On January 1, 2012, the California Transparency in Supply Chains Act (SB 657) want into effect. it’s an example of “name and shame” legislation, which requires companies to report on specific actions taken to eradicate slavery and human tracking in their supply chain. The idea is that if slavery and human trafficking is in your supply chain, you’ll have to tell the world and the resulting consumer and shareholder pressure will force you to achieve the social goals of doing whatever it takes to eliminate human trafficking and slavery.
If your company
- files California taxes as a retailer or manufacturer,
- does business in California as defined in the California Revenue and Taxation Code, and
- earns more than 100 Million in worldwide gross receipts
then your company must report on five specific points under this act. Summarized by the VACIT acronym, the company must report whether it:
and engages in third party verification (that identifies the risk of slavery and human trafficking)
and engages in independent, unannounced, auditing to check on adherence to company standards
and requires its direct suppliers to certify that the materials incorporated into its products comply with local laws
- Maintains Accountability
and holds its employees and contractors accountable to company standards and
employees directly responsible for risk mitigation in its supply chain.
This is not the first example of such legislation. For example, in July 2008 the New South Wales Food Authority passed laws amending existing provisions which allowed the authority to publish details of successful food business prosecutions on its website. And it won’t be the last. At the Federal Level, H.R. 2759 (Business Transparency on Trafficking and Slavery Act) was introduced last August and, if passed, would require publicly-traded companies to disclose on their annual reports to the Securities and Exchange Commission any measures that are being taken to identify and address conditions of forced labour, slavery and human trafficking within the company’s supply chains.
The net effect is that there are not only legal and business issues heading your way as this legislation crops up in other states, and eventually, in other countries, but reputational concerns that will materialize as well. For example, as pointed out in this recent article in Retailing Today on how Name and Shame is the New Supply Chain Game, not only must the company disclose how it is complying with the provisions of the Act on the company’s website, but it must also consider how this will affect its stakeholders, customers, investors, and their view of the company. A less than robust (policy) disclosure can cast the company in a bad light and do considerable damage to the supply chain organization. From a Risk Management standpoint, your organization needs to be ready. Are you?