Modern Slavery Due Diligence in M&A: Assessing Supply Chain Risks
When acquiring a company, thorough due diligence on the target's supply chain is critical to identify and mitigate risks related to modern slavery and human trafficking. Failing to uncover these issues can lead to severe reputational damage, legal liability, and operational disruptions post-acquisition. This article outlines key steps for conducting effective modern slavery due diligence during M&A.
Review existing policies and procedures
Examine the target company's existing policies, procedures, and risk assessment processes related to modern slavery in their supply chain. Look for:
A formal modern slavery policy
Supplier codes of conduct
Risk assessment frameworks
Auditing and monitoring processes
Training programs for staff and suppliers
The robustness of these elements can indicate how seriously the company takes modern slavery risks.
Analyze supply chain data
Request detailed data on the target's full supply chain, including:
Tier 1 suppliers and any available information on lower tiers
Sourcing locations, especially high-risk countries
Types of goods/services procured
Labor practices of key suppliers
Use this data to identify high-risk areas that require deeper investigation.
Assess industry and geographic risks
Consider inherent modern slavery risks based on:
Industries involved (e.g. agriculture, textiles, mining)
Sourcing geographies
Use of migrant or temporary labor
Involvement of labor recruiters or agencies
Compare the target's risk profile to industry benchmarks and standards.
Review past incidents and allegations
Search for any past incidents, allegations, or lawsuits related to modern slavery in the target's operations or supply chain. Evaluate how these were handled and what preventive measures were implemented.
Engage with key stakeholders
Interview relevant personnel at the target company, such as procurement, legal, and sustainability teams. Assess their awareness of modern slavery risks and the effectiveness of mitigation efforts.
Conduct supplier audits
For high-risk suppliers, consider conducting on-site audits or reviewing recent third-party audit reports to verify working conditions and labor practices.
Evaluate grievance mechanisms
Assess the effectiveness of grievance mechanisms and whistleblowing channels for workers in the supply chain to report issues.
Review public disclosures
Analyze the target's modern slavery statements, sustainability reports, and other public disclosures for completeness and accuracy.
Identify gaps and develop an action plan
Based on the due diligence findings, identify any gaps in the target's approach to managing modern slavery risks. Develop a post-acquisition action plan to address these gaps and strengthen compliance.
Conclusion
Thorough modern slavery due diligence is essential in M&A to uncover hidden risks in the target's supply chain. By following these steps, acquiring companies can make informed decisions and develop effective strategies to mitigate modern slavery risks post-acquisition.
