Modern Slavery Act needs to be overhauled according to FRC report

Despite the fact that it has been a legal requirement in the UK since 2015, companies are still failing to provide a statement outlining what they are doing to prevent modern slavery in their businesses and supply chains.

The Financial Reporting Council (FRC), in collaboration with the UK Independent Anti-Slavery Commissioner and Lancaster University, released a report on April 25 that found one out of every ten companies sampled did not provide a modern slavery statement. Only one-third of the companies that did comply had statements that were considered clear and easy to read.

The Modern Slavery Act of 2015 in the United Kingdom has been dubbed "world-leading." Businesses with a turnover of 36 million pounds (US $45 million) or more must write an annual statement outlining the steps they are taking to address the risk of slavery in their operations and supply chains, according to Section 54 of the legislation.

However, the FRC has described the level of corporate disclosure as "uneven" in the seven years since the law went into effect. The FRC decided to expand its research last year after concerns were raised in its annual review of corporate governance reporting that companies were either paying lip service to the requirement or ignoring it entirely.

The new report looks at how 100 major corporations are not only reporting on modern slavery in their annual reports, but also measuring the impact of their initiatives and interventions under Section 172 of the United Kingdom Companies Act.

Most statements, according to the FRC, were "fragmented, lacking a clear focus and narrative, or were unduly complicated." It went on to say that "longer disclosures did not necessarily mean more informative disclosures," and that excessively long disclosures "often contained boilerplate reporting or were a sign of a poorly structured statement."

Key performance indicators (KPIs) used to assess the effectiveness of steps taken to reduce the risk of modern slavery were particularly lacking: Only a quarter of companies reported results against their KPIs, and only 12% said they used them to make informed decisions.

According to the report, less than half of companies addressed modern slavery concerns in the context of organizational structure, operations, and supply chains in a clear and comprehensive manner. Despite the fact that the majority of companies said they assess modern slavery risk in their own business and supply chain, only about a third (28%) said they have a plan in place to address the risks.

Cross-referencing was difficult because only 14% of annual reports provided a direct link to the corresponding modern slavery statement. In their annual report, only 13 companies mentioned internal controls related to human rights and slavery oversight, and only seven companies mentioned when and how frequently their modern slavery policies and governance arrangements are reviewed.

Only a small percentage of modern slavery statements were forward-looking, with only a few identifying emerging issues or a long-term strategy. According to the FRC, this trend reflected businesses' largely reactive approach to the problem.

"It is unacceptable that many companies did not produce a modern slavery statement and that modern slavery considerations appear to not be a mainstream concern for many boardrooms," FRC CEO Sir Jon Thompson said in a press release. "Looking ahead, companies must clearly set out the actions they are taking to deal with modern day slavery in all aspects of their operations.  "

According to Dave Walsh, a criminal investigation professor at De Montfort Law School, the situation is likely to be even worse than the FRC believes. He believes that, rather than the one in ten figure cited by the FRC, one in four companies do not provide a modern slavery statement, and that "around half of those who produce statements fail to meet the government’s guidelines," implying that "no confidence could be drawn from them."

The findings are unsurprising to legal experts, given that companies can provide as little as a one-line statement under the legislation, and even state slavery is of no concern to the board or the business. According to the International Labor Organization of the United Nations, more than 40 million people are enslaved worldwide, with 25 million in forced labor. According to UN data, one in every four victims of modern slavery is a child.

Given the law's terms, Alice Lepeuple, an associate at law firm WilmerHale's U.K. white-collar defense and investigations practice, said it is "unsurprising that for many companies publishing a modern slavery statement has become a poorly executed box-ticking exercise."

"Noncompliance with the Modern Slavery Act  is a direct consequence of the absence of proactive enforcement and the lack of any financial penalties and other sanctions," said Raymond Silverstein, a partner at Browne Jacobson and head of the firm's London employment practice.

If the legislation is to be effective, Sophie Kemp, partner and head of the public law team at law firm Kingsley Napley, believes it needs to be overhauled. "Credible inspections, spot-checks, external audits, and making the provision of false information about slavery statements a criminal offense," she suggested.

By fLEXI tEAM