Loyola University Chicago School of Law, JD 2019
Corporate compliance professionals will often define compliance as “doing the right thing.” Indeed, both compliance professionals and scholars agree that ethics are an important aspect of effective compliance programs. This is particularly true when it comes to compliance with forced labor regulations. Using forced labor can be appealing to companies seeking to reduce their operating costs and increase profits. However, in the face of a toxic business culture that values maximizing profits, compliance professionals must convince their colleagues that forced labor is not worth the savings in operating costs.
What is forced labor?
According to the International Labor Organization, forced labor is work or service which is involuntarily obtained from any person under the menace of penalty. The umbrella of forced labor can include slave labor, and prison labor. While governments may play a part in modern forced labor, it is businesses and individuals seeking to create a profit who exploit 90% of the world’s forced laborers. Therefore, businesses and compliance professionals must play an active role in enforcing regulations, and actively fighting against forced labor.
Corporate use of forced labor
In considering the status of forced labor, let alone slave labor, many intelligent persons may believe that it is a historical issue. Some may be convinced that laws exist to prevent and outlaw most forms of forced labor, and people need not worry about corporate use of forced labor.
However, while the use of forced labor is not as ubiquitous as it once was, the fact is that its use is far from nonexistent, despite the law. One need only look at the brazen use of forced labor by the following companies to understand that forced labor practices still exist.
Nestlé: The need for effective compliance programs
Privatization of water is not the only troubling thing to come out of Nestlé. For years Nestlé has been one of the largest international companies to violate human rights. Included in its unfortunate resume is the use of slave labor in its cocoa harvesting. In 2005, after escaping their imprisonment, former child slaves sued Nestlé for contracting with coca suppliers they knew, or should have known, were using child slaves. The company was sued again in 2013 by former child slaves from Cote d’Ivoire who again claimed Nestlé knowingly or negligently provided economic and technical assistance to coca suppliers that used child slave labor.
The Fair Labor Association (FLA) determined that 70% of Nestlé farms were not trained on the prohibition of forced labor. Further, they found that “there is no process in place to monitor, report, and remediate cases of forced labor at the farms.” It is clear to see that Nestlé’s failure to eliminate slavery from its labor stream is due, in part, to a fundamental failure in its compliance program. As the FLA determined, Nestlé’s compliance program lacked clear standards of ethical practice, robust auditing procedures, and supplier oversight. This failure will now cost the company millions in legal fees, lost business, and branding.
Victoria’s Secret & Whole Foods: A compliance officer’s role in preventing public backlash
As discussed above, forced labor is work or services extracted from any person under the menace of penalty. Therefore, forced labor includes prison labor. The fact that prison labor is, for the most part, legal in the United States has created significant controversy, particularly given the history of forced labor in the United States. However, this legality should not convince a compliance officer to disregard it when developing an effective compliance program. A forward-looking compliance officer anticipates public opinion, because it necessarily effects the legal landscape. Doing so allows one to develop a program that not only follows existing regulations, but also insulates a company from public backlash and future costs associated with updating compliance programs to changing laws.
This is a lesson the compliance officers at Victoria’s Secret and Whole Foods have learned the hard way. Both these companies contracted with suppliers who used prison labor. Inmates were put to work, sometimes involuntarily, for $0.66 a day. The public backlash to this news was swift and both companies immediately issued statements indicating they would drop their contracts with suppliers who used prison labor. This backlash undoubtedly costed both companies millions in sales, branding, and operations and logistical costs associated with refilling the sudden loss of labor.
Nike: Hope in effective compliance programs
Looking to compliance to solve forced labor issues after the fact may seem dauting, but it is not impossible. Nike is an example of how a strong compliance program can effectively put a company back on track to ethical practices.
Nike has made significant strides in addressing the forced labor practices in its sweatshops. After creating a more ethical and robust compliance program, by Nike’s own estimates, as of 2015, they saw 86% of their factories meet the minimum labor standards established by their new program. A significant increase from previous years. These improvements are due to a compliance program developed by Nike that emphasizes clearly communicated standards, consistent auditing, and supplier oversight.
Obviously, anything less than 100% indicates that there is still quite a way to go. Nevertheless, the strides Nike has made prove that an ethical compliance program can have a positive effect even in companies previously steeped in forced labor.
An officer’s responsibility
Chief Compliance Officers are tasked with two responsibilities: (1) ensure that the employees and company are complying with statutory and regulatory requirements, and (2) ensure that they comply with internal policies and procedures. The lessons learned from Victoria’s Secret, Whole Foods, and Nike is that internal policies and procedures must be developed that do not skirt the regulatory line. That is, being just on this side of compliance is not the best strategy, rather, an effective compliance program should enforce compliance and ethical standards.
Part of a compliance officers job is to provide an early warning for potential issues that should become part of the company’s policies, even if these issues do not concern legal violations. A good program is one that seeks to establish both legal and ethical practices in a company. Ethical compliance programs are good for businesses because they avoid the economic harm of public backlash.
Unfortunately, corporate use of forced labor is a reality compliance professionals must contend with. However, the competent compliance officer has the tools necessary to guide their company towards sourcing ethical labor.