By Pete Engardio
How can the U.N. make the greatest impact on promoting corporate responsibility in the developing world? Is it better to work with a small group of multinationals whose practices stand up to strict scrutiny by labor, environmental, and human-rights activists? Or can the U.N. accomplish more good with an organization that has a wide tent, including both model global corporate citizens and bad ones, and then gradually ratchet up compliance standards?
This essentially is the issue that's roiling the Global Compact, the U.N. program launched in 2000 that now includes more than 1,700 companies and several dozen international nongovernmental organizations (NGOs) and labor federations. Groups like Amnesty International, Friends of the Earth, Oxfam, and Human Rights First say because the Compact hasn't developed a transparent system for assessing what companies are doing to honor their commitments, the program lacks credibility (see BW, 7/12/04, "Global Compact, Little Impact").
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U.N. officials say it's beyond the Compact's scope to be an enforcement body. It's more valuable to get as many companies as possible to publicly promise to abide by acceptable social and environmental principles and use the Compact as a forum to discuss best practices with activists, U.N. agencies, and other companies -- and then raise the reporting and compliance standards (see BW, 7/12/04, "Kofi Annan's Business Plan" and "Raising the Bar for Corporate Behavior").
Which side is right? I asked two consultants who are well versed in all aspects of the corporate-responsibility movement. One is Scott Greathead of World Monitors. Greathead was a founder in 1978 of the Lawyers Committee for Human Rights and is best known for representing the families of U.S. church women who were murdered in El Salvador in the 1980s. Clients of his New York consultancy include Newmont Mining (NEM ), Reebok (RBK ), and Chevron Texaco (CVX ).
The second authority is John Elkington, chairman of London-based SustainAbility. Elkington has been a dean of the corporate-responsibility movement for three decades. His books include The Green Consumer Guide, Cannibals with Forks, and The Chrysalis Economy. He consults for Royal Dutch Shell, Bayer (BAY ), Procter & Gamble (PG ) and many others.
Both Greathead and Elkington have followed the Compact closely from the beginning and are in frequent contact with both U.N. officials and the NGOs criticizing the program. Greathead is more sympathetic to the U.N. position that it's better for the Compact to build a broad membership. Elkington, however, thinks that if the Compact doesn't put more focus more on enforcement and transparency, it will put the U.N.'s credibility in a "dangerous, exposed position."
Greathead believes the Compact serves a very two important functions. "The most important role the Global Compact plays is in fostering dialogue between companies and their civil society critics -- and we're talking about at the CEO level," he says. This function was on good display at the Compact's recent annual summit at the U.N.'s New York headquarters, where representatives of Oxfam, Amnesty, and others assailed corporate practices while executives of British Petroleum (BP ), Pfizer (PFE ), Nestle, The Gap (GPS ), Shell, and other companies were in the audience.
The Compact is also important because it "lends the stature of the Secretary General to the concept of corporate responsibility and the importance of the business community in addressing these issues," he says. "This is an important message that many CEOs hadn't been hearing." Although the Compact lacks any enforcement program, it's still valuable to "have a set of aspirational standards so that companies know what's expected of them." By Pete Engardio
However, the U.N. has done a poor job of communicating its goals to NGOs, which have much higher expectations. "The NGOs are concerned that the Compact appears to set standards that companies are complying with, and that this is misleading," says Greathead, who also notes that "some companies are using it for public relations." Instead, the U.N. officials heading the Compact mainly "want to establish a dialogue that includes companies and stakeholders," he says, adding that unfortunately, "they really haven't been able to bridge this communication gap."
The trouble is the U.N. talked early on of something much bolder. Greathead says, "They had a very ambitious hope that companies would follow these commitments with action," adding, "Some companies actually do -- but most don't." Greathead doesn't see how the U.N. can really toughen up enforcement. "I think it's beyond the capacity of the Compact as it's staffed and funded to really monitor compliance," he notes.
Greathead believes it would be too hard to get companies to join up if the Compact made judgments on their practices. He thinks even an earlier U.N. plan to have companies report what they're doing to comply with U.N. principles on a Web site -- and then have NGOs critique them -- would be hard to implement. "It would scare off too many companies,' he says. "Companies want a dialogue about solutions -- they aren't looking for another opportunity to be publicly embarrassed."
Elkington takes a very different view. He doesn't see how the Compact can gain legitimacy if it has no way to keep companies honest. "Voluntary initiatives -- but particularly the Global Compact -- are likely to come under growing pressure," he says.
Rather than focus on expanding membership, the program should concentrate on quality. "The appetite to go wider instead of going deeper raises real concerns about the longer-term risk to the U.N.'s reputation," Elkington says. "The challenge now is not just to scale up the dialogue, but to scale up the practical, on-the-ground responses to the challenges."
He thinks the Compact should go even further and get multinationals involved in working with governments in poor nations and international agencies to develop policies that promote sustainable development and achieve the U.N. Millennium Goals. These include halving world poverty by 2015.
Currently, many corporations contribute to development projects abroad. But to make an impact, "governments will need to take a much more active role, such as through fiscal and financial instruments and in shaping markets with rewards and disincentives," Elkington says. British Petroleum Chief Executive John Browne raised this notion at the Compact summit, but it didn't generate a lot of discussion.
Also undercutting the Compact, Elkington contends, is that many corporations lobby their own governments not to take actions that promote some of the same humanitarian goals. For example, the International Chambers of Commerce and companies like Shell publicly oppose U.N. principles that urge corporations take an active role in promoting human rights and in reporting abuses in nations where they operate.
"Currently, governments lean over backwards to protect the interests of business," Elkington says. "More attention should be paid to the extent to which corporate lobbying by Global Compact members align -- or don't align -- with their stated commitment to voluntary intiatives." Instead, Compact members should lobby governments and other key actors to support policies consistent with the U.N. principles.
Engardio is BusinessWeek's senior international news editor in New York
Edited by Tzyh Ng