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Remarks on the Global Compact

By Georg Kell, United Nations

Corporate Citizenship: Defining the New Responsibilities

24 October 2000 at Chatham House, London

The Global Compact, an initiative introduced by the Secretary-General of the United Nations in January 1999, has captured the imagination of many people. Today, almost two years later, it seems appropriate to review developments and to assess future prospects for this novel form of partnership involving the UN, corporations, NGOs and labour.
More specifically, I want to reflect on the following three questions:

First , is the main idea behind the Compact still valid today or have political, economic or social developments over the past two years changed the context within which the Compact was constructed?

Second, have we made enough progress to know that the Global Compact is a viable operational concept?

Third, what are the key challenges ahead?

Let me deal with each question in turn.

A. Taking stock of developments

When the Compact was launched, Kofi Annan warned that imbalances between rapidly expanding global markets and societal preferences must be reduced if a backlash was to be averted. To avoid repeating mistakes of the past, we had to learn to apply at the global level what we all take for granted at the national level: markets that are embedded in values shared by everybody. This required filling a void and reconnecting markets with communities. One way forward was to promote a sense of global citizenship in which rights were coupled with responsibilities. The international business community, the main driver and beneficiary of globalization, was asked to help by enacting nine universal principles within their sphere of influence.

Events in Seattle ten months later confirmed the timeliness and relevance of the Secretary-General's message. But how have broad economic, political and social changes over the past two years affected the context of the Compact? Have they widened or diminished the imbalances that are at the root of the backlash? Three issues are relevant in this context: how access to opportunities are distributed; how regulatory imbalances between the economic and the social sphere are addressed; and how popular reactions to the opening up of markets and the free flow of information are playing out.

The first question, then, is whether recent trends in private sector or government activity have brought about a more inclusive globalization process, more access to opportunities for the disadvantaged and, ultimately, a more equal distribution of benefits.

Yes, globalization is marching on. Foreign direct investment is setting new records and contributing positively to development in many countries. It is expected to exceed one trillion dollars by the end of this year. Large companies are becoming more transnational and powerful, and the global system of international production is both broadening and deepening. Today, the total stock of FDI in GDP is 14%, up from 2% two decades ago, according to UNCTAD's latest World Investment Report.

But investment flows remain highly concentrated. Ten developing countries alone account for over 70% of all investment inflows that go to the developing world. Many least developed and small economies are left behind, and the real losers are those that are willing to attract capital flows but receive little, if any. Economic exclusion and persistent high levels of poverty remain an unresolved problem in many parts of the world. The rapid accumulation of wealth in other parts of the world accentuates further the difference between the "haves" and the "have-nots", or between the ones who are "in" and those who are left out.

Yes, markets respond to demand and not to needs, and we should not expect that they bring about a convergence of income across the board. But can we then say that governments have become serious in reducing economic imbalances? Have they demonstrated global leadership and created a more inclusive global market? Unfortunately, the record of the past two years is not encouraging. Little progress has been made on the vital issue of market access and debt relief and commitments to ODA remain at historically low levels. It is indeed one of the great tragedies of our era that politics remain local, while markets and problems have gone global.

The next question then is whether imbalances in global rule making have been addressed. Today, as two years ago, there is a gap between the economic and the social sphere. Rules favoring the expansion of global markets have become fairly robust, while those intended to promote social objectives, whether poverty reduction, human rights and the environment, continue to lag behind. This imbalance continues to tempt many activists to hijack economic rules and their actors, at the risk of putting into jeopardy what has been achieved so far. It also reveals a fundamental dilemma of globalization: how to justify a system that stands ready to enforce intellectual property rights, but turns a blind eye when it comes to the most basic human rights.

