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Lane [to McQuade]: Could you talk a little bit about what the Modern Day Slavery Act is expecting companies to do now, and what reaction you’ve seen from companies in this space?
McQuade: The guidance that I’ve seen in draft thus far is sound. It obviously has to satisfy a range of stakeholders. I’d say it’s not going to the lowest common denominator, though it does point out of course that simply saying you are doing nothing is in compliance with the law.
What we are going to see however is a more normative process, if I can put it that way, among businesses. So there will be some businesses that will put out a much higher standard of reporting than others. I think – I hope – that this will become somewhat of a benchmark to which other businesses will try to adhere.
The businesses that maybe feel they’re more ready for this than others are the ones who are already trading in and out of California … so have some experience of the expectations and requirements of that law. Certainly there was a strong influence of the California law in the drafting of the United Kingdom law.
[The United Kingdom Modern Day Slavery Act] sets the benchmark, or threshold, lower than California. So if your company is trading over £36 million [US$55 million] per annum you need to report. The logic of that was that if you get a large mass of businesses reporting on these things, then you are going to start having the critical mass necessary to do some decent learning about this. So it’s not just going to be a few hundred companies at the top filling in boxes, but a few thousand companies that are beginning to wrestle with these difficult questions and maybe come up with more imaginative and useful solutions to them.
If this law works in the best way, it will stimulate considerably more dialogue among businesses about how they can push up standards.
Agnew: What do you think are the main benefits for companies that do go above and beyond the minimum? What are the returns going to be on their efforts?
McQuade: When one talks in purely commercial terms, the principal thing that will emerge is greater trust in the business and greater brand appreciation among consumers. These are things that will have a positive impact on the long-term sustainability of businesses.
That’s something I’d hope might emerge from these transparency initiatives: a greater audacity for businesses to talk about these ethical and moral issues from the experience of what it’s like to do business in the globalising economy that we see today.
Lane: There’s a growing issue around the protection of a company’s reputation in the market. And that reputation not only attracts new customers – it also attracts investment, and share price increases, and old customers and employees.
Look at companies such as Volkswagen, and the Volkswagen brand. Will that ethical or integrity issue, which seems to be at the heart of that story, make it difficult for VW to build its brand going forward? Definitely! Will it have a stigma surrounding that brand moving forward? Definitely! Has it lost to some extent the trust of the buyer of its products to really know he or she is being told the truth about not only this emissions issue but other issues of the car? Absolutely! Will it cause a buyer to reconsider their choice and go somewhere else? Absolutely! Will a person who has just been offered a job at VW be proud to go home and say I’ve just signed to start a job at Volkswagen? I think some people ask that question and I think that’s a fair approach.
So the reputation of companies is changing and consumer sentiment, political sentiment and the public at large is starting to make decisions based on whether they feel the companies, or the people they are purchasing from, have an integrity profile that is consistent with their views and beliefs.
It’s becoming much less about who is the cheapest, but about who can provide a level of service or a level of product that is within a price range and is of high quality. Am I buying from a company that has an integrity profile with some degree of similarity to my own?
At The Red Flag Group, we look at 19 different risk areas in the supply chain – modern-day slavery being one of them. Some of those risk areas are going to be bigger than others depending on the company, its operations and products, its type of end users or channels or types of suppliers. The major challenge for a company is to try to work out where to focus attention. With this issue, for example, they might have a fairly small but a very acute challenge in a certain country.