Commentary: Global Compact, Little Impact

Four years in, the U.N.'s voluntary corporate responsibility plan is falling short

Amid the heat of the globalization backlash four years ago, as protesters raised mayhem at trade confabs from Seattle to Genoa, Kofi A. Annan made an uncharacteristic gesture for a U.N. Secretary-General: He reached out to Big Business, not a typical ally on U.N. issues. Annan's main project is called the U.N. Global Compact, which has brought together multinationals and activist groups to help ensure that company activities conform to basic human rights, labor, and environmental standards.

By one measure, the Compact has been a smashing success. Its corporate membership has zoomed from 50 charter members in 2000 to more than 1,700. Two dozen global nongovernmental organizations (NGOs) and labor groups also have joined, making the Compact the world's largest voluntary corporate citizenship group, according to a recent McKinsey & Co. study. Membership has expanded beyond the usual European do-gooders, even drawing in U.S. companies that have long been in the activists' crosshairs, such as Gap Inc. (GPS ) and Newmont Mining Corp. (NEM ), plus several companies from nations with bad human-rights and labor records, such as China. And 20 financial institutions, including Goldman, Sachs & Co. (GS ) and Credit Suisse Group (CSR ), have agreed to find ways to factor social and environmental practices into stock valuations.

This is all very laudable. Yet to many, even among less-antagonistic NGOs such as Human Rights Watch and Oxfam, the U.N. project is falling far short of expectations. In fact, several groups are so upset that they are threatening to scale back their participation. The tensions were on full display at the Compact's annual summit on June 24 at the U.N.'s New York headquarters. At a side event at a nearby hotel, Amnesty International, Friends of the Earth, and other groups complained that the Compact has become little more than a corporate public-relations exercise.

Why the disillusionment? It's largely because the U.N. has focused more on expanding membership than on finding ways to ensure that corporations honor their commitments. The Compact's main goal is to get companies to halt practices that have given globalization a bad name, such as the use of sweatshop labor, toleration of atrocities by repressive regimes, and rapacious mining and logging in poor nations. Members agree to adhere to 10 broad principles, such as recognition of the right to collective action in the workplace, environmental protection, and respect for human rights, and to explain how they are complying.

But four years later, there are still no clear reporting or compliance standards. While some companies publish extensive corporate responsibility reports, including BP PLC (BP ) and Nike Inc. (NKE ), many others merely state that they follow Compact principles and list limited examples in annual reports, such as funding for clean-water or AIDS programs in Africa. "I expected a transparent process where NGOs can evaluate companies and voice their concerns," says Michael H. Posner, executive director of Human Rights First. Annan concedes that critics have a point. While the Compact was never intended to police companies, "we need to hold them to what they are saying," he says. "If not, this may even discredit the U.N."

Granted, hard-core globalization critics were skeptical from the start because the Compact lacked a rigorous system for monitoring corporate behavior and punishing laggards. Instead, U.N. officials spoke of a system in which corporations could be goaded into voluntary compliance by exposing them to public censure. Companies would post specifics about what they are doing to live up to the Compact's basic principles on a U.N. Web site. NGOs could then put their critiques on the same site. But this system was shelved because U.N. officials say they lack the resources to manage such a site.

Mixed Message

Trouble is, without some way to publicly keep companies honest, it's hard to show that the Compact has brought much change. Although some corporate members have model codes of conduct, most set them up on their own. Gap, for example, already employed 90 staffers and outside agencies to monitor thousands of garment factories from China to Guatemala before joining the Compact. Similarly, new member Starbucks Corp. (SBUX ) had plans under way to set up a system with environmental groups to ensure that most of the coffee it buys comes from suppliers who pay poor farmers fair prices for beans and treat workers fairly. "The Compact principles don't require us to do anything differently," says Sandra Taylor, Starbucks' senior vice-president for corporate responsibility. Meanwhile, the Compact also has members that remain mired in controversy. France's Total (TOT ), and Royal Dutch/Shell Group (RD ) all face civil lawsuits in U.S. courts charging them with abetting serious rights abuses in Burma, Nigeria, and Indonesia, respectively. Each company denies the charges.

On balance, the Compact has done some good. It has become a forum for multinationals, NGOs, U.N. agencies, and government officials to discuss how to set up systems to monitor labor practices and avoid contributing to human-rights abuses.

But if it hopes to salvage its credibility among NGOs, the U.N. must now ratchet up enforcement. "We have to shift now to quality assurance," says Global Compact head Georg Kell. One idea is to drop from membership companies that fail to detail in annual reports after two years how they will meet each principle.

That would be a good start. Without a firmer system for keeping companies honest, respected NGOs are in danger of bolting. That would be a waste of Annan's ambitious effort to address some of globalization's toughest problems.

Corrections and Clarifications "Global compact, little impact," a story about the U.N.'s voluntary corporate responsibility plan (Social Issues, July 12), erroneously listed Newmont Mining Corp. among the companies currently facing civil lawsuits in U.S. courts related to abetting serious rights abuses.

By Pete Engardio

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