Dr. P.V. Viswanath
Third world way
|The UN Global Compact may be the best way to draw corporations
into the development process. Is its optimism justified?
A CERTAIN zeal pervades meetings of the United Nations Global Compact. Not surprising, as its cause is lofty: to harness the power of business to make the world a richer, fairer and cleaner place. The idea is catching on. In early July, the compact’s annual summit drew over a thousand delegates to Geneva’s lakeside, from government agencies, non-governmental organisations (NGOs) and—most importantly—international corporations. But is the optimism and self-belief that imbues such talk-fests justified?
Since its launch in 2000, the compact, with its international legitimacy
and unrivalled convening power, has emerged as the world's dominant force
for promotion of the (often ill-defined) concept of corporate social responsibility
(CSR). Its modus operandi is deceptively simple: companies agree to adopt
ten core principles regarding human rights, labour, environmental and
anti-corruption standards, and to report annually on their own progress
towards meeting them. So far, 3,000 firms from 116 countries have signed
up. This year, six new principles were introduced, for business schools
The project has its critics. The self-assessment process is neither monitored nor evaluated objectively; critics deride it as a public-relations gift for participants. Alex Wijeratna of ActionAid, an NGO that was an early supporter of the compact but later withdrew its support, argues that it has no teeth and includes firms that adhere to some principles, while breaching others.
A fair point. But the low bar may have been set deliberately. The compact has been able to attract enough members that it can claim legitimacy to set rules in the increasingly crowded and confusing field of CSR. At this stage, simply getting a firm to commit to something on paper—and expose itself to scrutiny—is worthwhile. A more stringent system of evaluation, such as peer review, might become feasible later. And the compact has, at least once, bared its teeth: last year, for the first time, the compact de-listed 500 members who had been sluggish in reporting progress. More are expected to go this year.
Though far from perfect, the compact makes a remarkable effort to a radically shifting debate about sustainability. The battle lines that once separated the hard-nosed champions of profit from the rock-throwing demonstrators are fading, to be replaced by tentative, widening, NGO-corporate collaboration. The compact seeks to provide a framework, now that enlightened NGOs are starting to realise that their goals might be better achieved by harnessing the wealth, reach and dynamism of multinationals rather than by attacking them (though many insist on doing both).
Meanwhile, managers recognise the long-term benefits of paying attention to environmental, human-rights and governance issues—benefits that go beyond defensive public relations. With imagination, and help from NGOs, many firms think they can deliver gains for society beyond their products and services. These positive “spillovers” can be profitable, too—last December, in the Harvard Business Review, Michael Porter set out a framework by which corporations can create “shared value…not only to foster economic and social development but to change the way companies and society think about each other” (see article).
Advocates of CSR try making the case on behalf of its extrinsic benefits—arguing
that it attracts better recruits, bolsters share price, eases market entry,
helps to win licenses and more. But such claims are hard to prove. Anthony
Ling, Goldman Sachs’s chief investment officer, and a staunch defender
of the compact, admits that investments based on CSR criteria have not
always outperformed market benchmarks. It will, he says, take some years
to prove whether his bank’s new, more sophisticated, approach yields
a consistent premium. But there are plenty of examples of mutual gain;
Anglo American, a mining conglomerate, battles AIDS not just for moral
reasons: the disease can lay waste to staff at all levels.
Partnerships between firms and NGOs are springing up. Oxfam, an anti-poverty group, works closely with multinationals such as Unilever, a consumer-goods giant. Relief agencies have welcomed the help of logistics firms on their rapid-response plans for natural disasters. The development potential of mobile-phone networks in Africa is now widely recognised. Even pharmaceuticals firms, castigated by many an NGO over patents issues, are developing and donating drugs to eradicate trachoma, river blindness, leprosy and other preventable diseases, despite the lack of a market in the West.
Past tensions still exist, however. E.ON, an energy giant that works with Save the Children, echoes firms’ frustrations over the persistence an ideological gulf between the different kinds of partners, which is felt even in successful ventures. Henrik Skovby of Dahlberg, a consultancy, says many NGOs display a staggering lack of basic business skills. At the same time NGOs, perhaps wise to be sceptical, are wary of being seen to be bought off by their former adversaries; Jeremy Hobbs of Oxfam warns against getting “too cosy” with big business, stressing “critical engagement” instead. Sir Mark Moody-Stuart, Anglo American’s chairman, agrees that the private sector sometimes needs to be held in check.
Preserve the system
For corporations, there is also a philosophical dimension to CSR—using business muscle to fight injustice and inequality strengthens the legitimacy claimed by companies and the globalised capitalist system. So it may be in the interests of multinationals to take the broad view. But if a global effort is to succeed, credible leadership is required. The compact, most of whose members come from emerging markets, could be the best realistic option.
Importantly, the compact is not hostile to corporations—a departure for the UN, which is notoriously steeped in traditional development thinking. Credit for this belongs to Georg Kell, the compact’s executive director, who is admired both in boardrooms and by NGOs. “The business case for principles-based change”, he argues, “is no longer just about avoiding costs for getting it wrong; it is increasingly about the benefits for getting it right.”
Future success could depend on three factors: whether the theory of partnerships works well in practice at the local level; whether there is sufficient profit in CSR approaches; and whether the compact can keep drawing in more members from new sectors, developing new problem-solving abilities, and imposing more rigorous monitoring and evaluation. So far, its business-minded focus, coupled with its strong sense of confidence, has made for a vital and potent combination. With progress, and luck, it should be able to maintain momentum.