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Data driven governance is becoming ubiquitous (Backer 2018) and with it the problems central to rule of law based regulatory systems: predictability, clarity, and replicability. Also like other traditional regulatory systems, data driven systems now encounter core issues of coherence and fidelity to the normative objectives for which they are developed and applied. But unlike traditional systems, data driven governance, as a markets (rather than as a politically) driven system produces regulatory challenges that are distinct from those of orthodox state based law systems.
Rating systems as mechanisms for disciplining behavior have become important instruments of regulatory governance in the non-state sector in the West. They have become especially useful in the context of the management of a framework for enterprise corporate social responsibility (CSR). In this context, non-state actors have begun to develop and implement private systems of rating the CSR performance of large enterprises. The effect is meant to be the same as in other social credit systems—to induce the objects of rating to change their operation and their governance structures to ensure a higher rating. In other systems, that inducement to comportment includes avoidance of criminal charges or access to financial markets. (Backer, Next Generation Law, 158))
As these systems have proliferated the issues have become more acute. Moreover, the increasing connection between traditional law systems and data based systems, ratings based to a large degree, poses challenges not just for the integrity of such systems, and the coherence across different ratings regimes operating in the same environment, but for the integrity and role of law as well. This is emerging more clearly in the context of national efforts to more robustly incorporate human rights in economic activity across production chains with respect to which some portion fo which touches the national territory of the regulating state.
But markets based systems, manifested through national mandatory disclosure regimes that are themselves grounded in the indirect application of international norms, now have begun to dominate the public-private modalities of regulation. The state provides the mandate to report, the content of the report is directed by the state but derived normatively from international norms, and compliance is delegated to the enterprise subject to the reporting mandate. That entity then hardens international norms through the incentives that mandatory reporting might produce. That, at least is the theory (see, eg here).
Abstract: Recent legislative efforts to address modern slavery emphasise corporate disclosure as the primary regulatory tool. New modern slavery disclosure laws harden the expectation that business will conduct itself responsibly; however, they are founded on a soft approach to enforcement which is essentially outsourced to the market. This paper questions the effectiveness of this disclosure-based enforcement mechanism, which primarily relies on a narrowly defined concept of ‘the market’ as the basis for its regulatory strategy. Drawing on comparisons with alternative legislative enforcement frameworks to counter foreign bribery and illegal logging, this paper highlights the opportunities and limitations of reliance on market forces for regulation and suggests a path forward for enhancing the modern slavery enforcement approach.
Harris and Nolan critique the markets driven disclosure-based model. They note that such an indirect regulatory model--which relies on the institution of private law based reporting systems (and therefore of the monitoring and surveillance systems on which these reports are based), the reporting of which is based on compliance with governmental legal mandates but enforced by the responses of market actors who must somehow respond to these reports, That response is sometimes guides by the construction of (also private) intermediaries who offer their services as providers of analysis and judgment--about the meaning of the reports in the wider reporting context). And thus a self-reflexive markets based accountability compliance eco-system (considered here).
Yet as Harris and Nolan astutely note, this is an eco-system with substantial gaps built into its conceptual possibilities. More importantly, as the it is one that might profit from the insights of other regulatory approaches. Harris and Nolan do an excellent job of framing those insights in ways that are important for the business of data driven markets based nudging of corporate cultures in respect of modern slavery. Their investigation forefronts as well the great difficulties posed both by markets in regulation, and markets in analytics for the coherence of an approach to the eradication of modern slavery where the problem is global and the solutions remain fractured.
Harris and Nolan "highlight the importance of clearly and narrowly defining the ‘problem’ that is the focus of the enforcement framework, note opportunities and limitations of reliance on market forces to address modern slavery, and examine whether the modern slavery disclosure model achieves the appropriate balance between collaboration and coercion and between soft and hard enforcement mechanisms." (Harris & Nolan, supra, Introduction). Again, the problem is the market. But this time one looks at the incoherence in regulation brought by markets for law as well as markets for compliance. Harris and Nolan show how the definitional issues among disclosure regulatory jurisdictions produces a variation in compliance standards that are augmented by the interpretive flexibility that may be exercised by complying enterprises, much less in the production of markets directed analytics and assessments of the disclosure for the purpose of inducing markets based reactions (and thus of indirect enforcement).
