The Political and Social Aspect of Business of The UN Global Compact - Essay Example

The Political and Social Aspect of Business of The UN Global Compact The United Nations (UN) describes the Global Compact as “a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption” (www.unglobalcompact.org accessed 26 May 2009). The UN Global Compact (GC) is voluntary and the underlying objective is stated to be the introduction of social responsibility into international business and the code embodies ten core principles (www.unglobalcompact.org accessed 26 May 2009). In essence, the UN GC is a voluntary corporate citizenship network geared towards the mainstreaming business activity ethics worldwide and fuelling the preservation of UN human rights’ objectives within the international business framework (Macintosh et al, 2004 at p.11). Slaughter further observes the UN objectives in the GC in attempting to harmonise consistency in corporate social responsibility measures among UN organisations, international labour organisations and NGOS to assist the creation of a “more inclusive and equitable marketplace,” (Slaughter, 2004: p.192). However, the GC does not impose sanctions or implement an enforcement framework and prima facie provides a system for facilitation and is not a regulatory instrument. Indeed, Macintosh et al highlight the fact that “the Global Compact relies on public accountability, transparency and the enlightened self interest of companies ……in pursuing the principles upon which the Global Compact is based” (Macintosh et al, 2004 p.11). In the absence of any regulatory code, Slaughter further refers to the UN’s assertion of information sharing requirements and the chief architect of the GC’s declaration that “the core of its change model is a learning forum. Companies submit case studies of what they have done to translate their commitment to the GC principles into concrete corporate practices” (Slaughter, 2004 at p.11) As such, there is an assumption that information sharing and self regulation will facilitate human rights compliance. However there is a distinct lack of government authority for enforcement of the network and the efficacy of the UN GC is inherently reliant on voluntary participation and compliance by non-state corporate entities in UN member states, which has fuelled debate as to its efficacy in practice. On the one hand, there is the official UN argument that the GC facilitates mutual cooperation in the preservation of fundamental rights and prevention of corruption at corporate level. To this end, it moves towards social responsibility within the corporate cultural mindset. On the other hand, it has been posited that the GC in reality amounts to nothing more than “a grandiose opportunity for corporations to polish their damaged image”. The focus of this analysis is to critically evaluate this statement. In evaluating the statement, firstly, it is important to consider the motivations behind the UN GC. In Macintosh et al’s “Learning to talk: Corporate citizenship and the development of the UN Global compact” (2004), the foreword by Kofi Annan asserts that “when I first introduced the Global Compact ……. in January 1999, I warned that unless more serious consideration were given to social and environmental issues, the global economy would grow ever more fragile. I called on business leaders to join a Global Compact as a vehicle……. to embrace universal principles in the area of human rights, labour and the environment and to support United Nations goals and to contribute to more stable but inclusive markets” (Kofi Annan in Macintosh et al, 2004 at p.9). Therefore the underlying basis of the UN GC is rooted in the principles that human rights issues are intertwined with corporate issues and therefore corporate organisations have a duty to ensure that human rights objectives are not impeded by corporate objectives. As such, principle 1 of the UN GC provides that “businesses should support and respect the protection of internationally proclaimed human rights within their sphere of influence” (available at www.unglobalcompact.org accessed 26 May 2009). The overriding objective of asserting the primacy of human rights in business is undoubtedly positive in acknowledging the various stakeholder interests affected by the institutional framework within which corporations operate. However, the inherent flaw of the GC is the assumption of corporation compliance. Fellner highlights the inherent corporate resistance to the GC (Fellner, 2008 p.223). Fellner highlights that opposition from powerful member states to the UN’s original proposals led to its dissolution and therefore the subsequent GC is a compromise by implementing a self regulatory guidance framework “with no outside verification or oversight” (Fellner, 2008: p.223). Moreover, the human rights principles asserted in Principle 1 of the GC clearly mirror the human rights provisions in the Universal Declaration of Human Rights (UDHR) adopted by the UN General Assembly in 1948 (available at www.un.org/en/documents/udhr ). However, whilst theoretically these human rights apply to private corporations, the inherent weakness in the UN GC is that furtherance of the objectives extrapolated in the Principles is dependent on voluntary compliance. Additionally, the