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The Compact isnt

tough enoughBart Slob

Dear Georg,When the Global Compacwas created, in July 2000

several civil society organisations expressetheir concerns about the UN partnerinwith business. Pierre San, Amnesty Internationals secretary-general at the time, saithat for the Compact to be effective andcredible there must be publicly-reporteindependent monitoring and enforcemenvia a sanctions system so companies wh

are violating these principles cannocontinue to benefit from the partnership.

Some questioned the Compacts assumption that the current form of globalisationcould be made sustainable and equitablethe purely voluntary nature of the initiativeand the fact that some companies wrapthemselves in the UN flag to bluewashtheir image.

Since 2000, you have adopted sommeasures to increase the credibility andeffectiveness of the Compact, but unfortunately these measures have not led thigher standards of corporate responsibility

Is the Compactraising corporateresponsibility

standards?

UN Global Compact

4 Debate Ethical Corporation May 200

No says Bart Slob,senior researcher atDutch-based Somoand co-ordinator ofGlobalCompactCritics.org

Yes, countersGeorg Kell,executive headof the UN GlobalCompact

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The most relevant measures that have been implemented by the Compact in thepast eight years are the policy on communi-cating progress and the grievancemechanism.

The policy on communicating progressrequires participants to explain annuallywhat they are doing to meet their commit-ment to the Compacts ten principles. Manycompanies fail to do this. Sanctions for suchfailure are unimpressive. Companies aredeemed inactive only afterfailing to report within threeyears of signing up. The onlyimmediate consequence fornon-communicating partici-pants i s that they aremarked as non-communi-

cating on the Compactswebsite, denoted by a tinyyellow traffic triangle withan exclamation point in it.

Another problem with thecommunications on progressis the quality and trustwor-thiness of the informationprovided. The information isoften superficial, unclearand, in some cases, untrue. TransparencyInternational in Argentina found in 2007that companies reported a very largenumber of activities, many of which bore no

relation to the ten principles of theCompact. In this way, the Compact unfortu-nately generates free publicity forcompanies that make a mockery of theflawed policy for communicating progressand do not seem to care about complyingwith international standards of corporateresponsibility.

As for the grievance mechanism, itspurpose is noble: To promote continuousquality improvement and assist the partici-pant in aligning its actions with thecommitments it has undertaken with regardto the Global Compact principles. Despite

this, complaints against Compact partici-pants have not led to quality improvementor higher standards of corporate responsi-

bility, for two reasons.First, the mechanism lacks transparency.

Your office does not divulge which compa-nies are involved, who has made thecomplaints, or the specifics of the charges

brought under the integrity measures. Thepublic is kept in the dark about how manycomplaints have been raised since thecreation of the grievance mechanism andhow many companies have been removedfrom the list of participants as a result of

conduct detrimental to the reputation andintegrity of the Global Compact.

Second, you limit the complaints proce-dure to instances that illustrate systematicor egregious abuses, yet these types ofabuses are not clearly defined. This vagueformulation makes it difficult for stake-holders to determine whether a breach hasoccurred, ie whether a company has failedto support and protect internationallyproclaimed human rights or is complicit in

human rights abuses.The Compact could be an

important stepping stone tothe promotion of stricter,

binding and universallyacceptable standards, suchas the UN Norms on the

Responsibilities of Transna-tional Corporations andOther Business Enterpriseswith Regard to HumanRights. As this initiativefaded away, the GlobalCompact became the singleUN-led effort in the area ofcorporate responsibility.

John Ruggie, one of theGlobal Compacts architects, has declaredthat the UN Norms are dead. If this isindeed true, the UN needs to come up withsomething far more ambitious than the

Global Compact to meaningfully and effec-tively address irresponsible corporatebehaviour.Kind regards,Bart

Disclosure drives performanceGeorg Kell

Dear Bart,You are raising important issues and you aredoing so with a deep understanding of thedetails. Unfortunately, you focus on a few

trees and you dont seem to see the forestwhen assessing the UN Global Compact.Worse, you seem to fall victim to surrealprojections of what the purpose of theCompact is and how it works.

Your main point is the old argument thatthe Compact does not work as a compli-ance-based system. As a matter of fact, theCompact never pretended to do so, nor wasit designed as one. The fact that someobservers continue to criticise the Compactfor something it never pretended to be isremarkable. Ever since the inaugural launchon 26 July 2000, we have been very clear

that the Compact is about learningdialogue and partnerships. The UN doenot endorse companies or their performance. Rather, it seeks to promotcollaborative efforts, transparency anpublic accountability.

