, we need to learn a lot more about sensitive labour issues along companies’ supply chains, especially those aspects that were often in geographical areas outside companies’ national jurisdictions with circumstances that are outside their expertise and their business remits. While Sepideh and her team remain critical of ‘soft law’ approaches, unless we know more about supply-chain challenges and complexities, any attempt to take a harder regulatory approach would be meaningless. 

The whole report is available online.  For any queries, please contact: s.parsa@mdx.ac.uk

About the authors

Dr Sepideh Parsa is Associate Professor of accounting in the Accounting and Finance Department at Middlesex University Business School.
Dr Chandima Hettiarachchi is Researcher and Associate Lecturer in Accounting & Finance Department at Middlesex University Business School.

Photo by Tim Mossholder on Unsplash

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