California’s supply chain slavery disclosure law

This article, by actress Julia Ormond in the Huffington Post, is calling for mandatory corporate disclosure around human trafficking issues in the supply chain.

Here’s a quote from the piece so you can see what it’s all about:

“…the California Transparency in Supply Chains Act of 2010, also known as Senate Bill 657…Authored by Senate President Pro Tem Darrell Steinberg, and signed into law by Governor Arnold Schwarzenegger on September 30th.”

“The California Transparency in Supply Chains Act requires retail sellers and manufacturers doing business in CA to publicly disclose their efforts to eradicate slavery and human trafficking from their direct supply chains.”

“The legislation applies to retailers and manufacturers with over $100 million in worldwide gross receipts. It affects over 3,000 companies doing business in California. These companies represent approximately 87% of economic activity in the state, which is still the 10th largest economy in the world.”

Given that most large companies do business in/with California, what might it mean for large companies?

According to Ormond’s article:

“Beginning in January 2012, companies impacted by the bill will have to post on their websites what policies they have in place to ensure that their supply chains are free of slavery and human trafficking.”

And the excellent Murninghan Post writes that the ramifications are that:

“The…law applies to the 3,200-plus companies with gross receipts over $100 million that operate in the state. Among the specific disclosure requirements:

– Use outside verification firms to evaluate and address human trafficking and slavery risks in direct product supply chains;

– Conduct independent, unannounced audits of suppliers to ensure compliance with company standards on trafficking and slavery; and

– Monitor accountability for employees and contractors failing to meet company standards.”

So what does this mean for companies? Probably a few things:

1) Massive lobbying to repeal the law probably will not work. The new Democrat governor, Jerry Brown, is more liberal than Schwarzenegger. The political control of the state by democrats should mean zero change of repeal. It’s an issue the left and right generally agree on anyhow.

2) A surge in reporting. If indeed 3000 large companies will be affected by the law, there’s no way they are all currently prepared. Writing a policy is one thing, demonstrating how it works on the ground and in the supply chain is quite another.

3) A boon for consultants. Given the point above, lawyers and labour standards/supply chain vendors and advisers will be rubbing their hands.

4) Better funded NGOs and partnerships. NGOs, such as Asset and many others, will play a key role in corporate supply chain policy development, and some in eventual assurance. They will be rejoicing at this new law.

5) A shove for supply chain heads. A media scandal is one thing, a legal castigation quite another. Supply chain leads in large companies can expect to push succesfully for more money to spend on points 2, 3 and 4 above.

The most affected sectors will be apparel, electronics, agriculture and a number of others.

If we look at cotton, here’s an example of how the law might eventually be applied:

For five years campaigners have been pointing out how mass forced child labour in Uzbek cotton harvesting is taking place. Many big brands have since boycotted Uzbek cotton and have begun tracing it. But many others have not. Many of these others will be firms doing business in California.

Since 2008, when the ILO become more involved, the Uzbek government has declined to invite ILO observers to observe the harvest. This was due to be a prelude to the ILO providing more technical assistance in more depth, and eventual monitoring. The Uzbek government is now saying they will not work with the ILO on the issue.

The Uzbek government still sold their entire cotton crop last month easily, despite some big brand boycotts. Cotton traders around the world are not playing ball with the investor and NGO campaigns against child labour, despite recent reports that child labour issues are just as bad, if not worse, than in the past.

NGOs and campaigners are now set to ramp up pressure on brands, go much more public with campaigns, and also work on traceability mechanisms in more detail.

Sooner or later, Uzbek cotton, if defined as slave labour based, may fall under this law.

So it’s not just going to apply to niche materials and products produced in tiny dictator run states. But also probably to a $30 billion a year industry such as cotton.

At least 3000 companies are now going to have to raise their game on supply chain risks and tracking, or risk damaging lawsuits. I wonder how many of them are currently aware of that.

Further reading/resources:

Supply chains, Uzbek cotton and child labour: The story to date

Conducting ethical business in China