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The UN’s Global Compact: Ending ‘Business as Usual’?

Global Compact
The United Nations Global Compact promotes itself through LG, the Korean company, in Times Square, New York, 2014. 

Imagine a world in which promoting women’s empowerment in the workplace were as important to companies as ensuring high profit margins or preventing the degradation of water supplies. Such was the imaginative thrust of Kofi Annan’s 1999 speech to the World Economic Forum in Davos. In its wake, the United Nations Global Compact, the world’s largest voluntary corporate responsibility initiative, was born.

Now in its 15th year and anticipating the arrival of Lise Kingo, a Danish health care executive, as its new executive director later this summer, Global Compact has signed up more than 8,000 businesses in 161 countries to its fold.

Supporters say that the far-reaching appeal of Global Compact is proof of a new, socially responsible business culture, reformed by 21st-century transparency and the demands of the globalized marketplace. Others are more cautious: could private self-interest really be rechanneled so abruptly?

New analysis suggests that the drive toward corporate responsibility resonates differently for business and investors. Those in a position to spread capital understand that strong Global Compact networks mean safe investments. However, highly globalized business environments, or outwardly oriented economies (those that rely too much extent on trade, for example), still appear to make reluctant recruits to Global Compact. They are more likely to retain their business-conservative credentials despite the swelling ranks of sustainability oriented enterprises.

To begin with, how has such a sizable chunk of the private sector been persuaded to align its interests with those of the UN? Didn’t those two parties used to be not so great friends? One key to the new relationship is public image. Companies have found themselves under great scrutiny in the information age. A company’s brand can no longer be protected by a complicit government or two, but now stands more at risk of being associated with human-rights abuses or found to be abetting corruption in a damning report, quickly beamed around the world to outraged audiences.

Most companies that sign up to corporate responsibility initiatives, however, want to do more than simply avoid public relations catastrophes. Global Compact aims to harmonize the practices of its signatories with 10 principles across the domains of human rights, labor, environmental protection and anticorruption. To that end, it attempts to foster a dialogue among participating businesses to share their best practices and challenges in making the world a better place while also making money.

Failure on behalf of a company to submit an annual report on the progress it has made toward these 10 principles, such as upholding employees’ rights to collective bargaining or carrying out environmentally friendly technologies, will result in being delisted, or expelled, from Global Compact. So far, 4,000 companies have parted ways from the initiative in this manner.

If, as some insist, the future holds a sustainable enterprise economy, any serious long-term business strategy, regardless of sector, has a “duty to respect” (quoting John Ruggie of Harvard), these codes. An annual reporting requirement of the Global Compact sees to it that “respect” translates into meaningful progress.

Self-interest is not being denied here but usefully harnessed: damage to the local environment or regular palm-greasing is not a sustainable foundation on which to build your company’s future.

Tom Woodcock, the author.
Tom Woodcock, the author.

If you’re detecting a distinctly Western, free market-oriented strain in such reasoning, you may be correct. Such high moral appeal of the Compact, manifest in the presence of strong, local (read “domestic”) networks, is most robust in free-market democracies. The vast majority of Africa, Central Asia and the Middle East, regions with more opaque business environments, have yet to sign up to Global Compact.


 

 

But a subgroup of autocratic regimes, among them China, Egypt, Russia and Sudan, have encouraged membership despite their traditional suspicion of Western-led human-rights advocacy. Potentially, this dynamic could count both as a feather in the cap of Global Compact’s business case and a sign of its expanding ideological reach. Latin America and Western Europe are almost full participants.

Which leads us to the dozen remaining democracies that have not joined yet. Around half are located in Eastern Europe, plus Botswana, Ireland, New Zealand, Papua New Guinea, Sri Lanka and Taiwan. The curious trait that these countries share, alongside their ambivalence toward corporate responsibility norms, is their reliance on international trade. In 2013, the share of gross domestic product attributable to cross-border commerce among these dozen countries was 30 percent higher than democracies that have joined Global Compact.

They are the globalized elite: highly extroverted economies that rely on trade to the tune of 20 percent more than the average across the European Union, the world’s largest-single market.

These dozen holdouts are far from ideologically opposed to human-rights treaties. They share varied records on human rights, some being exemplary and others less so, but the important point is that they have long signed up to all major conventions on the subject.

Could there be, as the United States expressed in the early days of the Global Compact, fear that increased transparency would leave firms open to lawsuits in highly litigious cultures? With the possible exceptions of Ireland and New Zealand, the holdouts are far less litigious than their neighbors, so this reasoning looks unlikely.

The most convincing explanation is that highly extroverted business cultures seek economic advantages in the global markets by maintaining a level of freedom from ideological positions like those associated with corporate social responsibility.

In time, such holdouts are most likely to come around, seduced by the momentum of sustainable business practices and the prospect of shining in the eyes of investors. Still, proclaiming an end to global “business as usual” deserves a heavy word of caution: as the interests of international organizations like the UN grow closer to the interests of the private sector, it is important for the two to understand each other better.

The private interests with the most at stake will be the toughest to convince.

 

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