What the Costco lawsuit means for supply chain transparency

Tuesday, 14 February 2017 11:24 GMT

Shoppers brave snowing weather conditions at Costco store in Toronto, Ontario, Canada, January 10, 2017. REUTERS/Hyungwon Kang

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"Despite the media coverage, the reality is that forced labor taints many of the products we consume daily"

A supply chain’s opacity is directly correlated to its risk of forced labor. Companies need transparency to ensure their workers—all the way down the chain--are not exploited.  Unfortunately, a recent decision to throw out a lawsuit against Costco could disincentivize companies to voluntarily disclose when they find forced labor in their supply chain. In the case on whether the retail giant failed to disclose that seafood sold at its stores was caught with forced labor, the judge argued that the consumers who filed the lawsuit did not have standing because they couldn’t trace the shrimp to Costco suppliers.

When major consumer brands like Nestle, Unilever, and Coca-Cola admit publicly to forced labor being in their supply chains they grab headlines. But despite the media coverage, the reality is that forced labor taints many—if not most—of the products we consume daily.

The problem may not be unique, but a company publicly admitting they’re connected to it, is. For example, Nestle’s self-reporting is a needed example of the private sector stepping up its approach to human and labor rights issues: identifying a problem, holding itself accountable, and looking for solutions. Few companies will disclose information on forced labor if they fear it could be used against them in a lawsuit.

Last year, KnowTheChain ranked 60 of the largest companies in technology, food and beverage, and apparel on their efforts to address forced labor. Companies like Nestle scored high, based partly on their disclosure of forced labor and documented steps to address it. These higher scores correspond to willingness to admit that there are problems and discuss what is being done to address them. Disclosures like these are a necessary starting point for any organization taking seriously the impacts within their supply chain.

Being transparent on forced labor is a growing requirement for major global companies. Just last year the UK passed the Modern Slavery Act which requires at least 12,000 companies to be transparent about what steps they’re taking to address forced labor. Unfortunately a recent report by Business and Human Resource Centre found that barely half (52%) of the FTSE 100 companies they analyzed met the minimum requirements of the Act. Even fewer demonstrated much leadership through their reporting.

In our age of transparency, accelerated by legislation and technology, companies can no longer plead ignorance to how their products are made. In fact 71% of companies surveyed in 2015 believe that they are likely connected to forced labor. This overwhelming private candor has not corresponded to public acknowledgment about the pervasiveness of this in supply chains. The lack of leadership on disclosure is further evidenced in the low average score, 39 out of 100, for all the companies in our three benchmark reports from 2016.

Leading companies like Unilever and Coca-Cola scored higher in the benchmark, not for their flawless approach to forced labor but because of their willingness to engage and disclose what they’re doing. In fact Nestle, Unilever, and other consumer brands were recently implicated in an investigation by Amnesty International into the egregious abuses occurring at palm oil plantations that they indirectly source from. These companies, which are members of the Leadership Group for Responsible Recruitment, are taking action to mitigate worker risks in the recruitment process yet abuses can continue to occur.

Through collaborations like the Leadership Group for Responsible Recruitment, increased reporting, and disclosure, companies can share what monitoring programs are working, what steps they are taking to engage directly with workers, and how best to tackle the pervasive abuses of unmonitored recruitment agencies. Sharing this information can help other companies and stakeholders gain a better sense of what practices are effective and which are not.

Some advocates may point the finger at companies like Nestle, arguing that they have a responsibility to remediate any abuses and work to prevent future issues when they are implicated. And there is no question that every company must act to address the abuses to which they are connected. Being transparent about the problem will not replace the requirement to act on known issues.  But Nestle is not alone: no global company is completely free of forced labor.

Given this reality, why aren’t more companies with supply chains similar to Nestle reporting similar findings? Focusing energy on chastising the companies mentioned in news reports—while overlooking competitors who have not taken steps to be transparent—ignores the reality of how global supply chains work. Often they source the same commodities and work with the same suppliers. An approach that solely penalizes transparency hinders a discussion of effective solutions.  It may also dissuade a company from disclosing in the future.

Creating a culture where transparency is rewarded will bring to light the practices that work, in the hopes that successful approaches can be replicated within and across industries. If the corporate approach to forced labor is entrenchment and silence, not engagement and disclosure, then we cannot advance beyond asking for increased reporting. Admitting to a problem is always a prerequisite for change. So lets advance the conversation from one that focuses on calling for change to one implementing it.

A company failing to self-report on forced labor is rarely media worthy. Yet, if we hope to have more than just the blame and shame narrative, we must see more voluntary reporting by companies. Only by facing the reality that forced labor is an issue for every global company can we advance the narrative from discussing who has it (spoiler: everyone) to who is taking steps to address it.