Why is it so important today to build understanding of what is happening in your company’s supply chain?
What does it mean to manage your supply chain?
Does your company take a legalistic compliance approach?
Are you aware of the latest developments when it comes to supply chain management?
Find out more about what supply chain risk management means in practice for in-house lawyers and companies in Thomson Reuter’s interview with Anna Triponel and Aline Doussin, available as free content here.
Lynsey Poulton: Hello and welcome to our discussion today on supply chain management risk from the lawyer’s perspective. We’re going to look at why this risk is something that companies are perhaps paying more attention to now than they previously did before. My speakers today are going to give us some insight into the work they’re doing in this area with various companies, giving some practical advice and guidance too in this area.
So, I’m Lynsey Poulton. I’m a senior editor with Practical Law’s In-house team.
Aline Doussin: My name is Aline Doussin. I’m a partner at Squire Patton Boggs. We are an international law firm. I am based in London but I do work very closely with my Paris and Brussels offices. I specialise in international trade, regulatory standards and public policy. And in that practice what I do is help my clients import and export and place products on the relevant markets in full compliance with laws and regulatory obligations. That includes advising and devising supply chain management strategies that are fit for purpose and comply with the expectations of the regulators.
Anna Triponel: And my name is Anna Triponel. I’m a business and human rights adviser. I work with companies, investors and lawyers to help them strengthen their systems so that they can better identify and address their human rights risks. I’m a former practising corporate lawyer in New York and I passed the Bar in England and France. And then I actually stopped being a practising lawyer to focus on soft law, and I joined John Ruggie and his team at Harvard to work on the UN Guiding Principles on Business and Human Rights. The UN Guiding Principles on Business and Human Rights have become the standard for companies where they’re looking at the labour risks, at the human rights risks that occur in their supply chains. And I’ve been working with companies on putting this into practice ever since.
Lynsey Poulton: That’s great. Thank you both for joining me today for this discussion. We’ve asked both Aline and Anna here today because they actually have differing but complementary perspectives on this subject area. Aline, yours is the more technical hard law and, Anna, yours the soft. So it should give us a nice rounded balance to what we’re talking about.
But firstly, Anna, to you. Why are companies paying more attention to supply chains at the moment, the risk around them, perhaps much more so than they’ve done in the past?
Anna Triponel: Yes, that’s right. Well, although I left the hard law, nothing focuses the attention like hard law. And the key reason is because of the law. Three words; the Modern Slavery Act in the UK which requires companies to think about the modern slavery risks and tell the world what they’re doing is really focusing the mind on the supply chain: what do we have going on in our supply chain?
This is not the only piece of legislation out there. In France they recently passed a law called the Duty of Vigilance Law which requests large French companies to put together a human rights due diligence plan which is focused also on their supply chains as well as their own operations, and to disclose this publicly. And there is a civil responsibly, a civil liability attached to this plan.
Lynsey Poulton: Yes.
Anna Triponel: Pieces of legislation are sprouting up in different countries. In the Netherlands they’re talking about a Child Labour Due Diligence Bill which would require companies doing business in the Netherlands to conduct due diligence in their supply chains, again, to make sure child labour doesn’t occur. A similar initiative is taking place in Switzerland. So really regulation is driving this.
But I will add, though, that from my work I see that this has been happening behind the scenes for a while because of other drivers. Investors want to know that the companies they invest in have strong, sustainable supply chains. The Workforce Disclosure Initiative is $8 trillion of assets under management. It’s a lot of money…
Lynsey Poulton: It’s a lot. Yes.
Anna Triponel: …of investors saying, ‘We are asking all the companies we invest in what they have in place in their supply chains.’ The Corporate Human Rights Benchmark, AVIVA, a number of other investors is ranking companies based on what they’re doing on human rights in their supply chains. So this is really only going to increase over time.
And finally I will just add investigative journalism really helps. When you open The Guardian or the New York Times and you see that you are on the front page because there was child labour happening somewhere in your supply chain or modern slavery, that focuses the mind.
Lynsey Poulton: That used to be a carrot that I used quite a lot when I was in my previous role in-house, as in ‘we do not want to end up there’.
Aline, what about you? There are things beyond pure regulation that you see bringing this into focus for companies now?
