Global governance

Georg Kell, executive head of the UN Global Compact, came away from the annual World Economic Forum that ran from January 28 through February 1 with simultaneous sensations of dread and optimism. As the chief liaison between the United Nations and the business community, Kell had every reason to feel competing emotions: the experts gathered in Davos, Switzerland publicly described the economic downturn with words steeped in fear.

John Lipsky, first deputy managing director of the International Monetary Fund (IMF), told the high-octane audience that global growth for 2009 would likely be 0.5 percent, ‘the weakest performance of the global economy since World War II.’ And the foreign minister of Brazil, Celso Amorim, warned against the inclination to impose or increase tariffs on foreign trade. ‘We see more and more signs that these protectionist measures in developed countries ... fall within some sort of ideology of economic nationalism,’ he said. ‘This could bring us back to the 1930s again.’ Not such a good place to be.

But it’s not so bad for the UN Global Compact, a voluntary association of corporations whose officers have pledged to uphold the basic rights of workers and their communities and to ease their operations’ environmental impact. ‘The gloomy economic outlook and the lack of trust that goes with it – it’s good for the Compact,’ explains Kell. ‘I feel ashamed to say that, but it’s true. We never got so much attention [in Davos] as we did this time around.’

The Compact requires each participant firm to publicly account for its progress on the 10 principles, which govern human rights, labor, the environment and anti-corruption efforts. Participants say this means much more communication and transparency between Compact members and, presumably, better ways of doing business.

Kell was ‘deeply worried’ by the time he left Davos, the exclusive resort town in the Swiss Alps. ‘I realized the extent to which the financial crisis has shaken the fundamentals of global economics. And I heard about government regulations that are distorting markets and undermining popular best practice,’ he says.

In all, Kell notes, in these nervous times even CEOs might turn to the UN for guidance – a move that few would consider during boom times. Former UN secretary general Kofi Annan announced the Compact in Davos a decade ago. Ten years later, the beefed up version has attracted more than 5,035 members from 200 countries, by the organization’s own tally.

Obvious objective but no clear path
Although the Compact’s goals are nearly universally accepted, the effort does not come without criticism. And the best methods for achieving those goals can occasionally come under dispute as well.

Human rights and labor groups fear Compact companies are bathed in the reflected glow of the UN when they don’t necessarily deserve the spotlight – so-called ‘bluewash’ in reference to the UN’s pale blue logo. They say a company that, for example, uses child labor should not be allowed to join the Compact and use it to tout efforts in cleaning up their environmental practices. They also warn that without monitoring and enforcement, there is little to make a corporation toe the line.

Compact staff say they are trying to expand each company’s obligation to all 10 principles, not just one or two. (For a full list of the principles, see ‘The 10 commandments’ at right). They also note that none of the Compact’s participants are allowed to use the distinctive blue and white UN logo in their  advertising, marketing or even online. This is in compliance with a 1948 decision by the General Assembly not to compromise or monetize the organization’s symbol.
 
Strict enforcement
‘We realized in order to be credible you have to get rid of the non-performers,’ Kell highlights. ‘Our board backed it. When participation is voluntary you think nothing is an obligation, but it is an obligation to disclose once a year to the public [what kind of progress is being made]. If a participant fails to provide that despite our recommendations, we cannot have them [as a member].’

 As of mid-February, nearly 1,000 companies or one-fifth of the global membership had been de-listed, mostly for refusing to provide transparent public assessments. Some companies that joined the Compact are so small they have only a few employees and relatively little impact on the environment. But many are publicly traded multi-nationals that operate regionally or even globally; their activities have caused much of the wear and tear on the planet and, often, consume potable water desperately needed by local farmers, families and villagers. Yet the Compact aims to improve living conditions of workers throughout Southeast Asia, Africa and the Middle East, who take home as little as the equivalent of $2 a day.

