Six problems of the Global Compact between Business and the UN
By Jens Martens
World Economy, Ecology and Development Associationand Global Policy Forum
June 23, 2004
Secretary General Kofi Annan announced the Global Compact between the United Nations and business in January 1999 at the World Economic Forum in Davos and he officially launched the program at UN headquarters in New York on July 26, 2000. The Compact is based on nine principles – of human rights, labor standards and environmental protection, but the Secretary General views the Compact as neither a binding set of regulations nor a code of conduct. Rather, he sees it as the basis for a "dialogue forum" in which companies engage in "mutual learning" and exchange information on "best practices."
Any company wishing to become a Compact member must theoretically comply with a number of guidelines. In addition to a "commitment" to the nine principles, participating companies must inform the public in annual reports on any progress they have made in implementing the principles. The firms also are encouraged to carry out projects to promote the nine principles in "partnership" with organizations in the UN family. In theory, companies cannot become signatories of the Compact if they violate human rights, tolerate forced or child labor, manufacture or distribute anti-personnel mines, or violate other relevant commitments of the United Nations. However, the UN does not check company compliance, either continuously or selectively.
Thus far, the UN has not removed any company from Compact membership because of guideline violation. Therefore, many NGOs view the Global Compact and its guidelines with considerable skepticism. NGOs in the "Alliance for a Corporate-Free UN" (1) warn that the United Nations is selling-out to the interests of major corporations and a "blue-washing" of companies that violate international standards. As examples, NGOs refer to participating companies such as Nestlé, Shell, Nike, Rio Tinto and BP Amoco. Critics view the Compact as an obstacle to progress on corporate accountability, rather than an instrument to promote corporate commitments to environmental sustainability, social protection and human rights.
1. The Global Compact is based on a false assessment of Globalization
Secretary General Kofi Annan and his Global Compact team have often emphasized the positive role of globalization and they have spoken about the private sector as a motor force to promote jobs, economic growth and prosperity in a globalizing world. In the Davos meetings held in New York in January 2002, the Secretary General openly criticized those who link social ills and a business-driven global economy:
"The perception, among many, is that this is the fault of globalisation, and that globalization is driven by a global elite, composed of – or at least, represented by – the people who attend this gathering. That perception is not universal, but it is widely shared – especially in places like Argentina and East Asia, which have recent experience of severe financial crises, but also by an increasingly vocal section of public opinion in the developed world. Do not underestimate the attraction of the rival gathering, timed to coincide with yours, that has just finished in Porto Alegre, Brazil. Its title, "World Social Forum" is intended as a criticism of yours, implying that you are interested "only" in economics, or in profit, and that you do not care about the social effects of your economic activities. And that criticism resonates around the world. I believe that perception is wrong – and that globalisation, so far from being the cause of poverty and other social ills, offers the best hope of overcoming them. But it is up to you to prove it wrong, with actions that translate into concrete results for the downtrodden, exploited and excluded."
The Secretary General's view is hardly self-evident, though the audience of corporate CEOs may have welcomed an assessment of their work as the world's "best hope." To the contrary, numerous studies, including the UN's own research papers, have clearly shown serious negative effects of economic globalization and liberalization, especially for the poorest and most marginal of the world's citizens. Kofi Annan's naively positive perception of globalization has shaped the design of the Global Compact. Such a view of benign and well-meaning corporate protagonists has led to a cooperative and completely voluntary accountability process.
2. The Global Compact has two sides – commitments by companies and also commitments by the UN.
Most critics of the Global Compact have focused on the role of the companies and the weakness of their commitments. The critics have largely overlooked the UN's own commitments. Kofi Annan offered the companies a problematic bargain when he first proposed the Compact in 1999. He not only offered to assist the companies to practice the nine principles. He also offered to act as the companies' political spokesman:
" More important, perhaps, is what we can do in the political arena, to help make the case for and maintain an environment which favours trade and open markets."
This comment makes clear that the Secretary General and his team regard themselves as advocates of business interests in the global political arena and not as the neutral moral authority that we might have expected or hoped for.
