Supply Chains and Fighting Slavery

by Gray Rinehart

Companies need visibility into their supply chains to optimize them, but should visibility into supply chain relationships be used as a tool to combat worldwide slavery and human trafficking?* Legislation introduced in the U.S. and the U.K. would require companies to examine and report such specific aspects of their supply chains.

On 11 June 2014, Representative Carolyn Maloney of New York introduced House Resolution 4842 — the “Business Supply Chain Transparency on Trafficking and Slavery Act of 2014” — on behalf of herself and her co-sponsor, Representative Christopher Smith of New Jersey. The bill would

amend the Securities Exchange Act of 1934 to require certain companies to disclose information describing any measures the company has taken to identify and address conditions of forced labor, slavery, human trafficking, and the worst forms of child labor within the company’s supply chains.

The purpose of the legislation is “to provide consumers information on products that are free of child labor, forced labor, slavery, and human trafficking,” so that “businesses and consumers can avoid inadvertently promoting or sanctioning these crimes through production and purchase of goods and products that have been tainted in the supply chains.”

The full text of the bill is available through the Library of Congress’s THOMAS system,** but it notes that the U.S. “is the world’s largest importer,” and that “in 2012, the Department of Labor identified 134 goods from 74 countries around the world made by forced labor and child labor.” Of the many goods imported by the U.S. every year, 134 seems a small number; however, those 134 undoubtedly represent an unknown larger number of goods in which child labor and/or forced labor played some role, and many would say that even such a small fraction is too large.

Noting that “in the 21st century, investors, consumers, and broader civil society increasingly demand information about the human rights impact of products,” and that several laws and Executive Orders prohibit Federal contractors and subcontractors from engaging in human trafficking and associated activities, the bill would apply to any “covered issuer” — defined as any company that issues stock or other securities to finance its operations, and has worldwide receipts over $100 million annually. Not unlike the requirement for companies to report use of “conflict minerals,” the bill would require an affected company to disclose in its annual Securities and Exchange Commission reports whether it “has taken any measures during the year … to identify and address conditions of forced labor, slavery, human trafficking, and the worst forms of child labor within the covered issuer’s supply chain,” and if so to include a description of the measures it took. Companies would also have to post information on their websites about their “Global Supply Chain Transparency.”

From that, it is clear that the bill would not require companies to take specific measures against forced labor, etc., but instead only to report — and thereby advertise — if they had done so. The result would be a tally of companies “in a searchable format on the Department of Labor’s website” that a) were required to disclose measures they took, and b) actually took measures. The implication would be that companies over the $100M reporting threshold that did not report any measures to combat forced labor, etc., must have something to hide. That the bill would also require the Secretary of Labor to compile and publish a “top 100 list” of “companies adhering to supply chain labor standards” supports the conclusion that this legislation is meant to compel (though proponents might say “encourage”) large companies to take action against the proscribed labor practices.

The language of the bill is couched in terms of risk, but does not appear to be in terms of supply chain risk per se; that is, the language of the bill is not in terms of the risk to the supply chain and thereby to the business, but refers to “the risks of forced labor, [etc.], within the covered issuer’s supply chain.” The bill does require companies to perform supply chain audits to “investigate the working conditions and labor practices of … suppliers,” and to “require suppliers … to attest that the manufacture of materials incorporated into any product” as well as “the recruitment of labor are carried out in compliance with the laws regarding forced labor, slavery, human trafficking, and the worst forms of child labor of the country or countries in which the covered issuer is doing business.”

A similar bill, the Modern Slavery Bill, was introduced in the British Parliament in April of this year, and as it has gone through the review and comment process Members of Parliament and others have called for the draft bill to be amended to require companies to report efforts to eradicate slavery from their supply chains. Both bills, then, appear to operate on the principle of publicly shaming any companies that do not take aggressive action against forced labor and the like.

When it was introduced, H.R. 4842 was referred to the Committee on Financial Services, and also the Committee on Education and the Workforce. What shape it will be in, if and when it emerges from committee, it is impossible to say. For instance, one interesting element of the bill is that it sets the deadline for compliance as a year after the enactment of another bill that has not yet been introduced, let alone passed: the “Global Supply Chain Transparency for Trafficking, Forced Labor, and Child Labor Eradication Act.” It remains to be seen if that connection is retained, and what other changes might be adopted.

What is clear is that this bill would impose some new costs of doing business, not only on companies with more than $100M in annual revenues, but on smaller companies that are suppliers to those larger firms. The cost of reporting associated with the bill may be small, even close to negligible, but behind the reporting are the potentially significant costs of investigations, audits, and record-keeping up and down the supply chain. No doubt the bill’s sponsors consider any potential reduction in slavery and child labor to be worth whatever costs businesses have to bear, and that question is too complex to consider here; but the point is that if this legislation passes then companies will be faced with new requirements that may make it more difficult to optimize their supply chains in terms of affordability, efficiency and manageable risk.

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*It seems an unfortunate linguistic coincidence that, when the topic at hand is slavery, supplier relationships are known as supply “chains.”
**The always-useful THOMAS site will soon re-direct to “Congress.gov,” the usefulness of which remains to be seen.

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Related Items:
– Has Supply Chain Policing Gone Too Far?