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Debate: UN Global Compact – Is the Compact raising corporate responsibility standards?

Round one

The Compact isn’t tough enough

Dear Georg,

When the Global Compact was created, in July 2000, several civil society organisations expressed their concerns about the UN partnering with business. Pierre Sané, Amnesty International’s secretary-general at the time, said that for the Compact to be “effective and credible” there must be publicly-reported independent monitoring and enforcement via a sanctions system “so companies who are violating these principles cannot continue to benefit from the partnership”.

Some questioned the Compact’s assumption that the current form of globalisation could be made sustainable and equitable, the purely voluntary nature of the initiative, and the fact that some companies wrap themselves in the UN flag to “bluewash” their image.

Since 2000, you have adopted some measures to increase the credibility and effectiveness of the Compact, but unfortunately these measures have not led to higher standards of corporate responsibility.

The most relevant measures that have been implemented by the Compact in the past eight years are the policy on communicating progress and the grievance mechanism.

The policy on communicating progress requires participants to explain annually what they are doing to meet their commitment to the Compact’s ten principles. Many companies fail to do this. Sanctions for such failure are unimpressive. Companies are deemed “inactive” only after failing to report within three years of signing up. The only immediate consequence for “non-communicating participants” is that they are marked as “non-communicating” on the Compact’s website, denoted by a tiny yellow traffic triangle with an exclamation point in it.

Another problem with the communications on progress is the quality and trustworthiness of the information provided. The information is often superficial, unclear and, in some cases, untrue. Transparency International in Argentina found in 2007 that companies reported a very large number of activities, many of which bore no relation to the ten principles of the Compact. In this way, the Compact unfortunately generates free publicity for companies that make a mockery of the flawed policy for communicating progress and do not seem to care about complying with international standards of corporate responsibility.

As for the grievance mechanism, its purpose is noble: “To promote continuous quality improvement and assist the participant in aligning its actions with the commitments it has undertaken with regard to the Global Compact principles.” Despite this, complaints against Compact participants have not led to quality improvement or higher standards of corporate responsibility, for two reasons.

First, the mechanism lacks transparency. Your office does not divulge which companies are involved, who has made the complaints, or the specifics of the charges brought under the integrity measures. The public is kept in the dark about how many complaints have been raised since the creation of the grievance mechanism and how many companies have been removed from the list of participants as a result of conduct “detrimental to the reputation and integrity of the Global Compact”.

Second, you limit the complaints procedure to instances that illustrate “systematic” or “egregious” abuses, yet these types of abuses are not clearly defined. This vague formulation makes it difficult for stakeholders to determine whether a breach has occurred, ie whether a company has failed to support and protect internationally proclaimed human rights or is complicit in human rights abuses.

The Compact could be an important stepping stone to the promotion of stricter, binding and universally acceptable standards, such as the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights. As this initiative faded away, the Global Compact became the single UN-led effort in the area of corporate responsibility. John Ruggie, one of the Global Compact’s architects, has declared that the UN Norms are dead. If this is indeed true, the UN needs to come up with something far more ambitious than the Global Compact to meaningfully and effectively address irresponsible corporate behaviour.

Kind regards,
Bart

Disclosure drives performance

Dear Bart,

You are raising important issues and you are doing so with a deep understanding of the details. Unfortunately, you focus on a few trees and you don’t seem to see the forest when assessing the UN Global Compact. Worse, you seem to fall victim to surreal projections of what the purpose of the Compact is and how it works.

Your main point is the old argument that the Compact does not work as a compliance-based system. As a matter of fact, the Compact never pretended to do so, nor was it designed as one. The fact that some observers continue to criticise the Compact for something it never pretended to be is remarkable. Ever since the inaugural launch on 26 July 2000, we have been very clear that the Compact is about learning, dialogue and partnerships. The UN does not endorse companies or their performance. Rather, it seeks to promote collaborative efforts, transparency and public accountability.