Finally, as trade and investment increasingly impact domestic affairs and virtually every aspect of economic life, the opening up of markets continues to provoke fear and unease. Learning to live with uncertainty and major disturbances can put to the test any governance structure at any time. But unfounded fears are a breeding ground for irrational reactions. Globalization continues to serve as a convenient platform for all sorts of irrational reactions and as a scapegoat to advance narrow interests, both for social movements of all colours and for policy makers on both extreme ends of the old political spectrum.

This cursory review of broad economic, regulatory and social trends would strongly suggest that the idea behind the Compact is at least as relevant today as it was two years ago. The choice before us remains the same. Either we reconnect markets with society by building the pillars that markets need to be sustainable, or we risk a rollback -- if not a crushing end to globalization.

B. Reviewing progress

Let me now turn to the second question that I posed at the outset: can the idea of the Global Compact be translated into viable action to advance the overriding objective of creating a more stable and inclusive global market? I do not pretend to have a definite answer. But I can say that we have made good progress on several fronts.

A pivotal meeting between Compact participants and the Secretary-General was held on 26 July. This event confirmed the validity of another key assumption of the Global Compact: that the international business community should become active and act out of enlightened self-interest because:

  • it would play into the core strengths of business rather than exploit the host society's weakness;
  •  it would help companies to remember their home constituencies and thereby safeguard reputation;
  • the principles are a useful value basis for internal business codes that international business needs to hold people and operations together;
  • it is the 'right thing to do'; large companies cannot be successful simply by cutting corners;
  • no other voluntary initiative can claim comparable universality and legitimacy;
  • the Compact is the UN Secretary-General's initiative and virtually all heads of state and government have endorsed the nine principles.

These arguments were in principle understood. But motivating business to take a public stand required collective action; many individual companies, given a choice, prefer sitting on the fence. The 26 July event at UN Headquarters showed that such collective action was possible. Close to 50 transnational companies, including leading companies from developing countries (Mexico, Peru, Brazil, South Africa, Pakistan, India, Thailand, Indonesia, Hong Kong) came forward, many of them for the first time.

We have also made good progress in defining goals, concepts and operational tools. This includes:

  • A definition of complementary strategic goals:
  • Make the nine principles of the Global Compact an integral part of corporate activities everywhere.
  • Offer a platform for dialogue and action in support of the principles and in support of broad UN goals.
  • A clear understanding what is expected from business supporting the Compact:
  • Issue a clear statement in support of the Compact and its principles. 
  • Post once a year on the Global Compact website a concrete example of progress made or lesson learned in implementing the principles. 
  • Engage in partnership with UN organizations by undertaking activities that further the application of the principles, or by entering strategic partnerships in support of broad UN goals.
  • A clear understanding that the Compact follows an action and learning model, not one that is based on monitoring and compliance measurement. Business is expected to share experiences about what works and what doesn't, and demonstrate their good intentions by concrete action as opposed to explaining how well they are doing in meeting the principles.
  • A clear understanding that labour and civil society play a crucial role in anchoring the Compact in the fabric of communities – local and global.
  • Recognition that the Compact must serve as a broad framework for complementary regional, national, sectoral or local initiatives. Convergence towards the universal principles of the Compact, where appropriate, is desirable.
  • Recognition that the Global Compact, like any other voluntary initiative, cannot be a substitute for government action. Neither should one expect business to do what is the job of governments.
  • A website was built around the principles, issues and the actors.
    We have aspirations to further develop this website into a portal on universal values and business and use it as a forum for structured dialogue.
  • A global network of engaging actors has been assembled, including: global business associations (ICC, IOE), a number of global, sectoral associations and others (WBCSD, PWBLF, BSR and others), international labour (ICFTU) and issue-oriented civil society organizations with global reach in the area of human rights, environment and development (AI, ILC, HRW, WWF, IUCN, RingNetwork, Transparency International, Save the Children and others).
  • A Global Compact Office is currently being established. Reporting directly to the Executive Office of the Secretary-General, its mission is to leverage authority, catalyze action and ensure optimum synergies. It will work closely with the UN agencies most directly involved (ILO, UNEP, OHCHR) and other parts of the system, including UNDP.

