Non-executive directors (NEDs) provide independent oversight to the board and constructive challenge to the executive directors. Their independence from executive management makes them ideal for monitoring and evaluating the board of directors. Significantly, NEDs all bring new perspectives and experiences, and these can all contribute to a more effective Modern Slavery Governance strategy.
A number of concerns are becoming increasingly significant to many corporate boards such as technology, reputational risk management and governance. My most recent research included a survey about NEDs and their confidence in managing Modern Slavery related risks. The survey indicated that there is a need for additional training not only for employees but the executive members of the businesses too. My research further found that the growth in mandatory legislation covering disclosure of how companies are addressing Modern Slavery related challenges, governance professionals were not confident about the directors understanding of their fiduciary duties, in other words, how directors act on behalf of the company ethically, in its best interest and the understanding that these duties are both ethical and legal.
Opinions about Modern Slavery Governance are heavily divided, which is a warning sign, shown in Figure 1 below. The good news is that 46% of the participants thought directors understand their fiduciary duties about modern slavery, however, a majority cast doubts on this with, 36% thought directors don’t understand those duties and nearly 20% are uncertain. Lack of understanding of this simple duty can easily lead to problems within a business, and it can become more complicated as the business becomes more successful. These results raise a few questions:
Does it mean that directors often don’t act fairly between their shareholders? Do they not keep in mind any impact on the environment?
My second question is about whether NEDs can help in the understanding of Modern Slavery Governance. This resulted in a more positive response in that 70 % of the participants stated that NEDs could influence and help boards in Modern Slavery issues (Figure 2).
NEDs can help in ensuring the level of risk-taking is appropriate for the business and what levels of risks are acceptable so that the board will be able to make better decisions. It is important to mention that as ethical issues are developing over time, expert NEDs can help to highlight the consequences for society and corporate governance. Profitable businesses are increasingly demonstrating that they can combine high sensitivity to ethical issues with great commercial success.
NEDs can bring a degree of objectivity to the board and may have specialist knowledge that provides the board with valuable insight. The specialist knowledge that NEDs hold give clear and straight direction to the business, and it is priceless. Unilever’s approach shows a great example in this instance. Their board have appointed more than one NED who have proven specific experience and have done studies in areas such as CSR (Corporate Social Responsibilities) and Corporate Governance. Therefore their NEDs can guide specific committees effectively that can help to tackle CSR and Modern Slavery related issues. (Uniliver.com, 2020)
The growing consumer market favours organisations with strong ethical commitments and practices. However, from a business perspective, modern slavery and good supply chain management are material. They both shape the company’s exposure to financial, legal and reputational risk. Therefore, it is a priority risk for corporate boards to address them as board decisions affect the future of the business. NEDs can add value to Modern Slavery Governance, and they can help businesses to show a genuine commitment and assure the well-being of all its stakeholders.
“We have to make it clear to multinationals that slavery is a too high price to pay for cheap goods.” - Kevin Bales, Professor of Contemporary Slavery at the University of Nottingham, Co-Author of the Global Slavery Index, Co-Founder of the NGO Free the Slaves
Extracts and graphs have been taken from a wider piece of Boglarka’s research. If you would like access to the research, please contact Boglarka.
Boglarka is a member of The Chartered Governance Institute currently studying for a master’s degree in Corporate Governance.