Our annual requirement to publicly report on progress made in the implementation of the Compact’s principles (the “communication on progress”) has led to the de-listing of about 1,000 participants. True, there are great variations in the quality of reporting. But already it has helped to deal with free-riders and it has stimulated much social vetting and peer review. In addition, educators and financial analysts are increasingly using the information. The policy has also allowed us to team up with the Global Reporting Initiative and so help advance meaningful disclosure by companies on social and environmental issues on a global scale.

Your concerns about our “grievance procedures” also miss the point. Yes, we do have a range of elaborate integrity measures, such as a procedure to encourage dialogue between participants and stakeholders on critical issues raised, as well as a strict policy on the use of our logo.

Increasingly, our local networks (of which there are more than 70) play a stronger role as facilitators in case of a conflict, and we support the existing mechanisms for dealing with complaints of the Organisation for Economic Co-operation and Development and the International Labour Organization. Through all these efforts, we promote transparency and practical solution-finding, and protect the UN brand from abuse. But the Compact is not a kangaroo court that passes judgment on issues we have neither the authority nor the detailed knowledge to address.

The Compact works on the assumption that public disclosure, leadership commitments and market-based incentives drive performance. Our first implementation assessment has confirmed that much progress has been made already in terms of building acceptance for the principles and driving them into organisations. As our research has also shown, serious implementation gaps still exist, particularly when it comes to ensuring that companies apply the principles to their supply chains and subsidiaries. Addressing these matters more effectively will be a major focus of our work as we move forwards.

Regarding your point about the UN Norms on human rights, I would remind you that the UN book on conventions is already about 2,000 pages thick! The issue is not that there is a lack of international guidance, but how to implement the existing guidance more effectively. And I don’t think it is a secret that this will not improve as long as governments and societies don’t make it happen. In many areas, business is far ahead, while governments all too often lack the political will or the capacity to ensure that existing regulatory frameworks are properly applied.

Under these circumstances, the Compact offers a useful guiding value framework for companies to organise their activities. But the initiative cannot resolve government deficiencies, and it was never conceived as a substitute for the rule of law. As a voluntary initiative, it can broaden understanding and acceptance of universal values and thereby reinforce good governance.

Best regards,
Georg

Round two

Go for compliance

Dear Georg,

The Global Compact may not pretend to work as a compliance-based system, but I say it should. The argument may be old, but it is persistent and consistent. At the Leadership Summit in July 2007, Amnesty International’s current secretary-general said it was “time to scale up on compliance”. Many other civil society organisations, including Greenpeace, Oxfam, Friends of the Earth and ActionAid, have voiced similar concerns over the past eight years. It seems I am not the only one who has “fallen victim to surreal projections”. I believe that visions of an improved Compact are not surreal, but optimistic and forward-looking.

The Compact is a very powerful initiative because it is backed by the UN. You have always said it is not meant to be a substitute for business regulation. In practice, however, its high profile has made it the only game in town when it comes to UN initiatives dealing with issues of corporate responsibility. That is why many civil society organisations expect so much of the Compact. It should be possible to revise the initiative’s purpose and the way it works. Perhaps a different approach would enable the UN to effectively raise standards of corporate responsibility.

It is true that the requirement to report publicly on progress has led to the de-listing of “non-communicating” participants. This measure is based largely on technical and procedural grounds, and it does not deal adequately with the issue of free-riders. Although participants are expected to disclose information about their business practices regularly and can be removed from the list if they fail to do so, they cannot be de-listed for failing to comply with the ten principles. The system does not filter out the real laggards when it comes to corporate responsibility.

Companies such as PetroChina, a Chinese state-run oil company, can sign up and continue to do business as usual. While Dutch pension fund PGGM – a signatory to the UN Principles on Responsible Investment – and the European Parliament have decided to divest from PetroChina over its support for the Sudanese government, which has committed human rights violations in Darfur, PetroChina boasts about its entry to the Compact in its 2007 CSR report. The Compact is not raising PetroChina’s standards of corporate responsibility. Furthermore, the participation of such a company is detrimental to the reputation of the Compact and the UN.

Rather than relying on other initiatives and institutions such as the GRI, OECD, ILO, local Global Compact networks and governments to get companies to improve their behaviour, you need to take a leadership role. If not, other UN organisations should move beyond the pragmatism that underpins your strategy and set up a more ambitious initiative for corporate accountability.

