TO BOYCOTT OR NOT? WHEN SLAVERY EMERGES IN SUPPLY CHAIN

Samieh Farrah GIV Consulting Services, UK October, 2020 The archive of this article is available at GIV Consulting website: www.goldeninnervision.com

In Supply chains, modern slavery is often deliberately hidden from view, and obscured through complex layers of outsourcing, subsidiaries, and opaque ownership structures that make it challenging to detect. There remains a wide gap for corporate and political actors to take greater accountability, in ensuring their contribution towards relinquishing slavery from business and respective supply chains.

The ILO estimates that approximately 40.3 million people around the globe live in slavery today. Whether through debt bondage, indentured labour, forced labour, servitude, human trafficking, child labour, organ harvesting, forced marriage, or sex work - slavery continues to thrive globally in discreet ways.

The modern slavery industry in its entirety is estimated to be worth $150 billion1 dollars, and remains the fastest growing form of organised crime that is often interwoven with financial crimes and money laundering. Slavery remains a sinister aspect of the world’s capitalistic structure that manifests across all timelines, industries, and continents. No region in the world, nor any industry is free from touching slave labour at some point.

Despite UK’s Modern Slavery Act, there were a total of 5,144 slavery offences recorded by police in England and Wales in year ending March 2019. According to the Office of National Statistics, this is an increase of 51% from the previous year. The data, unfortunately, does not include thousands of other cases that remain undetected and unreported.

In recent years, there have been numerous international slavery cases that have gripped the world’s attention. The most recent, in July 2020, includes the slavery case arising from a Leicester textile factory in the UK, serving fast fashion brand Boohoo Group Plc2.

1 https://www.antislaverycommissioner.co.uk/media/1203/eveningstandard-modern-slavery-report 2 Hipwell, Deirdre, Mulier, Thomas (2020) “Boohoo Plunges After Reports of Labour Abuses at Suppliers”, Bloomberg.com. Accession Number: 144413106 Database: Business Source Premier,

Very often when slavery is detected, the response is met with boycott from consumers and associated contracting authorities and entities. Boycott of suppliers and brands seems to be a common practice whenever companies come under great public scrutiny with slavery allegations.

This is highlighted with the recent Leicester factory slavery case, whereby three major online retailers (Next, ASOS and Zalando) dropped Boohoo, over allegations of low worker pay, and unsafe working conditions at its UK based factories3.

Boycotting brands and suppliers whose standards and practices gives rise to slavery, may be a preferred option as a means of dissociation, and condemnation of such criminal acts, however, these boycotts, whether carried out by corporate entities, or by consumers, actually exacerbate the problems of slavery, and further fuel, and deepen the cycle of poverty, and destitute that create conditions for slavery to thrive in the first place.

Too often it is the workers who pay a high price as a result of boycotts that leads to factory closures, or revenue reduction of culprit factories, sinking workers deeper in to a state of poverty, whilst making them more vulnerable and subject to further exploitations. Poverty diminishes free-will, and leaves people vulnerable to traffickers, and recruiters who coerce them in to slavery, again and again.

Essentially, boycotting suppliers and brands serves no one, but the traffickers and slave recruiters.

Seeking to redeem and mitigate against reputational damage may be a necessary step for businesses under public scrutiny, it is, however, essential to explore new ways of redeeming one’s reputation amidst a supply chain slavery disclosure crisis. Ideally opting for a longer-term remedy, that does not cause further harm to human lives, must be considered by the contracting authorities, who find themselves entangled in slavery allegations. Every action has a consequence, and slavery is no exception to this rule.

Lower tiered suppliers, wherever they may be located in the world, are too often given exceptionally low profit margins to work with, and are subjected to inflexible delivery regiments, and financially penalised for non-delivery of targets. For the suppliers to redeem some justice, and to avoid financial penalisation, they inevitably cut corners with regards to what they can get away with. Where profit margins are deemed inappropriate to ensure all standards are met, labour becomes the main

3 BBC news, 2020, “Boohoo dropped by Next, Asos, and Zalando over exploitation claims”, https://www.bbc.co.uk/news/business-53327628

cost cutting variable. Especially in cases where quality and delivery standards cannot be sacrificed for the purpose of attaining monetary justice.4

Understanding, and remedying the root causes of human violation becomes far more powerful in our global mission to relinquish slavery, as appose to boycotting and turning our attention away from suppliers who regard themselves as having little, to no choice, but to sacrifice social standards as a means of ensuring their financial survival.

