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Should the UN’s corporate initiative spin off?

Special Feature: The Global Compact

By Hazel Henderson
Commenting from St. Augustine, FL

More than 400 leaders of corporations, labor unions and civil society attended the UN’s Global Compact Leaders Summit on June 24. What began as a speech by Secretary-General Kofi Annan in 2000 challenging corporate chiefs to engage in nine principles of good corporate citizenship regarding human rights, labor standards and the environment has grown into a global network of 1,500 company signatories. The Global Compact—the UN designation has all but disappeared—has spawned national chapters and members in 70 countries.

Conspicuously absent are US companies—less than 5 percent of the whole. Embarrassingly, their fears of litigation and accountability have now been assuaged by a document designed with the help of the American Bar Association hoping to limit liabilities of signatory companies. None of the other corporations from around the world demanded such coddling.

The Summit endorsed a 10th Principle on Corruption with unanimous pledges to fight this evil—as a precondition for good corporate citizenship. Other resolutions filled the air from the 50 roundtables all concerned with implementation of the principles.

What had begun as Kofi Annan’s exhortation and voluntary “engagement” (which many NGOs call “blue-washing”) with little monitoring or accountability has been turning into a mutual peer-pressure association. Many CEOs supported implementation, greater performance and accountability, citing not only public-relations motives but also the business case for corporate social responsibility. Others cited the “free rider” problem: Some early signatory companies had jumped on board and failed to address their shortcomings and were giving the more diligent businesses a bad name. An example is Goldman Sachs (whose vice chairman was invited onto the Compact Advisory Council) currently accused of “stock parking” by US and European regulators in its dealings with AOL and Bertelsmann.

This open format provided the self-challenging, peer-group reinforcement that elicited so many new pledges to improve accountability, accelerate implementation and take responsibility for full financial support of the Compact through membership dues. Many proposed that each company pledge to sign up at least one new company, while others pledged to require their suppliers’ to become signatories. Following BOVESPA’s (Brazil) lead, nine more stock exchanges signed onto the Compact.

Toward the end of the afternoon, the Summit’s participants shared their visions for the Compact’s achievements by 2015. Many focused on Brazilian President Lula da Silva’s call for addressing poverty—as one who had experienced hunger during his childhood. The UN’s Millennium Development Goals, particularly on poverty eradication, now seem to be a part of the Compact’s agenda.

Will the spirit of these pledges become reality? Will the Global Compact really spin off and become a fully self-funded, global organization moving corporate social responsibility to full accountability? Only time will tell. A joint civil-society statement at the nearby Global Compact counter-summit called for rule-based, full corporate accountability in a legal framework (www.earthrights.org).

The civil society organizations led by the Earth Rights Foundation, held that the Global Compact is a distraction from the real task of the UN and governments to establish effective intergovernmental frameworks for corporate accountability. The foundation cited signatories of the Compact—including Royal Dutch/Shell, TotalElfFina, Rio Tinto, Nestlé and BP—as violators of the principles of the Compact. They urged that the Norms for Business adopted by the UN Human Rights Commission in 2003 are an important step in such a global legal framework. They urged that the Compact be disbanded as a threat to the UN’s credibility.

The wisest course seems to spin off the Compact as an independent organization. This would test the commitment of its corporate signatories and the governments, UN agencies, labor unions and NGOs who are participants. This would protect the UN’s global reputation while giving impetus to better corporate performance and self-policing to enhance the Global Compact’s own reputation.

The way forward is best exemplified by three reports released at the Summit:

• "Raising the Bar" is a useful compendium, edited by Claude Fussler, Aron Cramer and Sebastian van der Vegt, of performance criteria, standards, social auditors and case studies for implementation of the Compact’s principles.

• "Who Cares Wins" is a set of wide-ranging recommendations to the financial industry on methods of incorporation of environmental, social and governance criteria in all analyses, asset management and securities brokerage. Endorsed by 20 leading financial institutions, this is a breakthrough and can be downloaded free (www.unglobalcompact.org). Such financial reform is fundamental, including a .001-percent tax to reduce currency speculation mentioned by President Lula da Silva.

• "The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing" is equally groundbreaking. It is published by the UNEP Finance Initiative and is also free (www.unepfi.net). Their Asset Management Working Group comprises 12 leading global financial companies and explains how materiality relates to what issues securities laws require companies to disclose in their reports. In many such laws, these social, environmental and even corporate governance issues are still not deemed “material” to the company’s performance!

• Lastly, the UN itself pledged at the Summit to abide by its own principles regarding procurement, its employees pension fund and personnel policies. In 1998, I raised this issue with John Ruggie, then an Assistant Secretary-General of the UN. Why did the UNOPS Procurement Manual covering the then $900 million the UN subcontracted to private corporations not require compliance with major UN treaties and principles? These were later incorporated into the Global Compact. My colleague, Stephen Viederman, then President of the Jessie Smith Noyes Foundation, a pioneer in socially responsible investing, also joined me in inquiring about similar investing criteria for the UN pension fund. Mr. Ruggie, now at Harvard’s Kennedy School of Government and an advisor to the Compact and Georg Kell, now the Compact’s executive head, both assured us that our requests were unrealistic!

So, times have changed—somewhat. What is needed now is a continuous, widely disseminated reporting system to keep the global public informed. Also vital is the watch-dogging by civil society (see, for example, www.corpwatch.org and www.globalexchange.org). Even standard economic theory states that markets can be self-policing only with sufficient information.