Aline Doussin: Yes, I think…I mean going back to the whole concept of supply chain management, I agree, I think it’s a new sort of…it’s a hot issue at the moment but it’s something that has always been there. I think we are conceptualising the supply chain management now these days but to some extent it was always there, right? Since companies started trading, they have had processes in place to ensure that their goods were reaching some markets and there was some sort of vetting on who they were trading with.
Going back to the point that Anna just made, I think we’ve seen different factors that lead us to a much more sort of stringent requirement on supply chain management. The first one is obviously increasing the number of laws, regulations from the UK, from the UN, the US, in France, but also in other jurisdictions where years before the culture of standardisation and stringent legal frameworks were not so much there. So I think we have more laws in more jurisdictions. That’s one thing which requires companies to comply with.
The second aspect is obviously enforcement and cases that we’ve seen in the last five to 10 years. We mentioned the child labour scandals which involved naming and shaming companies involved in those scandals. We’ve seen horse meat scandals impacting consumers in the UK and France, in other countries, from a lack of due diligence made on products that companies were placing on the market. And in the meantime we see companies becoming more global, bigger, stronger but also more vulnerable in terms of being able to identify who the end customers are, who the end users are, who their suppliers are. And I think it’s a bit of this multiplication of factors coming from all angles that leads to supply chain management being such an important topic for every company at the moment.
Lynsey Poulton: It’s something certainly from me when I first went in-house, supply chain management was something that the business did and we made sure that contractually we were kind of tying things up as best we can but really, it was kind of the business who managed it and perhaps the legal team didn’t have that much to do with it. But that had been obviously changing, particularly as a UK head office company, with the introduction of the Modern Slavery Act. It was becoming something that, as an in-house lawyer, I was feeling I needed to know a lot more about and take on a bit more of an understanding and role around. And I’m sure I wasn’t the only one and am not the only one.
Now, what are you seeing coming out from your work with companies in this area? What are people doing about this now?
Anna Triponel: Well, a full spectrum of factors exist. So, on one end of the spectrum, approaches like we will put this in our contract, we will prohibit something, a certain practice, working practice. We will audit you and we will terminate the contract if this practice occurs. We know that doesn’t work. We know that modern slavery has taken place in factories, audited by John Lewis, by Next etc. We know that the cascading of contractual requirements does not address the real issues on the ground. So that’s one end of the spectrum which companies that have a more legalistic approach are adopting.
On the other side of the spectrum, we have companies that are really thinking about how can we better understand our risks. Companies like Unilever that partner with Oxfam to say, ‘Hey, Oxfam, can you help us in Vietnam audit our supply chains and tell us what you’re seeing?’
Lynsey Poulton: Okay.
Anna Triponel: You have companies like Ikea, HP, Coca-Cola coming together and thinking, okay, we know that modern slavery is a risk and we know that it happens when there are migrant workers, especially when they have to pay a fee to get their work, so let’s stop this practice. The employer pays principle is something we will stand behind and we will make sure we can drive this through our supply chain. We have companies like Next and Asos and bigger power companies coming together and saying, ‘One of the biggest risks for us is the fact that living wage is not paid in our supply chains, therefore workers cannot surely have the dignity and respect that they need. They work excessive hours, they’re tired, they have accidents. If we were able to get that right and make sure that people have a living wage in our supply chains then we can do wonders.’ And they have come together to create Action, Collaboration and Transformation, a really ground-breaking initiative, I must say, because it brings together brands and trade union, industrial to work on this issue.
We see in Bangladesh after the Rana Plaza factory collapse that killed 1,100 workers, 2,500 injured workers making clothes for all of us here in the UK, due to illegal subcontracting. These companies have come together to think about: let’s have an accord that we can audit factories based on the safety, based on building structural design and also let’s put money into a Rana Plaza Trust Fund so that we can provide remedy to those that have lost people through this tragedy.
So that’s the leading edge of this but definitely there’s an in between that is absolutely fine. You don’t have to go out and do all of these things. Really it’s about what can I do to increase my understanding of my supply chain. As was stated before, these companies are vulnerable and supply chains are huge and complex. How can I better understand where my risks are, where migrant workers might sit, where the high-risk countries are? What might I be able to do to better address these issues beyond simply a contract? It could be a conversation. It could be a toolkit, like the Marks & Spencer toolkit, which helps build my suppliers’ risk management systems so that they can better stop these impacts from occurring at that level. It could be: I’m going to partner my suppliers to help them bring a remedy lens to this, like in Mexico. HP working with brands in Mexico thinking if you have an issue, instead of protesting come to us and we will discuss it. So identifying, speak to people, try and think what actions can I take that will actually solve this and what can I say publicly to really show people that this is complicated but I’m trying.
