Global Compact Should Spin Off from UN, June 2004

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© Hazel Henderson, June, 2004
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GLOBAL COMPACT SHOULD SPIN OFF FROM UN

UN revitalization and reform efforts now include innovation. The UN Global Compact, with its Summit June 24th of over 400 leaders of corporations, labor unions and civil society seems poised to assume self-responsibility.

What began as a speech by Secretary-General Kofi Annan in 2000 challenging corporate chiefs to engage in 9 principles of good corporate citizenship regarding human rights, labor standards and the environment – has now morphed 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, which comprise less than 5%. 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 recent Global Compact Leaders 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 fifty 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 – was 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.

The most seriously dedicated to corporate social responsibility were the large group of Brasilian companies, spearheaded by the Sao Paulo – based Instituto Ethos de Empresas e Responsabilidade Social and its President, Oded Grajew, and Raymundo Magliano Filho, President of Brasil’s stock exchange. The BOVESPA has its own index of socially responsible companies and even a new “Social Stock Exchange” listing 30 of Brasil’s vital charitable foundations in which anyone can “invest.”

Brasilians have embraced the Global Compact and recruited so many companies that their influence on the Summit was substantial. Brasil’s President “Lula” da Silva made the keynote speech. The innovative format of the Summit was also Brasil’s initiative. Brainchild of Rodrigo Loures, CEO of Nutrimental, a food company, the format of interactive roundtables (instead of speeches) used the Appreciative Inquiry method of Compact facilitator, Dr. David Cooperrider of Case Western University.

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, others pledged to require their suppliers’ to become signatories. Following BOVESPA’s 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 Brasilian President Lula’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. The joint civil society statement at its “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 inter-governmental frameworks for corporate accountability. The group cited signatories of the Compact, include Shell, Total, Rio Tinto, Nestle 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, were 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 and UN agencies labor union and NGOs who are participants.  This would protect the UN’s global reputation, while giving impetus to better corporate performance and self-policing, so as to enhance the Global Compact’s own reputation.

The way forward was 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 tax of .001% to reduce currency speculation mentioned by President Lula.
  • The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing is equally ground-breaking, published by the UNEP Finance Initiative, also free (www.unepfi.net).  Their Asset Management Working Group comprises twelve 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 sub-contracted 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, joined me in also inquiring about similar investing criteria for the UN pension fund. Mr. Ruggie, now at Harvard’s Kennedy School 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 (www.corpwatch.org, www.globalexchange.org, and others). Even standard economic theory states that markets can be self-policing only with sufficient information.

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Hazel Henderson, author of Planetary Citizenship and many other books on global sustainability and financial reform is founder and President of Ethical Marketplace, a global media company (www.ethicalmarkets.com) and partner with Calvert (A Global Compact signatory) in the Calvert-Henderson Quality of Life Indicators, updated at www.calvert-henderson.com

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