GC principles are drafted in wide terms and the exact nature of the correlation between businesses and human rights remains unclear (Kent, 2007:48). For example, Fellner observes that a common problem with corporate social responsibility in practice is that “corporations could sign on to the mildly noble principles and then go about their business. And a number of the signatories….. had done just that: they’d joined but then continued to violate basic human rights” (Fellner, 2008: 223). Fellner further refers to the comments of Kathryn Mulvey, who is the director of Corporate Accountability International (CAI) who perceives the GC as perpetuating the problem of meaningful corporate social responsibility (Fellner, 2008: 223-224). This is further compounded by the fact that corporate cultural norms are invariably disparate from state to state of the participating companies, which will further widen the scope for disparity in how national institutions apply the principles of the UN GC in the absence of consistent enforcement mechanisms. As such, this intrinsic flaw of the GC assumption of voluntary compliance appears to support the statement that the GC effectively provides a veil of legitimacy to the tarnished reputations of corporations. This is particularly evident if we consider the Global Compact principle geared towards combating corruption in the Tenth Principle. Whilst the Global Compact’s Tenth Principle provides that businesses should work towards combating corruption, this arguably ignores the complex relationship between government level corruption and corporate strategy of non state sectors both at operational and market entry level. Indeed, Beneria and Bisnath highlight that “there is nothing explicit in the principles to draw attention to one of the most important aspects of corporate power: the way in which it is so often wielded so as to undermine democratic governance” (Beneria & Bisnath, 2004: 47). For example, if we contextually consider corporate strategy entry modes for Multinational Enterprises (MNEs) in the international marketplace, Rodriguez et al’s arguments centre on state corruption as the central point in impacting entry stage whereas the issues regarding the effective lack of governance of MNEs under the law clearly raises the controversial issues regarding MNE corruption as part of its entry level strategy through exploitation of the lack of effective governance measures (Rodriguez et al, 2005: 383). Accordingly, it is submitted that the lack of effective governance through the legal framework clearly impacts business strategy to a degree that is ignored in the corruption debate as evidenced by Rodriguez et al’s arguments. Moreover, Rodriguez et al’s arguments further highlight the flaws of the GC principles in failing to provide incentives to corporations to apply its objectives. Moreover, in introducing the issue of corruption, Rodriguez et al argue that government infrastructure and the relevant arms of state will inherently be influenced by the government in power, which can lend itself to corruption (Rodriguez et al, 2005: 383). To this end, they argue that it is necessary to consider how the interrelationship between these factors impact MNE entry strategy and business operations in general. However, it is important to note that the notion of corruption is inherently complex and Rodriguez et al highlight the importance of appreciating this and refer to a leading study of Shleifer & Vishny (1993) which highlighted that “the experience of operating in a corrupt environment is substantially characterised not only by the amount of corruption but also by the uncertainty associated with corrupt transactions” (Rodriguez et al, p.383). To this end, the assumption of compliance of the GC is clearly naïve. This is further evidenced by the Rodriguez et al’s reference to the polarised debate regarding corruption. On the one hand they refer to the line of argument that corruption can expand the public interest and to this end fail to consider the actual impact of corruption on MNEs. On the other side of the argument, is the proposition that corruption is actually an opportunity for political behaviour by MNEs, which is exploited by their lack of regulation under law (Rodriguez et al, 2005: 383). Accordingly the central deficiency of the UN GC is the failure to address enforcement and compliance along with the broadly drafted principles, which fail appreciate the nature of corruption and the influence of government level corruption on national corporate structures. This creates an inherent paradox with the Tenth Principle and further provides businesses with a veil of legitimacy. Indeed, Beneria and Bisnath comment that the method of implementing corporate social responsibility ultimately “depends on how they are interpreted” (Beneria & Bisnath, 2004 p.47). In order to address these issues, the UN Sub-Commission on the Promotion and Protection of Human rights adopted a document including a proposed set of norms, aiming to clarify the scope of rights applicable to companies (www.2ohchr.org/english/bodies/subcom/index.htm accessed 27 May 2009) and include the following: 1) The right to equal opportunity and non discriminatory treatment; 2) The right to security of persons; 3) The rights of workers; and 