CORP ORA TE GO VERNANCE
Supply chains and human rights: the risks and responsibilities
The intricately connected global economy has created rich opportunity for multinational businesses, but also brought intensifying scrutiny on the integrity of supply chains – particularly in respect of the human rights of workers. Carum Basra, the IoD’s policy adviser on corporate governance, assesses the landscape and outlines why and how firms of all sizes should ensure that they continually assess the risks
M 40
director.co.uk
uch has been made in recent months of a number of high-profile US chief execs rejecting the view that the sole “social responsibility
of business is to increase its profits” – the opinion famously espoused by economist Milton Friedman in the New York Times in 1970. This about-turn from the Business Roundtable – the Washington- based association of CEOs – has been seen as a radical departure from the status quo. In reality, its announcement merely reflects the existing direction of travel concerning the responsibilities of business. A decade after Friedman championed his vision of shareholder primacy, he used a simple piece of stationery to explain the free-market system to US television audiences. The Nobel laureate said: “There is not a single person in the world who could make a pencil.” He described how it required the co-ordination of South American miners, New England timber merchants, Malaysian rubber tappers and many more parties, illustrating the power of the market but also the complexity of the supply chains it facilitates.
SUPPLY-CHAIN SCRUTINY In the four decades since Friedman made this observation, supply chains have become even more intricate. At the same
time, the scrutiny that businesses are under when procuring supplies has vastly increased. Firms can no longer simply reap the rewards of this global network; they have a duty to bear some responsibility for it. An organisation is now expected to understand its supply chain and take steps to protect against the risk of abuses occurring along it. Under legal and public pressure, it must increasingly ask searching questions of those South American miners, New England timber merchants and Malaysian rubber tappers.
New laws passed around the world are requiring directors to take account of the social impacts of various links in the supply chain. In the UK, for instance, the Modern Slavery Act 2015 requires businesses with British operations and revenues of £36 million or more to disclose their approach to forced labour across their supply chains. The UK is not alone in this: France enacted the Corporate Duty of Vigilance Law in 2017. This requires businesses employing more than 5,000 people in the country to establish plans to prevent adverse impacts on human rights and the environment in the supply chain. At a global level, the United Nations has endorsed the Guiding Principles on Business and Human Rights. Commonly referred to as the Ruggie principles after the UN representative who proposed the framework, these call on businesses to
carry out “human-rights due diligence” across their supply chains. The proliferation of human-rights-related legislation and guidance often exposes directors to personal liability for failing to effectively address risks or for misrepresenting their company’s efforts.
MITIGATING THE RISKS Given the complexity of supply chains and the myriad potential human-rights impacts of business, it can be difficult for directors to know where to begin. Human-rights concerns touch every single industry. Particularly exposed sectors include mining, oil and agriculture, where issues such as land disputes can arise. Additionally, businesses that trade with countries with poor civil liberties are particularly vulnerable. The vast majority of UK companies already work hard to protect the rights of their workers, their stakeholders and those affected by the activities across their supply chains. Despite these efforts, without appropriate procedures in place there is a danger that some risks can be overlooked. Measures to mitigate risk will depend on the particular circumstances, but could range from introducing provisions in contracts with commercial partners requiring respect for human rights, through to undertaking audits of suppliers that take account of such issues. There
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