3. The Global Compact is presented as an alternative to binding global rules for transnational corporations
Superficially, the Global Compact presents itself as a complement to binding rules at the national and international level. But at the same time, the Secretary General has rejected intergovernmental restrictions on free trade and investment. In his speech in Davos in 1999, Kofi Annan spoke bluntly about his opposition to environmental, labor and human rights standards as impediments to open trade and investment flows:
"There is enormous pressure from various interest groups to load the trade regime and investment agreements with restrictions aimed at reaching adequate standards in the three areas I have just mentioned. These are legitimate concerns. But restrictions on trade and impediments to investment flows are not the means to use when tackling them. Instead, we should find a way to achieve our proclaimed standards by other means. And that is precisely what the compact I am proposing to you is meant to do."(2)
Thus the Secretary General presented the Compact as an alternative to the social and environmental regulation of trade and investments, and not as a complementary arrangement. Probably because of strong opposition from trade unions and other critics, the UN Secretariat has downplayed this line of argument, but neither has it developed any initiatives that would demonstrate the Compact's ostensibly complementary aspect.
Many NGOs challenge the UN to give equal support to binding corporate rules. The Norms on Responsibilities of Transnational Corporations that have been developed in the Sub-Commission of the UN Human Rights Commission could provide an excellent basis for such action. But, some corporate participants in the Global Compact are working against these rights-based rules, using the Global Compact as a justification for their opposition.
Beginning in 1998, a working group of the UN Sub-Commission on the Promotion and Protection of Human Rights drew up a document which brought together a number of widely-accepted obligations of corporations, drawn from existing human rights, labor rights and environmental instruments. This work did not receive high-level support like the Global Compact. Though neglected by the Secretary General, it nevertheless won adoption in August 2003 and was published as the UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with Regard to Human Rights.
Corporate fury greeted the Norms. Two major Global Compact partners, the International Chamber of Commerce (ICC) and the International Organization of Employers (IOE) issued a joint statement which criticized the "binding and legalistic approach" of the Norms.(3) The two business associations described the Norms as "counterproductive to the UN's ongoing efforts to encourage companies to support and observe human rights norms by participating in the Global Compact." They said that the Norms "risk inviting negative reaction from business, at a time when companies are increasingly engaging into voluntary initiatives to promote responsible business conduct."
4. The voluntary approach of the Global Compact underestimates the constraints of a globalized market economy
The Global Compact is based on a fundamental misunderstanding. It assumes that it is in the interest of the companies and their owners to achieve social, environmental and human rights standards. But firms face global competitive pressures and international investors demanding high short-term profits and regular growth. As a result, there is often a conflict between the companies' economic interests and the long-term interests of society – a conflict between maximizing shareholder value and promoting the well-being of all global stakeholders. With share prices sensitive to downside profit pressures and risks, the shareholders usually gain the upper hand in this conflict.
For this reason, there is strong skepticism among many NGOs about corporate self-regulation. The main reason of this skepticism is not a hostile attitude towards business in general, but a very clear understanding of the functioning of markets and the pressure of the market forces in a globalized economy.
Corporations must grow to survive, and with that growth comes increases in total resource use, wastes, emissions and ever-growing quantities of products. Despite gains in eco-efficiency, the environmental footprint of corporations increases steadily. On the social front, the existing market system simply will not permit corporate management to act within the principles of social justice. If a corporation were to adopt such a strategy, it would be quickly and severely "disciplined" by its shareholders. Therefore, the "rules of the game," must be changed – a task for governments and multilateral institutions.
Occasionally, corporations may find limited self-regulation in their interest. This is particularly true of the consumer goods sector because of the importance of brand names and corporate identities. Bob Haas, the CEO of Levi Strauss, stated in 1994 that
"in today's world a TV exposé on working conditions can undo years of effort to build brand loyalty"(4)
Many voluntary codes of conduct have appeared, especially in the garment sector, but there are doubts about their effectiveness and suspicions that companies have used such codes to head off truly binding measures. The United States Council for International Business, which has argued against legally binding standards, points out that:
"… to the extent business regulates itself, develops and implements best practices, and cooperates with the business community in other countries, the pressure for new rules may be tempered. Positive efforts on the part of business to confront legitimate concerns about social and environmental issues will also help blunt the efforts of trade unions and NGOs who seek to control corporate behaviour in the pursuit of their objectives."(5) .