There are alternative ways to resolve such challenges, and it is rarely through contract suspensions, disbarments, sanctions, or boycotts, but rather through collaborating in standardising social standards within industries, and cultivating perseverance with the objective to create greater social impact and benefits. Collaboration with suppliers amidst public controversy and condemnation may not be the norm (yet), but nonetheless, a new way of supply chain governance has been emerging in recent years that shifts our attention towards doing things differently. Paving the way, is our friends in Sweden, demonstrating that collaboration is essential for creating and sustaining social impact and value.

In 2011, the Stockholm County Council awarded a public procurement contract to Atea (re-seller) to procure and supply Dell computers to its employees. In 2014, the Agreement was extended for the sum of 156 million SEK (approx. £13.5 m in 2020’s currency)5

In November 2013, DanWatch released an explosive report, titled “IT Workers Still Pay the Price for Cheap Computers”, highlighting the human rights violations, safety violation and severe forced labour at four electronics factories in China. One of the factories covered in the report was a subcontractor Dell used to serve the Stockholm County Council’s ITC Contract.

The Stockholm County Council in collaboration with its national Social Responsibility network, maintained the intention to address the human rights violations arising within the factory in China. It pursued further discussions with Dell, and instigated remedial plans, and agreed a grace period to address the violations and risks.

4 Soundararajan, Vivek and Brown, Jill A. (2016), Voluntary Governance Mechanisms in Global Supply Chains: Beyond CSR to a Stakeholder

Utility Perspective, Journal of Business Ethics , March 2016, Vol. 134, No. 1 (March 2016), pp. 83-102 Published by: Springer, Stable URL: http://www.jstor.com/stable/24703757 , DOI 10.1007 /s10551-014-2418-y

5 Woods, Tara, (2019) “Utilising supply chain transparency measures to combat trafficking persons; a comparative analysis of the US and the

Swedish systems”. Public Contract Law Journal Vol 48 issue 2, p423-444 ISSN 0033-3441

Despite resistance from Dell, claiming they could not change some of the trafficking issues, and that excessive working hours in China could not be solved by one company, nor even by one industry, the County Council remained undeterred from its position, and further reiterated its stance for social value standards. Rather than terminating the Agreement, the County Council criticized Dell's inability to take responsibility, and extended its grace period to advance remedial actions against the violations.

Time lapsed to 2015, and the County Council commenced an independent review of Dell, and its inadequate social standards due to the lack of transparency provided by Dell and its re-seller; Atea. Resource was allocated to closely manage Dell’s social standards, and support reform programs with the offshored factories. Finally, after much collaboration and perseverance, by mid 2015 it was concluded that Dell had properly addressed its supply chain violations, and by autumn of 2015, Dell was deemed in compliance with the Council’s Supplier Code of Conduct, and was regarded an eligible approved ITC provider once more.

Over the course of 18 months, Stockholm’s County Council leaders, worked closely in partnership with Dell and Atea to resolve the ethical issues arising from third-party factories in China. The County Council consistently worked through Dell’s resistance, and retained accountability in areas where transparency was a concern.

The Dell case, reveals few critical lessons for the private, public, and non- -for-profit sectors facing supply chain transparency and governance issues with respective suppliers;

Firstly, the significance of including specific contract terms and clauses relating to supply chain transparency and modern slavery ensured the Council’s right to intervene and instigate ethical audits. Secondly an inclusion of contract indicators for social values, and responsibility, became the key component in holding Dell and Atea accountable for the violations that had surfaced. Thirdly, extending contract terms to third parties proved essential, in how much the County Council could enforce its social standards down lower tiered suppliers, extending beyond the remit of the first-tier supplier.

The County Council in the Dell’s case was able to leverage on its contractual terms in order to address the emerging violations. Through the powers of its contract with Atea, it maintained the right to instigate an independent risk assessment and audit of the third-party factories, to address transparency concerns, and to directly verify social and ethical standards at the factory.

Another critical lesson from the Dell case study demonstrates that long-term supplier engagement is essential to improve social value. Instead of terminating Dell's contract, the Stockholm County Council continued to work directly with Dell to resolve the issues. By doing so, the County Council was able to effect social change within the Chinese factories. Had the Contract been terminated amidst the public controversy, it is possible that nothing would have changed for the factory workers in China, or at worse, due to loss of revenue, workers would have been laid off, exacerbating the cycle of poverty and slavery.

Contractual clauses for supply chain audit and transparency, regarding ethical practice and modern slavery, offers contracting authorities the power to instigate meaningful social value, and helps reform practices to raise social and ethical standards.