Our annual requirement to publiclreport on progress made in the implementation of the Compacts principles (thcommunication on progress) has led t

Ethical Corporation May 2008 Debate

Measures toincrease thecredibility andeffectiveness of

the Compact havenot led to higherstandards ofcorporate

responsibility Bart Slob

UN Global Compact fordummies

A beginners 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 Compacts ten princi-

ples (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.

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the de-listing of about 1,000 participants.True, there are great variations in the qualityof reporting. But already it has helped todeal with free-riders and it has stimulatedmuch social vetting and peer review. Inaddition, educators and financial analystsare increasingly using the information. The

policy has also allowed us to team up withthe Global Reporting Initiative and so helpadvance meaningful disclosure by compa-nies on social and environmental issues on aglobal scale.

Your concerns about our grievanceprocedures also miss the point. Yes, we dohave a range of elaborate integritymeasures, such as a procedure to encouragedialogue between participants and stake-holders on critical issues raised, as well as astrict policy on the use of our logo.

Increasingly, our local networks (of

which there are more than 70) play astronger role as facilitators in case of aconflict, and we support the existing mech-anisms for dealing with complaints of theOrganisation for Economic Co-operationand Development and the InternationalLabour Organization. Through all theseefforts, we promote transparency and prac-tical solution-finding, and protect the UN

brand from abuse. But the Compact is not akangaroo court that passes judgment onissues we have neither the authority nor thedetailed knowledge to address.

The Compact works on the assumption

that public disclosure, leadership commit-ments and market-based incentives driveperformance. Our first implementationassessment has confirmed that muchprogress has been made already in terms of

building acceptance for the principles anddriving them into organisations. As ourresearch has also shown, serious implemen-tation gaps still exist, particularly when itcomes to ensuring that companies apply theprinciples to their supply chains andsubsidiaries. Addressing these matters moreeffectively will be a major focus of our workas we move forwards.

Regarding your point about the UNNorms on human rights, I would remindyou that the UN book on conventions isalready about 2,000 pages thick! The issue isnot that there is a lack of internationalguidance, but how to implement theexisting guidance more effectively. And Idont think it is a secret that this will notimprove as long as governments and soci-eties dont make it happen. In many areas,

business is far ahead, while governments alltoo often lack the political will or thecapacity to ensure that existing regulatoryframeworks are properly applied.

Under these circumstances, the Compactoffers a useful guiding value framework forcompanies to organise their activities. Butthe initiative cannot resolve government

deficiencies, and it was never conceived as asubstitute for the rule of law. As a voluntaryinitiative, it can broaden understanding andacceptance of universal values and therebyreinforce good governance.Best regards,Georg

Go for complianceBart Slob

Dear Georg,The Global Compact may

not pretend to work as acompliance-based system,but I say it should. The argument may beold, but it is persistent and consistent. At theLeadership Summit in July 2007, AmnestyInternationals current secretary-generalsaid it was time to scale up on compliance.Many other civil society organisations,including Greenpeace, Oxfam, Friends ofthe Earth and ActionAid, have voicedsimilar concerns over the past eight years. Itseems I am not the only one who has fallenvictim to surreal projections. I believe thatvisions of an improved Compact are not

surreal, but optimistic and forward-looking.The Compact is a very powerful initia-

tive because it is backed by the UN. Youhave always said it is not meant to be asubstitute for business regulation. Inpractice, however, its high profile has madeit the only game in town when it comes toUN initiatives dealing with issues ofcorporate responsibility. That is whymany civil society organisations expect somuch of the Compact. It should bepossible to revise the initiatives purposeand the way it works. Perhaps a differentapproach would enable the UN to

effectively raise standards of corporatresponsibility.

It is true that the requirement to reporpublicly on progress has led to the de-listinof non-communicating participants. Thimeasure is based largely on technical andprocedural grounds, and it does not deaadequately with the issue of free-ridersAlthough participants are expected tdisclose information about their businespractices regularly and can be removefrom the list if they fail to do so, they canno

be de-listed for failing to comply with thten principles. The system does not filter outhe real laggards when it comes to corporatresponsibility.