Lynsey Poulton: That you’re working hard. I guess that collaborative approach there will be key going forward, won’t it?
Anna Triponel: Yes, yes.
Lynsey Poulton: And speaking to others. I mean for you, Aline, when you’ve got clients coming to you to talk about this, what are they talking about the risk assessment, are they then talking about how they could do that and then what controls they can put in place, or is it just a ‘what do we do’?
Aline Doussin: It depends, and it’s a very good question. I think it will depend on who the client is. And what we see, based on my experience, is we’ve seen different trends. The first one is going back to what Anna was mentioning. I think the top companies have been pushing their obligation onto their suppliers, their customers etc. So we’ve seen a sort of compliance string moving away from the regulators to, I would say, sort of the blue chip companies and then further down to everybody going from middle-sized companies, SMEs and also us consumers at the end of the day. And I think that’s something that going forward will increase even more. Everybody has a responsibility, but even more important, everybody has a potential liability from a legal perspective. That’s the first thing.
The second trend that we see is I think it’s a hot issue in the supply chain context. We focus a lot on human rights and modern slavery and labour standards. That is very important, building CSR programs and ensuring that you work with NGOs and that you address…I mean that companies address these issues etc. That’s something that is increasing. But what I see from my sort of more legal perspective is quite interesting. It’s we see a much more of a generalisation of supply chain management going further than just modern slavery and human rights and embracing all the different compliance issues into a supply chain context. So that includes addressing cyber security, data protection, export control and sanctions, environment standards, REACH, all these sort of legal standards and regulatory obligations that before, I would say five years ago, were more dealt on a sectoral basis. And now what regulators want is, and what companies want is, to have a sort of a global approach to supply chains that involves a leadership responsibility at top management level.
Lynsey Poulton: I mean that’s interesting, isn’t it? It makes a lot of sense for businesses. Actually you have all these different compliance requirements, putting culture to the side for a second, with all these compliance requirements through the different areas you mentioned, and actually tying this all together is probably the most efficient way of doing it once you get over that first hump of work in order to do that. And I’m guessing for those in small legal departments, small compliance teams within that there’s maybe a slight ‘how could you ever get to that point’, but you can see the sense in that actually, and how then tying that to the culture piece actually makes it a really sensible step.
Aline Doussin: I agree. I think it’s still very much of a challenge for all clients, for the in-house counsel, for the compliance officers because of the way we are trained, the way our education work is still very much on a national and sector basis. And asking a person to know and understand what the difference is between the UK Bribery Act and the FCPA and the new French anti-bribery and corruption law and be able to understand, know your business and put processes in place that comply with that multi-jurisdictional analysis is very difficult. So I think it pushes a lot of, well, tasks on in-house counsel who are already very busy in their day-to-day work.
So we feel for our clients sometimes. We try to work with them very, very closely and in strong collaboration. It also forces us lawyers, external lawyers, to readapt ourselves and to avoid being a very sort of department-led model (having s specific competition issue sent to the competition partner; a specific employment issue sent to the employment partner) and be also able to embrace all this risk and advise on a cross-sectoral basis.
Lynsey Poulton: From a client’s perspective I’m sure that would be most welcome…
Aline Doussin: Yes.
Lynsey Poulton: When you’re talking to the firms, I guess there’s a little bit of proportionality. You must have to think about the proportionality around this as well. So you have multi-global companies that work…they have the supply chain through different jurisdictions. They might have their risks sitting properly in the red zone, that’s where it is. And then you perhaps have the smaller ones where everything’s done in Western Europe. There is still risk, absolutely, but I guess it does come down to that thing about the risk assessment and then what do you actually do. And you guys are fundamental in helping businesses actually consider what is the right thing to do, what makes sense for us as a company.
I guess my last question, and this is perhaps more one for you, Aline. And Anna, we’ll come to you for your thoughts as well. But what advice do you have for companies going forward in this area, particularly in light of Brexit? And, again, that’s like asking you a never-ending story!