Supporting third-parties raise social standards through collaboration, incentive, and reward, becomes a powerful, and transformative tool in relinquishing modern slavery practices from supply chains. It demonstrates a united front, and a partnered approach in paving a way forward to lead business through the lens of understanding, cooperation and diligence. It strengthens global connections and relations, and yields further return on investment in the longer term. Supporting suppliers build capabilities and standards, not only fosters trust, it also enhances quality and creates efficiency in performance and deliverables. ROI increases through standardisation of industry systems and approaches. Cooperation with industry competitors and supply chain networks essentially affords business greater power to increase returns, whilst simultaneously creating meaningful and measurable social value.

The partnering efforts demonstrated by the Dell Case, exemplifies how contracting authorities and suppliers can collaboratively work together to improve human rights violations through partnering approaches. Horizontal-collaboration6 with competitors within any given sector and industry, as a means of standardising contractual terms to gain social

6 Benstead Amy V, Hendry C Linda, and Mark Stevenson (2018) Horizontal collaboration in response to modern slavery legislation, An action research project, International Journal of Operations & Production Management Vol. 38 No. 12, pp. 2286-2312 , Emerald Publishing Limited 0144-3577 , DOI 10.1108/IJOPM-10-2017-0611

value, yields greater bargaining powers, when companies are faced with violation of social standards. Such collaborations may also offer wider opportunities to standardise social standards, and may even offer the possibility to create a shared capital fund, to assist lower tired suppliers meet and improve social standards, this is especially significant in regions where social standards are often deemed costly to implement, and lead to labour exploitation and non-compliance with ethical codes of conduct.

Over time, a consistent effort in maintaining purposeful horizontal collaboration is likely to reduce the cost of governance for corporate actors through shared resourcing, and uniformity in standards and KPI’s. The model therefore, serves as a win/win dynamic for all actors involved. Within the textile industry, the big brands are already voluntarily seeking horizontal collaboration 7 with competitor firms in respect of modern slavery and social sustainability. It is time for this practice to trickle to wider industries and sectors.

Perhaps one universal strategy may not comprehensively address a diverse and deeply nuanced global paradigm that sustains modern slavery, but if all direct and indirect actors don’t merely boycott and dissociate from violating suppliers, but instead, formally instigate proactive, collaborative, and diligent approaches to helping suppliers raise social standards, then perhaps only then, we may actually step closer to relinquishing modern slavery once and for all.

7 Benstead Amy V, Hendry C Linda, and Mark Stevenson (2018) Horizontal collaboration in response to modern slavery legislation, An action research project, International Journal of Operations & Production Management Vol. 38 No. 12, pp. 2286-2312 , Emerald Publishing Limited 0144-3577 , DOI 10.1108/IJOPM-10-2017-0611

References https://www.antislaverycommissioner.co.uk/media/1203/eveningstandard-modern-slavery-report Hipwell, Deirdre, Mulier, Thomas (2020) “Boohoo Plunges After Reports of Labour Abuses at Suppliers”, Bloomberg.com. Accession Number: 144413106 Database: Business Source Premier, BBC news, 2020, “Boohoo dropped by Next, Asos, and Zalando over exploitation claims”, https://www.bbc.co.uk/news/business-53327628

Soundararajan, Vivek and Brown, Jill A. (2016), “Voluntary Governance Mechanisms in Global Supply Chains: Beyond CSR to a Stakeholder Utility Perspective”, Journal of Business Ethics , March 2016, Vol. 134, No. 1 (March 2016), pp. 83-102 Published by: Springer, Stable URL:

http://www.jstor.com/stable/24703757 , DOI 10.1007 /s10551-014-2418-y

Woods, Tara, (2019) “Utilising supply chain transparency measures to combat trafficking persons; a comparative analysis of the US and the Swedish systems”. Public Contract Law Journal Vol 48 issue 2, p423-444 ISSN 0033-3441

Benstead Amy V, Hendry C Linda, and Mark Stevenson (2018) “Horizontal collaboration in response to modern slavery legislation”, An action research project, International Journal of Operations & Production Management Vol. 38 No. 12, pp. 2286-2312 , Emerald Publishing Limited 0144-3577 , DOI 10.1108/IJOPM-10-2017-0611 Benstead Amy V, Hendry C Linda, and Mark Stevenson (2018) “Horizontal collaboration in response to modern slavery legislation”, An action research project, International Journal of Operations & Production Management Vol. 38 No. 12, pp. 2286-2312 , Emerald Publishing Limited 0144-3577 , DOI 10.1108/IJOPM-10-2017-0611