Companies such as PetroChina, Chinese state-run oil company, can sign up

and continue to do business as usual. WhilDutch pension fund PGGM a signatory tthe UN Principles on Responsible Investment and the European Parliament havdecided to divest from PetroChina over itsupport for the Sudanese governmenwhich has committed human rights violations in Darfur, PetroChina boasts about itentry to the Compact in its 2007 CSR reportThe Compact is not raising PetroChina

standards of corporate responsibilityFurthermore, the participation of such company is detrimental to the reputation othe Compact and the UN.

Rather than relying on other initiativeand institutions such as the GRI, OECD, ILOlocal Global Compact networks and governments to get companies to improve thei

behaviour, you need to take a leadership roleIf not, other UN organisations should mov

beyond the pragmatism that underpins you

strategy and set up a more ambitious initiative for corporate accountability.Kind regards,Bart

Were a bicycle not a tankGeorg Kell

Dear Bart,Allow me to frame your call for a compliance-based Global Compact in a differenway: the Compact was designed as a smar

bicycle to navigate some very uneven terr

6 Debate Ethical Corporation May 200

The Compact is not akangaroo court that passesjudgment on issues we haveneither the authority northe detailed knowledge

to address Georg Kell

It should be possible to revisethe initiatives purpose and the

way it works Bart Slob

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their practices. You may noeven be aware of it, but you andothers are doing a great job inconfirming our social vettinassumption: the Compacenforces public disclosure, but iis up to others to evaluatperformance and demanchange.

We are encouraged thaPetroChina and other Chinescompanies have decided tembrace the Compact and starto disclose information on environmental, social angovernance matters. It not onlsupports my previous point, bushows the contribution th

Compact is making to markeintegration.The fact that institutiona

investors have decided to divesfrom PetroChina does not establish its complicity with crimes in

Darfur. Divestment may make those sellingstock feel ethical, but in the absence oglobally binding solutions it is mosprobably doing more harm than good. It i

like the captain of a sinkinship ordering all men tenter lifeboats while leavinwomen and children

behind. No doubt, the issuof investment and conflict icomplex, and we will pumore work into it. Statuned.

A final point: I do feel atimes that some observer

of the Compact are actually not so muchconcerned about addressing poverty oachieving the initiatives other goals. suspect that their chief concern is with thaccumulation of power by business. If thais indeed so, I would suggest a closer look acompetition policy, which strikes muc

closer to home.Sincerely,Georg

Ethical Corporation May 2008 Debate

The Ten Principles of theUN Global Compact

Human rights

1. Businesses should support and respect theprotection ofinternationally proclaimed humanrights; and

2. make sure they are not complicit in humanrights abuses.

Labour standards

3. Businesses should uphold the freedom ofassociation and the effective recognition ofthe right to collective bargaining;

4. the elimination of all forms offorced andcompulsory labour;

5. the effective abolition ofchild labour; and

6. the elimination ofdiscrimination in respectof employment and occupation.

Environment

7. Businesses should support a precautionaryapproach to environmental challenges;

8. undertake initiatives to promote greaterenvironmental responsibility; and

9. encourage the development and diffusionofenvironmentally friendly technologies.

Anti-corruption

10. Businesses should work against corruption inall its forms, including extortion and bribery.

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print issue of the magazine. I

Compact: a smart bicycle

tory. Over time, we have gained quite a bitof pedalling power.

It appears that you would like theCompact to be a tank instead, with superiorfirepower. While you maycare more about targets hit,we are more concernedabout distance covered.

This is an important differ-ence.We believe that our

focus on continuousperformance improvement,dialogue and learning hasproduced some significantresults throughout the years, showing howvoluntary approaches can and do work.

Of course, this approach implicitlyacknowledges that businesses are imperfectto begin with. But we have chosen the routeof active engagement, and while it maymake fewer headlines than open letters, it

nonetheless keeps doors open to drivechange.

You err in suggesting that the Compactscommunication policy does not allow forperformance evaluation. We have refinedthe process significantly, and it alreadyforms the basis of information sought byanalysts, investors, researchers, consumers,media and civil society groups. It enablesyou, not us, to make a better judgment ontransparency and performance, even if it is as you mentioned the increasinglyinconvenient truth that some companiesneed to do a much better job of disclosing

While you may caremore about targets

hit, we are moreconcerned aboutdistance covered Georg Kell