Child Labor, Compliance and Third Party Controls

It was heart-wrenching to read the article in the New York Times on February 26 about the illegal use of child labor in the United States.  The story documents children as young as 12-years-old working in extremely difficult and dangerous jobs, including meat packing plants, construction work and overnight shifts on a factory floor.  The Times’ list of companies that have used inputs produced with child labor in the U.S. includes companies that have truly excellent compliance programs. So, my heartache upon reading the story was twofold – both that child labor and exploitation occurs in the most economically rich country in the world, and that robust compliance programs failed to identify and respond to this issue.

After a day or two of feeling like Sisyphus (only in my version, the boulder rolls directly over me), I concluded that – as tragic as this occurrence is – we should transform this failure into an opportunity to make our programs better.  We as a profession have embraced the ethos of continuous improvement, growing stronger from our failures, and rising higher with each violation.  In the area of child labor in particular, we have a moral imperative to try harder to eradicate this problem.  Two program areas that come immediately to mind for review and enhancement: risk assessment and third party compliance controls.

Most of our risk assessments probably failed to flag exploitation of child labor as a risk for suppliers that are located in the United States.  The warning signs – the increasing numbers of unaccompanied child migrants, the failure of the US government to track and monitor those children – are undoubtedly not factors that companies considered during their compliance risk assessment processes.  And, while hindsight is 20/20, even in hindsight, it seems unlikely that most companies could have included the political, economic, and social forces that contributed to the exploitation of child labor in the United States in our risk assessments.  But perhaps we could have identified some of the concerns giving rise to this risk.  As a profession, how might we better account for relevant political, economic and social events in our risk assessments?  Can we be more proactive and universal in our risk assessment processes, while continuing in our efforts not to “boil the ocean”?

With respect to third party compliance controls, which must also be based on risk assessment, how can we make those processes more robust?  This particular compliance failure provides an important opportunity to revisit third party compliance processes.  Some specific areas for review:

• Review your company’s template contract language to ensure that contracts (1) require compliance with child labor laws; (2) allow for monitoring and auditing third parties for compliance violations: (3) permit termination of the contract where serious violations have occurred; and (4) as appropriate, permit training, helpline communications, and other compliance activities.
• Review your supplier certification requirements regarding child labor. Are they required of sub-suppliers, and do those requirements flow far enough down the supply chain? Should you consider using independent third parties for supplier certification?  And should you extend certifications to geographies – like the United States – where they were not previously required?
• Consider how your organization can be more proactive in monitoring and auditing third parties and in providing third party employees with opportunities to report noncompliance to the company’s helpline. Should you consider using independent third parties for supplier audits?
• Require suppliers to flow down compliance requirements to sub-suppliers, including obligations to report suspected child labor (and other human rights violations) to your company promptly.
• Provide training and communications materials to third parties, as appropriate.
• Talk with your procurement and operations teams about ensuring that the company has a large enough pool of suppliers that contracts can be terminated when necessary.

In addition, with credit to my co-editor Adam Balfour, we should continuously be thinking about how we can promote speak up channels that will support reporting child labor and other human rights concerns, including considering what access to technology the most vulnerable people in our supply chains have so that we can better enable concerns to be raised.

Back in 2006, I wrote an article that was published in ethikos titled “Am I My Brother’s Keeper?” which explored the benefits and potential disadvantages of extending compliance requirements to third parties.  To quote my younger (and apparently even more verbose) self, I advised that, “Despite the intuitive appeal of extending an organization’s compliance policies to third parties, thereby spreading the gospel of compliance and business ethics, companies should nonetheless be cautious in the promises that they make regarding this endeavor.  In particular, companies should be exceedingly wary of creating compliance standards that are difficult to monitor or enforce.” 

We have come a long way with respect to third party compliance in the last nearly twenty years.  Our ability to monitor and enforce our standards is greater than ever.  Of course, co-employment issues and associative liability risks still exist, and those risks may cause us to tweak our approach.  We should always proceed with caution in implementing compliance controls.  For example, companies may choose to use reputable and experienced third parties to audit relevant suppliers rather than using their own compliance staff.  (This would likely result in better supplier auditing for many companies.)  However, when it comes to issues like the exploitation of children, we should think expansively about how we can better use our programs for the immense good that they are intended to create in the world.