5. The UN's presentation of the Global Compact as a "multi-stakeholder initiative" is utterly false
In theory, there are a multitude of options to participate in the Global Compact. Officially, the pact has been set up as a joint initiative of the United Nations, industry and civil society. Under the heading "frequently asked questions", the Global Compact website states that:
"As equal partners and important stakeholders, civil society and other non-business organisations can participate through a number of Global Compact engagement mechanisms, including Policy Dialogues, Learning, Local Networks and Partnership Projects. In these areas, such organizations have a crucial role to play in helping to foster partnerships and produce substantive action."
In practice, several important NGOs and trade unions participate as Compact members and some even sit in the Compact's Advisory Council, including the International Confederation of Free Trade Unions (ICFTU) and Amnesty International.
In reality, however, the UN's claims and the reality of non-business participation are far apart. While civil society organizations officially enjoy equal participation, it remains unclear how NGOs can actually join. Under the heading "how to participate", the Compact's website only refers to the participation of business firms. The adoption criteria for NGOs are opaque and appear to be considerably stricter than those for companies.(6) NGOs may join the Compact only if they
Not surprisingly, the list of Global Compact members includes about 1,400 companies but less than thirty civil society organizations including the ICFTU, the World Wildlife Fund, Transparency International and Amnesty International. Many of these organizations support the Pact only with major reservations, stated in letters of concern to the Secretary General. The Trade Union Advisory Committee (TUAC) doubts that the Compact has any directly positive impact, stating that:
"The Global Compact, in itself, produces little. Its impact must be measured through its effect on global social dialogue, including framework agreements and the encouragement of companies to engage other parties based on international standards."(7)
But these secondary effects are actually the most doubtful aspect of the Compact.
6. "Partnership" is the wrong term for the relationships between the UN and business
One other important issue is the problematic use of the term "partnership" to describe UN-business relations. It is inappropriate use this term for an agreement between state and non-state parties, because the term suggests a peer relationship and equal status. This undermines both the special political status of governmental institutions under international law and their (democratic) legitimacy. The use of terms like "partnership," then, is not just a question of style. It has deeply political significance. It implicitly downgrades the role of governments and intergovernmental organizations and upgrades the (political) status of private actors, in particular that of the transnational corporations involved in these cooperation models.
Conclusion
NGOs believe in a strong United Nations, fully funded by governments, which maintains the integrity of international environmental and social agreements and seeks to hold corporations accountable in a legal framework. Yet, we also believe in a UN that avoids excessive and undue corporate influence, and which holds commercial interests accountable to human rights, labor and environmental principles. Instead of bringing shared values into the market, the Global Compact threatens to bring commercialism into the UN. It rewards rhetoric rather than deeds, and it undermines our efforts to bring real corporate accountability, rather than purely voluntary responsibility, into the intergovernmental arena.
Kofi Annan has said that "cooperation [with the private sector] must be managed in a manner that does not compromise the independence and neutrality of the United Nations…" But the Global Compact undermine other more binding international instruments and does in fact compromise the UN.
Many NGOs all over the world ask the UN to end the Global Compact and instead cooperate with groups that share the aims of the organization. The United Nations should favor measures to hold powerful corporations accountable in an international legal framework.
The case of a legally binding framework convention on corporate accountability
In the lead-up to the Johannesburg Summit for Sustainable Development, NGOs and civil society groups called upon governments to go beyond voluntary approaches and establish a legally binding framework convention on corporate accountability. Such a framework agreement should enforce key environmental, social, labor and human rights standards, provide for consultation with affected communities, extend international corporate liability, and improve anti-trust and anti-monopoly regulations.
This is a challenging agenda, but it must be expanded and include the problem of corporate influence on government and intergovernmental decision-making processes that may lead to socially and environmentally regressive national and international policies (e.g. in the field of tax and fiscal policies).
This comprehensive agenda must be discussed in the most appropriate forum. It requires the engagement of the World's governments which means exclusive organizations such as the OECD would be inappropriate. Only the UN offers the right level of inclusiveness.
In Chapter V of the Johannesburg Plan of Implementation, governments decided to promote corporate responsibility and accountability by implementing intergovernmental agreements and international initiatives and enforcing appropriate national regulations. This decision is an important step forward, which must be concretized and implemented now. The Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, adopted by the Sub-Commission of the UN Human Rights Commission in 2003, are of utmost importance.
