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Director’s approach to assuring ethical and sustainable work practices

Directors play a key role in assuring that workers within their organisation and supply chains are treated fairly, including compliance with employment legislation.

As a director, you are responsible for a wide range of duties in respect of your organisation – ethical, legal, and commercial. How you undertake these duties will impact on investor and consumer confidence in your organisation and the reputation of your brand. As part of undertaking your director role, it is important to make sure that your organisation and supply chain operate with legal and fair employment practices.

Incidents of unfair treatment of workers in your organisation and/or your supply chain can have serious consequences for your organisation and your personal reputation as a director. Find out what it means for you and your organisation.

What you can do

One of the most common ways for an organisation to show sustainable value in relation to fair treatment of workers, is through Corporate Social Responsibility (CSR) or Sustainability reporting. This can be in the form of environmental, social and governance (ESG) reporting. There is no standardised approach to ESG reporting but there are a number of certifications that apply strong reporting standards around the impacts of an entity, such as:

However, the necessary sustainability reporting and proof requirements to obtain any of these certifications can be quite substantial and time consuming, so this may not be the best place to start if your organisation does not currently produce any such reporting.

Regardless, if it is currently mandatory for your organisation to produce a sustainability report or a modern slavery statement, it is in the best interests of your organisation to consider whether the work practices of your business are legal, ethical and sustainable in respect of fair treatment of workers.

You can get started by asking these 5 questions. If you don’t already know the answers, you should ask the organisation’s management team or the Human Resources department, if you have one.

Questions to ask

Question 1

  • Do we have a code of conduct or policy outlining our expectations on the treatment of workers (including human and labour rights, and compliance with employment law and standards)?

Response: The response should include details of the code and/or policy about the treatment of workers, along with the most recent example of these documents. Find out what could be included in a code of conduct policy:

Creating a code of conduct for your business

Question 2

  • Have our policies been shared throughout our business and with our suppliers and partners, etc?

Response: The response should include details of who has been informed, when and how, where the information is publicly available (such as on your website), along with who else will need to be informed and how and when this will be provided (eg on boarding process or new suppliers). There are also some simple ways to educate you managers and workers.

Educating and training your managers and workers

Question 3

  • Do we regularly report on the social area of sustainability including fair treatment of workers?

Response: The response should include details of how often the report and monitoring arrangements are conducted, what areas it covers, and the most recent copy.

Question 4

  • What areas of our operations and supply chain are most at risk of non-compliance with employment standards?

Response: This information should be identified through a map of the supply chain or a risk table. See some examples of risk factors to consider:

Risk factors to manage [PDF 225KB]

Question 5

  • Do we have any systems and processes in place to identify and mitigate issues of non-compliance?

Response: The response should include details of how the business identifies risks and how these risks are being mitigated. The information should make sure that systems and processes are reviewed regularly and compared to the end-to-end assurance systems in order to identify potential gaps in the systems and processes.

End-to-end assurance systems and processes

The answers to these questions should be readily available from the organisation’s management team. You could monitor these by requiring regular reporting to the Board directly and/or in the Annual Report.

You should also consider where the organisation wants to position itself in respect of being an attractive organisation to work for and be able to hire and keep new talented staff. For example, giving workers more than minimum standards mandated by law, (eg living wage and implementing good employer/best practice elements.

There is a suite of resources available, which provide steps that can be taken to identify and minimise labour rights risks and issues of non-compliance in your business.

Identify and minimise labour rights issues in your business

Why you should start now 

The Global Director Survey Report 2018 by the Global Network of Directors supported this view, reporting that “Social issues and risks are increasingly on boards’ agendas. Boards are giving increasing emphasis to environmental and social considerations, non-financial information and their relationship to long-term performance and value-creation. Underpinning this is understanding and responding to the evolving expectations of investors, consumers, staff and other stakeholders.” 

Global Director Survey Report 2018 – Institute of Directors NZ (external link)

In terms of key insights, the report stated, “Ethical behaviour in organisations had the highest relevance at 72%.”

"Unethical behaviour ultimately damages organisations and their personnel. Lost customers, employees and sales, and the loss of a hard-won good reputation can take years to rebuild. Some organisations may never recover. Conversely, running a company with consistent integrity and high ethical values is simply good business.” 

In addition, section 137 of the Companies Act outlines that:

“A director of a company, when exercising powers or performing duties as a director, must exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation,—

(a) the nature of the company; and
(b) the nature of the decision; and
(c) the position of the director and the nature of the responsibilities undertaken by him or her.”

In conjunction with the Institute of Directors, the Financial Markets Authority has published information on the legal requirements, ethical considerations and best practice areas for directors to consider, to be effective in their role.

Essentials of being a director – Financial Markets Authority (external link)  

Increasing stakeholder expectations

More and more, organisations are expected by shareholders and society to create long-term sustainable value. This means that reporting on more than just financial performance is becoming essential for all businesses. Every action that your business undertakes has consequences and produces an impact.

In addition to financial performance, investors and lenders increasingly want to know that organisations are considering their social impact. This includes identifying risks and opportunities and implementing strategies to mitigate those risks. These considerations act as an indication of the long-term resilience and viability of your business and affect their investing and lending decisions.

Customers, employees and potential employees also have a growing interest in the social impact of the brands they choose to engage with, either through employment opportunities or purchasing power. A director’s actions can be directly linked to the long-term sustainable value of a business and its brands reputation. Negative actions can influence people’s perception of your brand and whether they will choose to be associated with it or not.

The Australian Modern Slavery Act and New Zealand organisations

If your organisation supplies to a large Australian business, or has operations in Australia with revenues over $100 million AUD, then you may be affected by the Australian Modern Slavery Act (2018) (the Act) reporting requirement.

The Act requires large organisations operating in Australia to publish annual Modern Slavery Statements (statements) explaining what the business is doing to identify, assess and address the risks of modern slavery practices in their global and domestic operations and supply chain. If your entity is required by the Act to report, you or another director on the board will need to sign the anti-modern slavery statement as a responsible member of the company.

The reporting requirement is focused on large businesses and other entities that have the capacity and leverage to drive change throughout their supply chains. So whilst your entity may not be required by the Act to report, if your business supplies to an organisation that is required to report, that organisation will require you to make a similar declaration.  

One way to prepare for this is by developing a set of frequently asked questions (FAQs) and responses. Mekong Club has guidance on developing FAQs, including a set of sample questions.

Modern Slavery: FAQ guidance for SMEs [PDF, 1.2MB] – Mekong Club (external link)

Personal liability

Under Section 142W of the Employment Relations Act 2000, you can be personally liable for company breaches of employment standards. Individuals, including business directors, senior managers and legal or business advisors can also be held personally responsible, if they are connected to a business that breaches minimum employment standards.

Section 142W of the Employment Relations Act 2000 – NZ Legislation (external link)

Since 2016 the Labour Inspectorate has taken a number of cases to the Employment Relations Authority (ERA) or the Employment Court that resulted in company directors being found personally liable for employment law breaches and an having to pay fines, penalties and other costs as an individual.

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Page last revised: 25 November 2021

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