Companies at risk if neglect human rights issues – KPMG
PETALING JAYA: Legal actions and sanctions against companies over human rights issues are increasing worldwide, and KPMG cautions Malaysian companies to wake up to this risk before it’s too late.
A check of the Withhold Release Orders (WRO) list issued by the US Customs and Border Protection (CBP) included four companies from Malaysia as of December 2020: Sime Darby Plantation Bhd, FGV Holdings Bhd, Top Glove Sdn Bhd and TG Medical Sdn Bhd.
The WRO effectively prevents imported goods from entering the US if suspected to be produced by forced labor.
Based on the updated active list, Malaysia currently has the second highest number of companies in the WRO – second only to China. On January 12, 2021, the UK and Canada became the latest jurisdictions to impose new policies on imports as measures to combat forced labour and human rights violations.
In a press statement, KPMG’s Governance and Sustainability advisory unit executive director Phang Oy Cheng commented: “For unprepared companies, receiving a WRO or import sanction can be costly not least for the impact to the company’s future earnings.
“Failure to identify and respond to human rights issues will lead to costly and disruptive legal actions, cause investor divestment, negative publicity, reputation damage and significant financial loss.
“The damages cause by poor human rights risk management have a perpetual effect that will take companies tremendous effort and resources to repair.”
Unfortunately, many business leaders in Malaysia tend to underestimate human rights risks and the impact on their companies until the damage is done, KPMG warned.
Phang pointed to several widely reported human rights cases that emerged out of Malaysia recently, which were brought to light because of the Covid-19 contagion among migrant workers.
A jarring example is the case of Top Glove, which drew national and international a ention when over 1,000 of the company’s contract workers were infected giving rise to community spread.
Investigations revealed the source of the contagion was found in the housing facilities provided to its workers. Subsequent enforcement operations in five states (Perak, Kedah, Kelantan, Negeri Sembilan and Johor) resulted in the Ministry of Human Resources (MoHR) opening 19 investigation papers against six companies related to Top Glove Corp under the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446).
The impact to the company was immediate. Top Glove’s shares declined 17 per cent with about RM11 billion in market capitalisation reportedly wiped out. The glove maker had also spent over RM1 billion, more than half its FY20 earnings, repurchasing its own shares.
Phang remarked, “These cases show that managing human rights is not only about doing the right thing, it is also about protecting the bo om line.
“Corporate Malaysia must acknowledge that every business, partnership or sourcing decision entails significant questions about potential human rights issues.
“This reality demands a shi in thinking, away from traditional risk-to-business concerns and towards non-financial risk-to-people concerns.”
Human rights risk goes beyond working conditions for workers to also encompass aspects across the enterprise, including suppliers and partners in the value chain, acquired businesses or activities in new global markets and regions, project financing, loans, assetmanagement services, and more.
Awareness of human rights across the organisation and prioritising them is only the beginning of the governance process.
“The pandemic has amplified a global movement driven by investors and consumers for companies to put purpose over profit.
“As expectations and requirements to improve human rights risk management grow, Corporate Malaysia should explore new ways to identify, manage and report on potential issues that can negatively impact the company.
“Examples have shown that business leaders underestimate this risk only at their peril,” cautioned Phang.
Some strategic steps that companies and business leaders should consider to enhance and prioritise their management of human rights risk include se ing the tone at the top by appointing a board member or board commi ee with responsibility for human rights.
KPMG also advised that boards and leaders should be commi ed to respecting human rights and to challenging traditional assumptions about corporate responsibility.
Companies should also set up a cross-functional working group that includes the sales, procurement, operations, legal, ethics, safety and HR functions to implement a human rights policy and build human rights actions into annual business-unit plans and ensure that accountability sits with business unit leaders, KPMG added.
Aside from that, it suggested companies to integrate human rights risks into risk management across different business functions.
For unprepared companies, receiving a WRO or import sanction can be costly not least for the impact to the company’s future earnings.
Phang Oy Cheng