What now? A multi-level strategy on corporate accountability
NGOs have drawn conclusions from the recent round of debate and practice. During international meetings and strategy discussions at the World Social Forum and other events, a multi-level strategy has emerged for future campaigns on corporate accountability:
1. Increased support for local groups in their disputes with transnational corporations. This includes traditional forms of public relations activity, naming and shaming and boycotts, as well as formal complaints within the framework of the OECD Guidelines and national action. In Europe, there should be more "extraterritorial" use of national legal instruments to confront TNCs. One basic prerequisite is a better flow of information between groups in the North and groups in the South.
2. Increased campaigning for binding corporate rules at the national and international level. Examples here are the British proposal for a Corporate Responsibility Bill put forward in 2002 and the European Parliament's suggesting a code of conduct for European companies operating in developing countries.(8)
3. Developing international "Trendsetter Initiatives" between forward-looking companies, NGOs and trade unions in order to raise the threshold for all companies. This can especially make sense where governments are blocking each other's action and short-term intergovernmental solutions are not in sight.
4. Continuing the international campaign for binding corporate rules. Many NGOs continue to regard the establishment of binding corporate rules at global level as a central goal. The UN Sub-Commission's Norms on the Responsibilities of Transnational can represent a departure point in this respect. In addition to the long-term demands for a Framework Convention on Corporate Accountability, the emphasis in activities in the immediate future will be on achieving progress regarding individual aspects such as the issue of an international law concerning environmental liability or the demand for a duty of disclosure of transnational flows of payment from corporations to governments, which has been raised by the Publish-What-You-Pay campaign.
However, the demand for greater corporate accountability must not be restricted to the environment, labor standards and human rights. Civil society organizations must take a closer look at other implications of transnational economic activities. For example, TNCs have a considerable influence on fiscal policy and the revenue of states. Transfer-pricing and profit reallocation to low-tax countries reduce state revenue and can considerably restrict the ability of the state to provide public goods and defend rights. Foreign investors also have an influence on the balance of payment of a country, on its industrial policy and even on public opinion and politics as a whole (sometimes by way of corruption or financing of political campaigns). As a rule, voluntary self-compliance in industry does not deal with these "side-effects." Campaigns by NGOs and trade unions have given them too little attention, since they are usually not as obvious as direct environmental destruction or the violation of human rights.
Campaigning for international corporate rules beyond voluntarism also requires that NGOs and trade unions shift their strategies. Peter Utting has clearly formulated the key challenge that civil society organizations are currently facing:(9)
"At present, much of the social force that is promoting corporate responsibility is channelling its energies and resources towards corporate self-regulation and civil regulation. Until greater public concern and civil society activism puts pressure on political parties, governments and multilateral organizations to support other regulatory approaches, it is unlikely that significant developments in this area will be made."
Footnotes
1. Supporters of this alliance include Third World Network, Institute for Policy Studies (USA), Focus on the Global South (Thailand), and Women's Environment and Development Organization (USA).2. UN Secretary-General (1999): Address to World Economic Forum, 31st January 1999 (UN press release SG/SM/6881).
3. CC/IOE (2003). Joint written statement submitted by the International Chamber of Commerce and the International Organization of Employers, non-governmental organizations in general consultative status, Commission on Human Rights, Sub-Commission on Promotion and Protection of Human Rights, Item 4, Economic, Social and Cultural Rights
4. Rhys Jenkins (2002): Corporate Codes of Conduct: Self-Regulation in a Global Economy. In: NGLS/UNRISD: Voluntary Approaches to Corporate Responsibility. Reading and Resource Guide. Geneva, p. 16.
5. ibid. p. 18.
6. Assessment by Iris Schneider (2002) in: Globale Werte für die Wirtschaft. In: ai-journal 3/2002, p.6.
7. TUAC (2002), p. 13.
8. European Parliament: Resolution on EU Norms for European Companies operating in Developing Countries with a View to the Development of a European Code of Conduct, 15th January 1999.
9. Peter Utting (2002): Regulating Business Via Multistakeholder Initiatives: A Preliminary Assessment. In: NGLS/UNRISD: Voluntary Approaches to Corporate Responsibility. Reading and Resource Guide. Geneva, p. 116.
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