Jon Entine argues that the Global Compact needs to properly challenge its members to behave better
Jon Entine argues that the Global Compact needs to properly challenge its members to behave betterWhile reflecting on the UN Global Compact, one of Groucho Marx’s immortal quips comes to mind: “I wouldn’t want to belong to any club that would have me as member.”
Ten years after its launch, everyone wants to be a member of the Global Compact, a club of 8,000 companies in 135 countries. Its key requirements are that you pony up dues and commit to an extraordinarily low level of disclosure across ten core principles on human rights, labour, environmental and anti-corruption standards – but you don’t have to act on them.
The Global Compact has its defenders. It has “succeeded in globalising the conversation about how business can play a positive role in society”, suggests Jem Bendell of the Griffith Business School in Nathan, Australia, writing in the Journal of Corporate Citizenship (Summer 2010).
But what happens when a member breaks its principles? It gets a gold star!
Consider the case of PetroChina, the domestic arm of the Chinese government-owned oil firm CNPC, one of the world's largest and most controversial oil companies. PetroChina was created by the CNPC in 1999 as a subsidiary after the parent company came under attack for its human rights violations. It was a dodge to deflect critics who threatened to scuttle the float of the company on the New York Stock Exchange. While PetroChina was allowed to join the Global Compact in 2007, CNPC never applied.
Today, CNPC owns most of a lucrative oil field in southern Darfur and has co-built a pipeline in southern Sudan to transport oil to China, where it is presumably refined by its alter ego PetroChina. According to Investors Against Genocide, up to 70% of the income generated from Sudan’s lucrative revenue sharing agreement with CNPC is funnelled into Sudan’s military, which has displaced thousands of people and killed many others.
In 2009, when PetroChina and CNPC stood accused, the Global Compact’s executive director Georg Kell hit back at critics, saying that PetroChina was a separate company and not complicit in the Darfur atrocities. But as KLD Research and Analytics, Investors Against Genocide and the Sudan Divestment Task Force have detailed, the same board members represent both companies and all their key operations overlap.
PetroChina has also rebuffed demands by the US government that it disclose whether it is processing the Darfur oil extracted by CNPC. Bizarrely, the UNGC praised PetroChina/CNPC, “because it, unlike many of the other companies [operating in conflict-prone countries], has recently taken the step of joining the Global Compact”. The leaders of the Global Compact apparently have convinced themselves that it is accomplishment enough being a member of the world’s largest club of well-intentioned corporations.
Bart Slob, with the Amsterdam-based Centre for Research on Multinational Corporations, believes that without a grievance system through which civil society organisations can submit evidence of violations, the UNGC principles are no more than vague aspirations.
What value?
So, does the Global Compact have any value?
Not for large corporations, Slob said, speaking in late 2009 to Citizen Polity. “Most of these multinationals already have comprehensive corporate responsibility programmes.” Joining the Global Compact “does not imply any changes in the way they operate.”
The compact’s only value, Slob believes, is that it can be a “first step for small and medium-sized companies that are unfamiliar with the concept of corporate social responsibility”. But that’s not been its focus.
The UN Global Compact has “failed to meet its mission and goals, and deliberately so”, conclude Prakash Sethi and Donald Schepers, professors at the business school at Baruch College, who have just completed a comprehensive review of the compact’s history. What does it mean, they ask, to be responsible if companies that violate the compact’s principles face no sanctions? What kind of organisation has corporate governance as its central principle but has no independent monitoring of its own decision-making apparatus?
Sethi and Schepers contend that because its primary goal appears to be to get as many corporations as possible to sign on, its effect has been to muscle out the oversight provided by other corporate watchdogs that are more independent and effective. By defending “apparently unethical and socially irresponsible behaviour,” they argue, the compact provides the cover of UN legitimacy for business as usual. “Dissolve itself,” is the only solution, they say.
In an email exchange, Kell bristles at these contentions, calling them “pure garbage”. Since 2007, one of his aides notes, “the Global Compact has conducted an annual implementation survey with the Wharton School [that] takes a comprehensive approach to identifying policies, actions and depth of corporate engagement on the ten principles”.
The aide says: “What I can tell you is that a whole bunch of assessment studies are in the pipeline, including lots of review/assessment studies by all sorts of academics.”
The Global Compact is “a mile wide and half an inch deep”, Sethi argues, who says that Kell rejected his offer to independently assess the compact’s progress. “It is long on promises, short on performance, and mostly silent in terms of transparency and objective reporting.” Even Groucho had higher standards.
Jon Entine is founder of ESG MediaMetrics and a member of Ethical Corporation’s advisory board.
***Editor's note: The Global Compact has issued a response to this column at unglobalcompact.wordpress.com.
The content here has been updated (November 9) to clarify the position regarding PetroChina and CNPC, and the quotes from Bart Slob and Jem Bendell.