The Company You Keep – Engagement & Reputational Risk

By: Rachel Bernasconi, Paul Cutrone, Ameena Majid, and Peter Talibart

This is the second in a series of blogs by our Global Modern Slavery Team dealing with how companies can get ahead of the curve of the changing legal landscape addressing business’ role and connection to modern slavery.

Many international companies now consider their modern slavery and human rights stance as more of a cultural marker than a legal compliance issue, notwithstanding the growing trend of more onerous legislative obligations in this area.  This is for multiple reasons.

1. Companies are increasingly being evaluated by employees, investors and consumers along ethical lines, in addition to the traditional metrics of prestige, stability and profitability. 

2. They are becoming more cognizant of the reputational impact that can arise from poor human rights practices in the supply chain.

3. Any company statement on human rights practices – such as safety, employment or the identification and remediation of modern slavery is automatically degraded by association if there is an ethical event in the supply chain.

Employee engagement

With generational shifts in the workplace and the #metoo movement drawing worldwide attention to issues of basic human respect and dignity, younger generations are seeking a way to create impact through their work and those mid- to late-career are increasingly seeking a re-engagement with their work on a deeper, more meaningful level, in part, to “give back”. 

Socially responsible investing

The idea of “ethical global citizenship” are also resonating with socially responsible investors, who are increasing in numbers as they find ways to align their money with their values. Right now, more than one in every four dollars are being invested using sustainable, responsible or impact investing strategies, according to The Forum for Sustainable and Responsible Investment. In addition, institutional shareholders are identifying ways to evaluate a company’s worth by measuring its actions through the lens of various environment, social and governance (ESG) factors.  Granted, assessing a company’s social and governance impacts do not easily lend themselves to quantitative measures and there are fundamental questions to answer about this new “sustainability science”.  But, there is an increasing  understanding of the connection between a company’s values, the execution of those values in its business operations and its bottom line. 

Consumer choice

Finally, consumers are driving accountability by directing their dollars to brands that create a connection with the trilogy of people, profit and planet. According to Edelman’s 2018 Earned Brand study, about 64% of consumers, globally, buy on trust.  This was a 13% increase over 2017.  Edelman named these consumers, “belief-driven buyers”, who they noted will “choose, switch, avoid or boycott a brand based on where it stands on the political or social issues they care about.”  This statistic alone augers well beyond legal compliance as the only driver, to non-legal metrics such as reputation, transparency and accountability.

A new focus on “good” business

All of these trends, coupled with the changing legal landscape we touched on in our first blog in this series, are driving companies to re-evaluate the social impact of how they do business.

A company’s interaction with modern slavery typically starts with a consideration of its own operations, and then moves toward some kind of insulation from reputational damage caused by a supply chain event. This is, again, driven by the emerging disclosure and other compliance focused modern slavery laws as well as different industry standards that are developing on how to responsibly source materials and hire employees.

Global companies appear to be falling into two camps.  Some commence the internal dialogue about modern slavery as an issue grounded in the company’s values, whilst others take a legal compliance approach. 

For the former group, there are hard questions to address such as: What are the human rights we prioritize and what does that mean for our business? What is our supply chain? What gaps do we have between our policies and company values? What is the impact we want to create? What are we working towards? What are our auditing procedures and how do we adapt them to address human rights? Delta is an often cited example of a company who trains its workforce on these issues so that they are an active part of identifying and remediating modern slavery. There can be positive reputational benefits for those companies who see the issue as an extension of the corporate value proposition.

 A determination of how any business should react to an estimated 46 million men, women and children working in unacceptable circumstances, mostly in the supply chain of legitimate industries around the world is not easy. Some companies feel they should take a stand about it and others feel they should not address it until legally compelled to do so. However, the laws in this area are only one aspect of the moral equation now facing the international business community.

A starting point for action can be with international labor and employment/health and safety or procurement specialists to identify how their industry is addressing its connection to modern slavery. Stay tuned for our next blog: Modern Slavery: The Dilemma of Internal Accountability and Resource Allocation.