TOUR7023 - Case Study: Human Resources, Operations Management, Supply Chains and Risks

Human Resources, Operations Management, Supply Chains and Risks

TFH Tropical Forest Hotels is an international hospitality company that deals exclusively in global travel. TFH is transitioning into an asset-light business model, with 90% of its properties being managed and franchised hotels, and only 10% being owned hotels. The Board of Directors meets on the first Tuesday of every month. The Board also invites the head of the Social and Environmental Committee every six months.

Today, Olivia Red brought the following news to the Board, "The owner of the Famous Hotel was sentenced to three years’ imprisonment for trafficking workers from his native country. Lured by false promises of decent work and a better life, the workers borrowed money to pay charges of between £15,000 and £30,000 for 'sponsorship' and visas and traveled to the UK. On arrival, they were taken to a hotel in remote Scotland, on arrival, where they were forced to live and work in appalling conditions. The workers were controlled, threatened, and physically abused by the owner, working up to 22 hours a day, seven days a week, to pay off their debts."

CEO Alice asks, "What does that have to do with us?"

Olivia replies, "With a turnover of over £36m, the threshold set by the UK Modern Slavery Act 2015, TFH is required to report annually on measures taken to detect and respond to modern slavery in its operations and supply chains."

Alice responds, "We have already published a statement that no such steps have been taken to ensure that slavery and human trafficking are not taking place in any of our supply chains or in any part of our own business."

Olivia says, "The hospitality industry has been accused of poor treatment of employees. Last week, Hospitality Host Co. appeared in the news headlines for slavery- like practices across its complex supply chains in countries with low labor costs and correspondingly low levels of social protection. There is increasing social pressure to take modern slavery seriously, and competitors are already disclosing modern slavery statements with voluntary information on the steps taken to prevent, remedy, and respond."

Alice replies, "Well, we introduced a Human Rights Policy last year for our worldwide operations. We could revise it if slavery and human trafficking were included."

Olivia says, "Yes, we can do that as a first step. We would all like to think that we would never work with any organization that exploits its workforce, but how many of us can say that we have checked that this is the case at TFH? Or do the relevant people, such as owners and franchisees in our businesses, really understand the risks?"

She adds, "This regulation makes us liable in the case of our suppliers. We use outsourcing as a common model in the hospitality industry. Our hotels regularly subcontract recruitment to agencies, who may use other recruiters, paving the way for forced or coerced labor. As a brand, we are unaware of the staff's terms of employment of the suppliers our franchisees and managed hotels use because our due diligence process only extends as far as the first tier of the recruitment process, which appears reputable."

Olivia continues, "The nature and complexity of our supply chain bring a unique set of challenges. There can be risks due to migrant hotel staff, resorts, restaurants, bars, and entertainment venues. For instance, there may be unfair pay to the staff at the suppliers we use as laundry companies and the staff at excursion providers and venues."

Alice takes a moment to consider the issue. "While we have not previously undertaken this type of exercise, we do have experience in managing environmental criteria in our supply chains. We have been mapping and managing our supply chains for environmental compliance for over five years. So, implementing criteria for due diligence on modern slavery shouldn't be too challenging.”

However, Alice recognizes that time is limited this year, and significant changes may not be possible. "We will publish a statement that acknowledges no steps have been taken to ensure that slavery and human trafficking are not taking place in any part of our own business or our supply chains. We will also include a list of commitments for action to address the issue moving forward."

She adds, "Are there any penalties for making a weak statement?"

Olivia replies, "No, there are no financial penalties for failing to comply with the UK Modern Slavery Act. However, the main risks are ethical and reputational. Publishing a weak statement could harm our reputation and result in negative publicity. This statement will cover us under the Act for this year, but we should do more. The recent media coverage of International Hotel Co. has raised awareness among consumers, and our competitors are already disclosing voluntary information on modern slavery policies, due diligence, training, and effectiveness. To be on the safe side, should we include this issue in next year's Social and Environmental Committee work plan?"

Alice says, "Yes, Olivia, please develop a plan to ensure that we mitigate financial and reputational risks associated with modern slavery. However, please be mindful of keeping the costs down to ensure the financial viability of the plan. Otherwise, you might not receive the green light from the Board of Directors. Additionally, please remember that it can be challenging to ensure that our franchisees follow our policies unless it is included in their contracts. We cannot include everything in our management and franchised contracts."