Due Diligence: Dior hit over supply chain abuses

Our colleague Auret van Heerden observes how due diligence obligations are increasingly impacting companies and examines how a Dior facility in Italy was unable to escape liability for labour abuses at a subcontractor by claiming ignorance… the answer has several components

The key factors

• The Prosecutor's Office argued that the big brands have flawed internal audit systems that fail to detect the regular recourse to subcontracting with abusive labour conditions. This is described as so deeply rooted as to be company policy. 
• The Court observed that the company did not verify the capacity of the contractors and failed to carry out effective inspections or audits to ascertain the actual terms and conditions of work. The one audit conducted in 2023 had failed to reveal the labour abuses at the contractor. The Court concluded that the company failed to effectively monitor its production chain and the production methods used by contractors and subcontractors. 
• This negligence justified the appointment of an administrator to:
  1. analyse the sourcing relationships and avoid or end contracting and subcontracting designed to evade labour law regulations
  2. develop an organisational structure capable of preventing such abusive contracting in future
  3. strengthen the internal controls and supplier verification system

Auret notes that the appointment of the administrator leaves the normal operation of the business in the hands of the company but demonstrates a determination on the part of the authorities to address the root causes of persistent labour rights violations hiding in plain sight. This action relied on existing Italian law and is in advance of the EU’s forthcoming Corporate Sustainability Due Diligence Directive/CSDDD. 

ADDITIONAL INFORMATION:

Auret van Heerden’s LinkedIn post 

Auret says: 

“I’m fairly certain that the Italian prosecutor will not stop with Dior. Or Armani. All of the supply chains in Italy of luxury brands are now in the crosshairs. The “see no evil” subcontracting model that they have relied on up to now is, in my opinion, toast.”