What every business needs to know
This month I have some very different news from Canberra. In the final weeks of Parliament last year our Government took a stance on slavery. Now before you think I’m joking, this is serious stuff. Yes, I thought of writing lots of puns and quite a few Dad-quality jokes, but having spent time working in Asian slums, it is no laughing matter.
By now you deserve an explanation. The Modern Slavery Act will require any company with global sales of $50m p.a. to report that its supply chain is free from what the Act terms “Modern Slavery”.
One example came to light recently in Cambodia. An unscrupulous owner of a brick factory would lend money to poor farmers. The subsistence farmers would struggle to pay back the loan in a good season, but when the crops failed they had to work for no wages until the debt was paid off on the never-never plan – all in a low tech, backbreaking and often dangerous brick “factory”. Even worse, if the worker needed medical treatment, the family was not allowed to accompany them. Not only is this essentially keeping the family as hostage, in Asia, the family always turns up to nurse a patient in the understaffed hospitals that often don’t even provide meals.
These enforced working conditions are an anathema estimated to affect approximately 46 million people across the world, according to the 2018 Global Slavery Index. Contained in that number are 71 per cent females, people trapped in forced labour, internment camps, debt bondage, forced marriages and child labour. (https://www.globalslaveryindex.org)
Regions reported as most affected include Asia, Africa and Eastern Europe, though it is estimated that between 15,000 and 20,000 people living in Australia today are victims of modern slavery. (https://www.globalslaveryindex.org/2018/findings/country-studies/australia/ )
Multi-million-dollar tenders are already being won and lost in Australia based on an ethical purchasing law which was only passed by Parliament in November. (1 January 2019 becomes the effective start date for the Federal Modern Slavery Act and the companion NSW law.)
The Department of Home Affairs has yet to release the full guidelines, but the emphasis will be on companies to self-report.
The net is cast very wide. If your global business has a turnover of more than $100m you will be required to report, no matter how small your Australian turnover is. If your global sales are between $50 to $100m then you are captured under the equivalent NSW Act, if you do any business in that state.
The Federal Act, especially, has been labelled as toothless because the only requirement is to report, and companies that do not report or submit an inadequate or inaccurate report will be named by the Minister.
While the shame of being named on a government website may be something that some may bear, the consequences are more painful.
Since early 2018, I have seen major State and Federal Government tenders include ethical purchasing as one of the requirements.
The CSIRO is in the midst of letting out $60m in tenders that is included in the appraisal “ethical purchasing”. The Queensland Government is in the final stages of letting out $98m of work to perhaps three suppliers. The tender documents required adherence to the Modern Slavery Bill, before the law was even passed by Parliament.
While the Act itself may read as toothless, the bite comes when governments use their buying power to drive policy. That becomes business critical when we understand that:
- The tender evaluation is binary (a yes/no). If your supply chain is “named” your tender bid is out – no matter how low your bid price.
- Even if you do not supply government directly, customers of yours that do rely on government purchasing, cannot afford to buy from you if your supply chain is named.
One client looked on this new regime not as a burden but an opportunity. This small, privately owned company took the initiative in September to commission a due diligence including factory visits in China in early November, including an ethical purchasing statement in their submissions.
Before Christmas the investment had paid off, with a $1.3m Federal tender awarded against major competitors and an invitation to make a January final presentation for $37m of work for the Queensland Government.
While government purchasing offices are the first to support the Act, we predict that the private sector will soon need to take notice. Imagine a Hardware store that stocks a certain brand of chainsaws, and that brand has consequently been named under the Modern Slavery Act. That will be enough to trigger negative publicity and public outcry.
No longer will journalists looking for a story need to travel to a Bangladesh shoe factory and secretly film child labour in action, they will just need to look up the latest entries in the name/shame list and they have their story.
But it won’t come to that. Department stores worth their salt will already be requiring Modern Slavery Statements and a clean record of all their suppliers.
According to the Act, the required annual modern slavery statement will include:
- The business name(s) and details
- The structure, operations and supply chains utilized
- An evaluation of the risks of modern slavery practices in the operations and supply chains
- The actions taken by the entity to assess and address those risks – the due diligence
- How the business assesses the effectiveness of such actions
(Modern Slavery Act 2018 (Cth))
The Government has only allocated $3.2m to conduct its work. That will only be sufficient to administer and to educate. Auditing and whistle blowing is likely to come from enthusiastic community groups, many of which already exist and have budgets and enthusiasm many times that of the Department of Home Affairs.
Next steps: Start now to see if you are captured under the Act and to get prepared. And don’t forget there are rewards for being ready early.
Drop me a line of you have a question.