Online Extra: Raising the Bar for Corporate Behavior
As executive head of the Global Compact, Georg Kell has led U.N. efforts to convince business executives to join Secretary General Kofi Annan's program to promote corporate responsibility in poor nations. Kell also has the job of addressing complaints by nongovernmental organizations (NGOs) that the Compact isn't doing enough to make sure companies follow through on commitments to improve labor, environmental, and human-rights conditions.
Kell discussed these issues, and where the Compact goes next, with BusinessWeek Senior International News Editor Pete Engardio following the Compact's June 24 summit in New York. Edited excerpts of their conversation follow:
Q: The Global Compact has greatly boosted membership. Now what? A:
Q: The Global Compact has greatly boosted membership. Now what?
A:We are determined to keep the focus on high impact. We have 1,700 corporate members, and several hundred more applications. But now we want to go slower on expansion and shift to quality assurance. That has different connotations to different people.
Q: Many NGOs are frustrated that efforts to promote compliance with the Compact's principles aren't stronger. Why has this been slow to develop? A:
Q: Many NGOs are frustrated that efforts to promote compliance with the Compact's principles aren't stronger. Why has this been slow to develop?
A:This a new initiative, and now companies are joining from China and Egypt, for example. They are companies with little experience in dealing with human-rights issues. We have members from 30 countries that are in civil war, and many that have governments that aren't elected.
We are a voluntary organization and are under pressure from NGOs to change into something else that is more regulatory. We also want to show that voluntary initiatives support regulation, they don't work against it.
Q: Why add a lot of new members with weak practices, rather focus on on assuring that current members abide by promises? A:
Q: Why add a lot of new members with weak practices, rather focus on on assuring that current members abide by promises?
A:Our own thinking is that as a U.N.-backed intiative, we want to stay open. We want to get companies where the issues are most neglected into the movement.
Q: But can't companies from advanced nations be held to higher standards? A:
Q: But can't companies from advanced nations be held to higher standards?
A:This does raise the question of what to do with the supposed front-runners. You need to keep them going forward, without them feeling like their efforts are being undercut by the laggards. We need a way to distinguish between them. This is our toughest challenge.
I must tell you frankly this part of our program is not under control. We have recently suggested some technical performance measures that the NGOs are still digesting. There is discussion of peer-reviewed quality-assurance models. But this is tremendously difficult for us.
Q: What happened to the idea of at least having companies report their compliance on a U.N. Web site, along with NGO critiques? A:
Q: What happened to the idea of at least having companies report their compliance on a U.N. Web site, along with NGO critiques?
A:The initial model didn't work. We totally underestimated the requirements. First, to document all of the [NGO] claims, and let the companies respond, would require such effort. Publishing this material would require getting permission from both sides. We would need to put examples of what companies are doing into proper context -- such as the conditions where they're operating.
We also thought it was possible to build a build up a cross-industry data bank. But this presupposes extensive analytical capability. It would have required an army of analysts. Also, we get stuff in seven different languages, including Mandarin and Arabic. What do we do with that? So one-and-a-half years ago, we abandoned the approach of publishing examples.
Q: So what system is there for companies to report what they're doing? A:
Q: So what system is there for companies to report what they're doing?
A:We adopted a strategy in which companies communicate through their own publications, so the responsibility of defending what they do lies with them. We now have analyzed 170 annual reports [that refer to the Global Compact], and we are amazed at how many companies have embraced this system. This feedback can happen in shareholder meetings or other forums.
One thing we're considering is to delist companies from our Web site if they don't communicate their compliance in their own documents. This reporting will be a proxy for activity, but not a measure of performance.
Q: What are you exploring in terms of devising clear standards? A:
Q: What are you exploring in terms of devising clear standards?
A:We have just published a new book called Raising the Bar that is full of examples and discussion of standards. We would like a system based on the [former U.S. Commerce Secretary Malcolm] Baldrige management principles that became the basis for quality standards. And on June 25, the International Standardization Organization (ISO) said it will go ahead with a technical report looking at social and environmental standards for companies. I'm on the ISO committee dealing with that, and I think it's coming.
Q: What evidence is there that membership in the Compact actually is getting companies to improve their behavior? A:
Q: What evidence is there that membership in the Compact actually is getting companies to improve their behavior?
A:We've had at least 20 situations where companies [that are Compact members] have stepped forward and claimed to have done something, but then changed their statements after NGOs challenged those claims, which then led to changes. One involved an Italian oil company. But those changes are not documented [by the U.N.]. These things are happening outside of our control.
Q: Do you feel comfortable with companies saying they are socially responsible because they belong to the Global Compact? A:
Q: Do you feel comfortable with companies saying they are socially responsible because they belong to the Global Compact?
A:Nobody should ever say that. Not the U.N. or anybody else. For one, environmental standards and technology always change. And there's always more to do. For example, you may be sure that the first tier of your suppliers don't use child labor. But what about the second tier of your supply chain?