Activists were delighted in mid-February when a senior officer of the Compact agreed to discuss PetroChina’s environmental and human rights records at the next board meeting. The largest company in mainland China, PetroChina has also been exploring oil reserves in Sudan, an engagement that human rights advocates fear is supporting the Bashir government with political capital and cash.

 As the US economy and financial markets totter, the pressure is often most intense for those who can least afford it: the barely skilled laborers and others with limited prospects. Current UN secretary general Ban Ki-moon warned leaders in Davos to work together or crash apart. ‘We can choose short-sighted unilateralism and business as usual,’ he told the gilded audience of corporate officers, technology wizards, lawyers and reporters. ‘Or we can grasp global cooperation and partnership on a scale never before seen.’

The Compact sets out a framework for the private sector to monitor business models and social outcomes. As the notion of corporate social responsibility (CSR) takes hold within the US and beyond, companies are more willing to seek advice from civil society: the religious figures, unions, human rights and environmental groups, development experts and other entities working to improve their lot.

Ban, a former Korean foreign minister and now a passionate environmental advocate, suggests corporations share the ideals of the increasingly muscular organization he calls ‘Global Compact 2.0’.

‘We live in a new era,’ Kell comments. ‘Its challenges can all be solved by cooperation, and only by cooperation. Our times ... demand a new constellation of international cooperation: governments, civil society and the private sector, working together for a collective global good.’

Only one way out
One company that has embraced the Compact is Atlanta-based Coca-Cola, which touts on its website the collective’s ideals if not exactly the blue-and-white label. The soda giant joined the Compact in March 2006 bruised by allegations from Indian NGOs that local bottlers were using up scarce water resources. Coca-Cola began a project to harvest rainwater for crops in 17 Indian states, and on its website reveals plans to be water-neutral by 2009.

‘I think you need to focus on where you spend time,’ says Afzaal Malik, director of global stakeholder relations for Coca-Cola. That means workplace rights and water management. He acknowledges a growing global debate about water as a resource or a commodity. ‘The Global Compact’s international mandate brings everyone together under the UN banner. We see how interests overlap,’ Malik explains. ‘It has given us a common framework’ to evaluate business procedures and learn from other companies’ experiences.

 The Compact underpins Coca-Cola’s increasing interest in the environment, and showed the company ways to pull together its vast network of suppliers, bottlers and employees to take greater care with water resources.

User beware
But the group is only as useful as it is credible, its architects acknowledge. Only recently has the office begun to enforce criteria for members. Kell explains companies could be kicked out of the program for failing to provide candid accounting on their progress to adopt improved corporate social responsibility standards. This public tracking of goals is probably the most important tool, he acknowledges, in part because it can illustrate progress for other companies.

Kell says members can also be bounced for failing to improve their records on each of the Global Compact’s 10 principles. Formerly, members only had to show progress on one or two principles, meaning that a company relying on child labor could be lauded for its anti-corruption posture, while still supporting unacceptable practices elsewhere.

Coca-Cola, for example, has urged its global network of bottlers to join the Compact, and make their own goals. Forty of its 60 independent bottlers and distributors have signed up to the Compact.

Not everyone supports the forum and question the veracity of some members’ claims. One prominent critic is Maude Barlow, the Canadian contrarian who derides the Compact as offering a ‘bluewash’ or a ‘greenwash’ to corporations that are, in fact, causing more community harm than good.

Barlow, who in December was named as a special adviser to the UN General Assembly on water issues, stresses that fresh water is not a commodity to be bought, but a public trust to benefit all members of society. She expresses doubt that the Compact is in fact working on a durable sustainability for the developing world.

Barlow is not alone in her criticism of the Global Compact. A website called GlobalCompactCritics.org has been monitoring the Compact closely for violations of its charter and members taking advantage of an organization with no enforcement or even critical surveillance of members’ practices.

Despite the critics and the natural challenges a voluntary organization the size of the Compact faces, expanding the forum for conversation cannot be a bad thing. As companies look for any advantage and as the world of business continues its push to globalization, cooperation and communication are going to be vital if lasting solutions are to be found.