How to shift your company from risk mitigation to opportunity

Disclosure requirements for countries and states around the world are increasingly becoming the new norm. Countries are regulating corporate impact on human and labour rights in supply chains through mandatory due diligence, criminal liability and sanctions.

California took the lead with the Transparency in Supply Chains Act in 2012. A slew of countries followed suit, most notably the UK with its Modern Slavery Act, and France with the Due Diligence Law, which came into effect in 2015 and 2017 respectively.

Now, Australia has joined the ranks with its own Modern Slavery Act, which came into effect on the first day of this year. As a result, more and more companies are under legal obligation to disclose what steps they have taken to ensure forced labour and human trafficking are not taking place in any part of their supply chains. This month, the first Australian companies with a turnover of over 100 million Australian dollars will report on the due diligence they performed in 2019.

Disclosure requirements such as the UK and Australian Modern Slavery Acts are rife with references to risk: from human rights abuses, to human trafficking and modern slavery.

Risks are a rough and ready start to identify which sectors, type of workplaces, or supplier profiles you should prioritize, but the language of risks comes with certain limitations.

Shifting the lens from risk mitigation to opportunity

The association with risk tends to be challenging and negative, because companies have to shine a light on the shadowy side of their operations to spot the problems. No one wants to be the bearer of bad news, whether it's for shareholders or the public, so companies may be tempted to underreport risk.

The Alliance for Corporate Transparency and the Business and Human Rights Resource Centre both found that the majority of companies obligated to report on risks in their supply chain, publish statements that are too vague and sweeping, withholding crucial details on actual actions taken to tackle cases of human and labor rights abuses. This dis-incentive to report masks the reality that everyone has risks. The invisibility of workers is omnipresent and often the default setting in all global value chains.

Moreover, risk language does little to build the capacity to deal with risk. With a risk language, there is no inherent call to action, let alone guidance on how to act - aside from reducing the risk for the company, which does not always result in improving the conditions for workers. Suppliers deemed “high risk” can be demonized for issues that they might actually not know how to resolve, but would be willing to improve if they had the technical support needed.

Too much focus on the language of risk can limit the ability of the buyer and supplier to collaborate on issues found and this language also often functions to divert resources away from solutions. 

… everyone has risks. The invisibility of workers is omnipresent and often the default setting in all global value chains.

The result: the community that is supposed to address risk is ill-informed of such risks, and ill-equipped to do so. If we’re only talking risk, this results in further invisibility of those - notably workers - who need our interventions and improvements most. 

So what’s the alternative?  Look for an opportunity for impact.

A lens geared toward impact serves everyone’s interests and provides scope for a partnership between the buyer and supplier. It speaks to improvement, progress and activity.

With a mind-shift towards impact, the focus is on the destination, not solely the immediate risk. When talking only about risks, no one wins. When talking about the opportunity for impact, everyone can be a winner.

Identify, address and measure

So how do you move beyond risk mitigation? Before diving in, communication plays a key role.

You can expect the legislation to be saturated with references toward risk, but you can differentiate yourself by spinning the legal terms into a motivating language within your company. Translate the anxiety and fear of identifying risk into a proper management system of a) identifying, b) addressing and c) measuring. Within that very phrase lies an opportunity for impact, because you’re identifying the opportunity (previously thought of as “risk”), engaging in a program to drive impact, and then measuring the impact and whether that programme is being effective over time.

When talking only about risks, no one wins. When talking about the opportunity for impact, everyone can be a winner.

First, identify the supplier profiles, sectors and types of workplaces to focus on when addressing risk. Look across the sector: which incidents have been picked up? What were the supplier profiles involved in these cases, and what pressures were these countries, regions or supplier sites under when the issue was reported?

Let’s take forced labour as an example. Sectors with high seasonal pressures often result in high fluctuations in workforces. Workers are needed suddenly, and sourced inconspicuously. The result: the employer is unaware and unable to verify actual worker wellbeing. Listen to labour in those environments. There are a lot of factors behind critical forced labour issues, such as recessionary drivers or migration flows. This is your shortlist to start with.

But don't stop with risk.

Consider how risks can be opportunities by turning it into a listening exercise. There are already very straightforward and affordable ways of harnessing the power of worker insights. Direct Worker Reporting or worker voice offers you the means to open a shared channel for listening directly to workers, and drive a healthy dialogue with your suppliers concerning any issue.

Once you know where the opportunities for improvement lie based on the workers’ perspective, you can bring in more expertise to gather case-specific insights: auditors who can visit sites to investigate what was flagged by workers, and consultants who can help you remedy those problems.

But let’s not rely on them to conduct the listening for us: we need to be listening to workers already.

Consider how risks can be opportunities by turning it into a listening exercise.

And lastly: don’t just listen once - make it your default setting. With continuous listening, you build a dataset which allows you to track your improvement and measure any impact corrective actions may have had on your worksites. 

Riding the tide

Going beyond risk mitigation not only gives you a competitive advantage in a world where ethical demands are rising, it makes your company future-proof.

This first wave of legal frameworks asks companies to become aware of and publicly acknowledge risks within their supply chains. But the second wave of legislation is on the way, with clarity on how companies should effectively and meaningfully report on sustainability, and stipulations on what will happen if they don't. So this is the perfect moment to learn and build the capacity to listen, respond and improve.

Let’s stay ahead of the pack, and prepare for the future of responsible business.