The modern slavery framework relies heavily on regulatory intermediaries, while other frameworks we explore engage intermediaries to varying degrees, in combination with more direct forms of enforcement. We assert that the regulatory framework to counter modern slavery would benefit from adopting some of the structures and tools used in other regulatory efforts. We argue in favour of enhancing the opportunity for a diverse range of stakeholders to act as regulatory intermediaries, while at the same time strengthening the role of the traditional State regulator as an enforcement actor. (Ibid).I cannot do justice to the richness of the analysis here. The paper is well worth reading for its ability not merely to connect dots among regulatory approaches, but for the way it suggests that markets appear to serve as the veil behind which states continue to avoid regulatory coherence. The fracture at the regulatory level is within the state's power to manage. That they do not suggests either a lack of vision, a lack of political will, or something else. That something else may well be a product of the continuing power of siloing, that is of considering legal regimes as confined by functional differences in regulatory objects. The state, and its political drivers, continue to fail to overcome what drove John Ruggie, in part, to the 3 Pillar framework of the UN Guiding Principles--the need to find a way of filling governance gaps in the face of state failure to overcome the consequences of their choices among regulatory alternatives. Harris and Nolan point us in the right direction. It is the greater pity that states tend to hold close to the principle that there is dishonor in asking for direction.
The Introduction follows below.
Hannah Harris and Justine Nolan, "Outsourcing the enforcement of modern slavery: Overcoming the limitations of a market-based disclosure model" Journal of Industrial Relations Online First (December 2021).
Introduction
Modern slavery in the private economy is commonly found in cross-border global supply chains and is attracting increased attention from States, businesses and civil society. The rise of global sourcing and production and its reliance on diversified and often opaque supply chains has given rise to major human rights accountability challenges (Mayer and Gereffi, 2010; ILO 2016; Clarke and Boersma, 2019). The transnational and dynamic nature of supply chains poses a significant legal challenge for enforcement efforts to combat modern slavery and improve working conditions for the more than 16 million people around the world enslaved in the private economy via global supply chains (ILO and Walk Free Foundation, 2017). The challenge of successfully reducing modern slavery is in part derived from the difficulties of detecting and measuring the problem and devising an effective enforcement framework in a complex environment of transnational interactions and powerful actors. This challenging environment is further complicated when collaboration is required between enforcement actors who are not always operating under equivalent laws or with a common purpose.
Reducing modern slavery is a global challenge (United Nations Sustainable Development Goals, target 8.7) and there has been a litany of institutional, international and national initiatives to address this problem.1 International law addresses slavery through several treaties and mechanisms;2 however, there is no single international treaty designed to tackle all activities that fit within the umbrella term of modern slavery. Modern slavery is described differently in disparate jurisdictions, but at its core is an understanding that it is defined by a relationship of exploitation and incorporates a range of exploitative practices including forced labour and human trafficking (Nolan and Boersma, 2019). Modern slavery occurs in every region of the world in both developing and developed countries (ILO and Walk Free, 2017). Women are disproportionately affected (accounting for 71% of the estimated 40 million victims) and one in four victims of modern slavery is a child (ILO and Walk Free, 2017). Modern slavery is found in a range of sectors including (but not limited to) domestic work, manufacturing, construction, mining, agriculture and fishing. (Datta and Bales, 2013; Crane et al., 2019).
Domestically, legislative efforts to address modern slavery have emanated from a variety of jurisdictions including Australia, the United Kingdom and California (Mares, 2018; Nolan and Frishling, 2019). These jurisdictions have emphasised the use of mandated disclosures by corporations, as a mechanism to address modern slavery. Australia's Modern Slavery Act 2018 (Cth) is the most recent example of an emerging transnational regulatory framework that uses a domestic legislative model to increase transparency and stakeholder engagement to address modern slavery risks in supply chains. These laws assume that the transparency gained from disclosure will be utilised by the market to deter modern slavery and incentivise ethical corporate conduct. In this context, the market operates through investor and consumer pressure, and through the involvement of other stakeholders such as civil society organisations, who use disclosure as a tool to push other stakeholders to change behaviours. The market is not restricted to the concept of the free market, which primarily involves direct interactions between supply and demand, or between corporations and consumers. Instead, the market is conceived more broadly to include the wide range of stakeholders known to impact corporate decision-making and outcomes. Disclosure can (in theory) operate through the market (broadly construed) to incentivise corporations to address human rights risks in their supply chains. In the famous words of US Supreme Court Justice Brandeis: ‘[p]ublicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants’ (Narine, 2015, p. 25).