Kind regards,
Bart

We’re a bicycle – not a tank

Dear Bart,

Allow me to frame your call for a compliance-based Global Compact in a different way: the Compact was designed as a smart bicycle to navigate some very uneven territory. Over time, we have gained quite a bit of pedalling power.

It appears that you would like the Compact to be a tank instead, with superior firepower. While you may care more about targets hit, we are more concerned about distance covered. This is an important difference.

We believe that our focus on continuous performance improvement, dialogue and learning has produced some significant results throughout the years, showing how voluntary approaches can and do work.

Of course, this approach implicitly acknowledges that businesses are imperfect to begin with. But we have chosen the route of active engagement, and while it may make fewer headlines than open letters, it nonetheless keeps doors open to drive change.

You err in suggesting that the Compact’s communication policy does not allow for performance evaluation. We have refined the process significantly, and it already forms the basis of information sought by analysts, investors, researchers, consumers, media and civil society groups. It enables you, not us, to make a better judgment on transparency and performance, even if it is – as you mentioned – the increasingly inconvenient truth that some companies need to do a much better job of disclosing their practices. You may not even be aware of it, but you and others are doing a great job in confirming our social vetting assumption: the Compact enforces public disclosure, but it is up to others to evaluate performance and demand change.

We are encouraged that PetroChina and other Chinese companies have decided to embrace the Compact and start to disclose information on environmental, social and governance matters. It not only supports my previous point, but shows the contribution the Compact is making to market integration.

The fact that institutional investors have decided to divest from PetroChina does not establish its complicity with crimes in Darfur. Divestment may make those selling stock feel ethical, but in the absence of globally binding solutions it is most probably doing more harm than good. It is like the captain of a sinking ship ordering all men to enter lifeboats while leaving women and children behind. No doubt, the issue of investment and conflict is complex, and we will put more work into it. Stay tuned.

A final point: I do feel at times that some observers of the Compact are actually not so much concerned about addressing poverty or achieving the initiative’s other goals. I suspect that their chief concern is with the accumulation of power by business. If that is indeed so, I would suggest a closer look at competition policy, which strikes much closer to home.

Sincerely,
Georg

UN Global Compact for dummies

A beginner’s guide to what the Compact is, and how it works.

What is the UN Global Compact?

A voluntary, principles-based initiative to encourage companies to follow responsible business practices.

What do member companies sign up to?

Companies agree to advocate the Compact’s ten principles (which cover human rights, labour and environmental standards, and anti-corruption) and take steps to make them central to the way they do business.

How many companies have signed up?

The Compact has 3,800 members in more than 100 countries. It is increasingly popular in emerging markets, such as central and eastern Europe and China, where corporate responsibility is a relatively new concept.

How does the Compact get companies to follow its principles?

The Compact does this through 70 local networks, where member companies meet to share best practice with peers in the same region. These groups meet together in an annual Local Networks Forum. Every three years, the Compact holds its Leaders Summit, the most recent having taken place in July 2007.

How does it check that companies are making progress?

Every year, the Compact asks member companies to report on what steps they are taking to implement its principles, in so-called “communications on progress”.

How does it check that companies are doing what they say?

The Compact does not verify whether companies are in fact doing what they claim in their communications on progress. As a non-binding, voluntary initiative, the Compact does not pass judgment on companies’ performance against its principles. But since October 2006, 1,000 participants have been “delisted” – or named and shamed for failing to report on progress for two years running.

The Ten Principles of the UN Global Compact

Human rights

1. Businesses should support and respect the protection of internationally proclaimed human rights; and
2. make sure they are not complicit in human rights abuses.

Labour standards

3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
4. the elimination of all forms of forced and compulsory labour;
5. the effective abolition of child labour; and
6. the elimination of discrimination in respect of employment and occupation.

Environment

7. Businesses should support a precautionary approach to environmental challenges;
8. undertake initiatives to promote greater environmental responsibility; and
9. encourage the development and diffusion of environmentally friendly technologies.

Anti-corruption
10. Businesses should work against corruption in all its forms, including extortion and bribery.

Continue the debate on EthicalCorp.com!

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