Part One: The Board’s Role in Countering Modern Slavery
A group of more than 100 engaged corporate directors, executives and governance professionals gathered at a Women Get On Board (WGOB) Toronto event to hear a riveting presentation by Gowling WLG business partner Stephen Pike focusing on evolving governance approaches to preventing modern slavery in corporate supply chains. The presentation was part of WGOB’s February 24, 2020 panel on Environmental, Social and Governance (ESG), hosted by Gowling WLG, a WGOB National Strategic Partner. Other panelists at the event included Gowling WLG’s environmental associate Liane Langstaff and environmental law partner Jennifer King, who presented on emerging best practices in governance regarding climate change.
Modern slavery is an umbrella term that refers to a group of exploitative and cruel labour practices, including forced labour, child labour, human trafficking, and debt bondage.
“Modern slavery is squarely within the purview of the board’s affirmative obligation of risk oversight,” said Pike. “That’s an obligation that includes a duty to identify business and liability risks that could impact the corporation’s ability to deliver sustainable long-term growth and value.”
Regulatory and compliance risk
Although Canada does not have any legal restrictions on importing goods made with slave labour, many of our key trading partners such as the US do. Note that Canada does have legal restrictions on the import of goods made by prison labour that were produced for commercial purposes. A public bill was introduced in the Canadian Senate in February 2020 addressing modern slavery. If enacted, it would require companies to publicly report on measures taken to prevent and reduce the risk that forced or child labour is used in any step in the supply chain in the production or import of goods.
For companies that do business in the US or other countries that do regulate the issue, boards should be of the ensuring that management has an adequate system in place to meet compliance and reporting requirements, as board members may have to sign the report and be personally accountable in some jurisdictions.
Supply chain risk
Discovering human slavery in your supply chain can lead to a complete and disruptive overhaul of your supply chain and related processes. Apple had to completely revamp their supply chain in response to allegations that child labour was used in the cobalt that was mined for ultimate use in iPhone batteries.
Aside from baseline ethical and legal concerns, the continuing allegations posed a reputational risk that Apple needed to manage. Boards should determine if their company has an adequate supply chain compliance and audit program, as well as a reputational risk response plan.
Evolving legal landscape
Marketing materials touting corporate commitments to ethical sourcing may serve as the basis for legal claims if found to be inaccurate. In January, a $550 million class action claim was filed against Hershey Canada. The claim alleges that Hershey failed to disclose the use of child labour in the farming of cocoa beans used in its products, despite public statements to the effect that it opposes child labour and uses socially and ethically responsible sourcing practices.
A recent UK case found directors personally liable for the exploitative labour practices of the corporation in relation to farm workers. While the law in the UK is different, the court focused on the fact that they had breached their fiduciary duties to the company (as opposed to the maltreated farmworkers directly), since they knew that the labour practices were illegal.
On the positive side, many companies such as Patagonia outperform their competitors in part by managing risk with proactive supply chain management techniques. For instance, blockchain technology can be used to track the provenance of commodities.
Institutional investors such as the Canada Pension Plan Investment Board have designated human rights as a key focus area for engagement. Similarly, BlackRock’s CEO Larry Fink wrote an open letter to CEO’s seeking public disclosure that exceeds mere statutory requirements under corporate or securities law.
“The biggest push that we see is that sophisticated investors want more information. They want companies to disclose what they’re doing in terms of not only modern slavery but the environment as well,” said Pike. “Younger cohorts of consumers have different perspectives on these issues and are less likely to defer to what larger corporations have done for years and accept the status quo.”