These new modern slavery disclosure laws harden the expectation that business will conduct itself responsibly. However, they are ultimately founded on a soft (and arguably insufficient) approach to enforcement which is outsourced to the market (Grabosky, 2017). These social disclosure laws assume the active participation of stakeholders, including consumers, civil society, workers’ representatives and investors, as regulators and enforcers of the law. The co-governance model on which these laws rely aims to harness the ‘regulatory’ power of stakeholders (Braithwaite and Drahos, 2000; David et al., 2012; Braithwaite, 2008).
This article critiques this disclosure-based model, which relies on the self-regulatory reporting by business, alongside outsourced enforcement by the market, without accompanying effective State-based enforcement mechanisms. We highlight the importance of clearly and narrowly defining the ‘problem’ that is the focus of the enforcement framework, note opportunities and limitations of reliance on market forces to address modern slavery, and examine whether the modern slavery disclosure model achieves the appropriate balance between collaboration and coercion and between soft and hard enforcement mechanisms.
Within the market-based disclosure approach, there is a need to recognise that different stakeholders will have different interests and agendas which may shape their willingness to engage in the regulation of corporate entities (Abbott, Levi-Faur and Snidal, 2017). Furthermore, some stakeholders will be better positioned to be heard and heeded, due to resource and power asymmetries in the global marketplace (Bres et al., 2019). Therefore, we argue that it is essential to balance the disclosure approach with stronger State focused regulation. However, this hard law approach will benefit from enhanced awareness of the different stakeholders involved, recognising the power of incentives to drive action, while utilising strong penalties for deviant behaviour.
Throughout our analysis, we draw on comparisons with alternative models to regulate business activity, including those to counter foreign bribery in business transactions and those emerging to address illegal logging and deforestation in global supply chains.3 Throughout our analysis, we pay special attention to the role of different stakeholders and market participants, drawing on the theoretical framework of regulatory intermediaries (Abbott, Levi-Faur and Snidal, 2017; Marx and Wouter, 2017). Regulatory intermediaries include ‘any actor that acts directly or indirectly in conjunction with a regulator to affect the behaviour of a target’ (Abbot, Levi-Faur and Snidal, 2017, p19). Regulatory intermediaries are a more focused subset of stakeholders, because their actions cross over with those of traditional regulators to affect corporate behaviour.
The modern slavery framework relies heavily on regulatory intermediaries, while other frameworks we explore engage intermediaries to varying degrees, in combination with more direct forms of enforcement. We assert that the regulatory framework to counter modern slavery would benefit from adopting some of the structures and tools used in other regulatory efforts. We argue in favour of enhancing the opportunity for a diverse range of stakeholders to act as regulatory intermediaries, while at the same time strengthening the role of the traditional State regulator as an enforcement actor.
In each of the three regimes we examine – modern slavery, foreign bribery and illegal logging – there are distinct differences with how the ‘problem’ is defined, and the source of that definition. Because of this, we begin in Section II by noting the definitional challenges facing different regulatory frameworks and the linkage between achieving definitional clarity and designing an effective enforcement framework. In Section III, we introduce the idea of the market as a regulatory enforcement tool and explore how this tool is utilised by the different regulatory frameworks for modern slavery, foreign bribery and illegal logging. We map the role for different stakeholders in each of these frameworks and in particular, the role for regulatory intermediaries operating between the State regulator and target corporations. Section IV concludes by presenting tools and strategies to more appropriately balance hard and soft mechanisms of enforcement, utilising intermediaries and market forces while ensuring an active and constructive role for the State. The paper argues in favour of enhancing crossover between the three regimes – focusing on definitional clarity and enhancing stakeholder engagement and enforcement risk.
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