Overall, we now have a good platform for catalyzing action. Already, the three UN agencies most directly involved are working with Global Compact participants to overcome dilemmas in the application of the principles; a number of strategic partnership projects in support of UN goals are taking shape; and select high-profile global dialogues on critical issues are under preparation. Outreach efforts to engage more companies in all regions of the world are well under way at the regional, national and local levels. But clearly, it is far too early to make assessments regarding the impact of these activities.

C. Looking ahead

Like any other bold initiative, the Compact has provoked much controversy, some of it public, some not. Dealing with criticism and balancing conflicting interests will be essential to avoid the process being derailed or abused.

To counter skepticism on the business side, greater efforts must be made to explain that complying with laws is not always enough, and that sitting on the fence or opting for convenient temporary parking stations may not pay off in the long term. To be convincing, we need to be able to show the business case for global corporate citizenship.

And, we need to show that the "learning" and "action" model is a viable one. This means that the Compact must help to define what are good and best practices, stimulate laggards to move into a higher performance and motivating good performers to come forward and share their experience. Regarding "actions" there is much scope to make tangible progress both at the policy level and at the ground.

As for criticism from civil society organizations that are not participating in the Global Compact, we must learn to distinguish more clearly among the actors and their motives. Many of them are genuinely concerned about the risks involved to the image of the United Nations. In turn, we genuinely appreciate their concern. We, too, are aware of those potential risks; we are doing our best to manage them and we hope to be able to count on civil society's continued vigilance and assistance.

Other concerns are more difficult to reconcile. Chief among these are the divergent views about openness as a political and an economic concept. Here, we do not have a choice. Too much is at stake. Our overriding priority must be the interests of developing countries and all others who depend on trade, investment and technology transfers to improve prospects for the poor. Unilateralism, protectionism and exporting domestic policy dilemmas -- at the expense of weaker players -- is not an option. Multilateral cooperation, non-discrimination, reciprocity and transparency are our best defense. We cannot compromise on this understanding.

Finally, there are a few activists who thrive on hostility and point scoring. We have to learn that they are not interested in dialogue or bridge building.

However, it is also true that social change is not linear. It requires at least the existence of two complementary and at times contradictory forces: creating awareness and mobilizing willingness to change is one of them. Making constructive use of resulting energies is the other. The Compact is clearly a constructive instrument. But it is tied up in the interplay of the two forces; to succeed, we need to learn to maintain a healthy balance between them. One priority at this juncture is to avoid destructive motives gaining the upper hand.

Another critical balancing act is to avoid a blurring of the lines between public and private responsibilities. Already, governments are divesting responsibilities, and there is a temptation to use the notion of corporate citizenship or social responsibility to to justify this. But governments continue to hold the key for unlocking economic opportunities; leaders failing their own people continue to constitute the single biggest source of human misery. True, the Compact is premised on the real world, where governance is imperfect, and where business exerts considerable influence. But this should not mean that we endorse or support that imperfect world, or lose sight of the ideal world, where governments live up fully to their responsibilities. In such a perfect world, indeed, the role of business would simply be business, and the notion of corporate citizenship or responsibility would be reduced to complying with laws.

Finally, there is the challenge of devising the right structures to catalyze the right actions, including questions as to who is a partner or participant in this undertaking. As far as possible, we have resisted the temptation to try to formalize structures. Doing so would undermine the innovative approach of the Compact; it would institutionalize the problems without solving the dilemmas.

The Compact is an institutional experiment, or what we like to call an OAM (Open Action Model). There is no vested institutional interest. There is no membership or signing on. All that matters is a commitment to action and performance that contributes to the achievement of the goals.

But clearly, we can only succeed if all those who share our goals come forward, help us define the content and carry through the action we need to succeed. Only then will we succeed. I hope we can count on your support.
Thank you for your attention.