Aline Doussin: Yes, of course. Well, to answer your question, and I will touch on Brexit at the end, but the first thing is I think clients know their businesses more than us lawyers, advisers. So they are the ones who are best placed to adapt procedures based on where they trade, the geopolitical spectrum that they’re involved in, their risk appetite etc. So I think even going forward, it’s still something that regulators will always understand, from what we see in the enforcement perspective.
In light of the latest development that is Brexit, what do we recommend our clients to do? I think Brexit is just like a lot of regulatory sort of hot topics but Brexit is especially the case because it’s such a legal revolution that is unprecedented. It’s difficult. It’s a dinosaur. So it’s difficult to apprehend. So what I advise my clients on is really just take a phased approach. Start looking at where in your supply chain structure, where you face the biggest sort of trade barriers, you know, from the UK withdrawing from the EU. Anticipate your costs. It’s possible to look at how much it will cost you based on your commodity code and supply chain pattern to potentially have a second plan if a hard Brexit was to occur…
Lynsey Poulton: Okay.
Aline Doussin: …in place. And all the sort of key trade issues like warehousing or storage solutions…if your production is essentially in the UK and you import from outside of the UK; from the EU into the UK. So Brexit is an issue. I think it should be more built into a supply chain excellence management structure rather than on its own. I think it should involve all the personnel that are already working on the supply chain because they are the best placed to understand where…
Lynsey Poulton: That makes sense.
Aline Doussin: …the liability lies in terms of regulatory standards, trading regulations and all the rest of Brexit key issues that will arise going forward.
Lynsey Poulton: So we need the in-house lawyers to talk to the people in the business and work with them.
Aline Doussin: I think, yes, it’s definitely a management issue. It’s something, again, that the leadership should take the initiative on and it should involve all the key business units that are involved in international trading with the UK. So that involves obviously shipping, logistics, supply chain (if there is a separate supply chain structure), commercial contracts, procurement and legal. But legal per se will not be able to resolve these issues by themselves.
Lynsey Poulton: Standalone.
Anna Triponel: Yeah. I absolutely agree with that. And also I want to underscore another point you made which is that lawyers are so busy and they have all of these new requirements and their volume requirements and, yeah, it’s too much. So really what I always say to the lawyers I work with is own it. Don’t wait for all this legislation to come and then do something for the French law over here, do something for the Modern Slavery Act over here, do something for the Stock Exchange over here. Do your work on supply chain management on trying to think about where your risks are and then push that information out.
So the UN Guiding Principles; fortunately we have one tool which actually is the foundation for all of these different pieces of legislation, even if in practice when it’s codified sometimes some things will change. But if you use UN Guiding Principles as your tool to help you think about your supply chain, you will then be well equipped to meet all of these requirements.
And the same for reporting. There’s so much now going on in this field and there’s a tool called the UN Guiding Principles Reporting Framework which essentially is about, as a company, what can I put together in this field, what can I tell people? And then I can peel stuff out to tell my investors, to tell my workers, to tell my society friends over here.
But it’s not about responding to all these questionnaires and wasting time. There’s very little time; we need to be strategic. The tone from the top is key. It needs to come from the top and come down, but also from the bottom up. Do we know from our workers, are there channels in place? Do our suppliers know? Do they have ways in which their workers can tell them things that aren’t going right on the factory floor, in the shipyard? Often, no. So how can you build those tools and make sure that that happens.
I’m reminded by…I’m thinking about Apple. Apple came out a couple of years ago and said, ‘We cannot certify that we have a conflict-free supply chain. They said, ‘Minerals are mined in the Democratic Republic of Congo and surrounding countries in awful conditions, we cannot certify that this is conflict free.’ Global Witness said, ‘Great, that’s exactly right. No company can certify that they have a human-rights-free, labour-rights-free supply chain.’
So what this is about is actually taking genuine efforts. It’s not about fixing it all overnight. And I think the pieces of legislation do acknowledge that, which is great. NGOs, trade unions and other of your stakeholders do acknowledge that. And so it’s about what can I do, exactly as Aline was saying. Who can I work with in my company as well as with others outside of my company to build my awareness of my risks of my supply chain and basically take actions to minimise these risks over time.
Lynsey Poulton: That’s been very interesting. I feel like it’s something we could go on about for much longer than this video. But as a starting point, I find that really useful and interesting. So thank you both very much. And thank you for listening to this. I hope you found it just as useful and just as interesting.
Anna Triponel: Thank you.
Aline Doussin: Thank you.