4) Economic, social and cultural rights (UN Doc E/CN.4/Sub.2/2003/12/Rev.2). There are clearly overlaps with the rights enshrined under the European Convention on Human Rights (ECHR). However, from a UK perspective the implementation of the Human Rights Act 1998 applies to public bodies as opposed to corporations. As such, the UN GC arguably goes further in addressing corporate social responsibility. Nevertheless, the wide terms of the GC are compounded by the fact that the position remains uncertain as to the extent corporations should be responsible for the preservation of human rights. For example, Macintosh et al comment that “much of the global debate about business and human rights has focused on preventing violations attributed to companies. Considerably less attention has been given to the opportunities companies have to contribute to the positive enjoyment of human rights” (Macintosh et al, 2004:95). However, on the one hand, corporations clearly adhere to the objectives of the GC by complying with national laws regarding discrimination, work safety and employment dismissal rights therefore perhaps it is too dogmatic to assert that the Compact is merely a grandiose gesture and purely serves to address the poor reputation of companies. Nevertheless, such compliance is bred out of compliance measures and enforcement penalties whereas the GC operates on an assumption of mutual compliance. However, this will depend on the sphere of influence and the GC asserts that “companies should assess their spheres of influence and design their rights and responsibilities accordingly” (Macintosh et al, 2004: 12). This will clearly be shaped by the interrelationship of various factors from the external and internal stakeholders, the nation state and the government as opposed to any overwhelming desire to comply with mutual cooperation under the GC towards corporate social responsibility. This naïve assumption of the GC is further evidenced by the statements of Annan on his third visit to the World Economic Forum, where he commented that “our challenge today is to devise a similar compact on the global scale, to underpin the new global economy. If we succeed in that, we would lay the foundation for an age of global prosperity, comparable to that enjoyed by the industrialised countries in the decades after the Second World War” (in Macintosh et al, 2004 at p.16). As such, Kell and Levin posit that the UN GC is effectively a measure to address the deficiencies of capitalism and born out of the initial objectives at inception of the UN in the aftermath of the Second World War (Kell and Levin (2003) in Macintosh et al, 2004 at p.16). However, it is difficult to see how the GC actually operates with the business world. Kent refers to reports undertaken by Claude Fussler and the World Business Council for Sustainable Business in relation to the link between signatories to the United Nations GC and profitability in 2004, which conclude “As a group, the Global Compact signatories created more value, the goals of sustainability, the challenges of social responsibility and leadership’s inspiration by principles higher than the sole profit motivation – they all foster business excellence” (Fussler 2004 p.282 in Kent et al, 2007 at p.48). Nevertheless, whilst not undermining the results of such research, Kent highlights that this increase in profitability appears to be dependent on the characteristics of the particular business that are proactive on corporate social responsibility (Kent et al, 2007, p.48). Often such companies are in sectors targeted by socially conscious activists and therefore the corporate social responsibility is borne out of the need to alleviate bad publicity (Kent et al, 2007: 48). However, the previous attempts of the United Nations to implement a code of practice for “trans-national corporations” in 1977 failed because western governments opposed it and “in the vacuum left by the inability of institutions of global governance to act, a plethora of international and national organisations have attempted to develop codes of conduct regarding MNEs” (Macintosh et al, 2004 p.17). However, this in turn begs the question as to what is different now under the voluntary GC. Van der Lugt argues that through the GC the UN may have established a co-regulatory approach. Conversely, Macintosh et al comment that the UN are using the GC to find about businesses and learn how to manage social partnerships among corporations, states and civil society organisations. Indeed, Kell comments that the outcome of the venture remains ambiguous as question marks remain as to which UN member states will grant the UN an important role in the economic sphere of activity (Kell and Levin (2003) in Macintosh et al, 2004: 17). Moreover, Macintosh et al assert that nevertheless as “Kell confirms, such criticism of the GC has been instrumental in provoking an ongoing search of the right incentives and the methodologies to bring about desired changes while maintaining the integrity of the institution (Macintosh et al, 2004 p.17). Therefore the GC arguably remains an experiment and debate remains about the GC’s ability to enforce significant inroads into corporate social responsibility. Additionally, whilst Fussler’s report (2004) clearly demonstrates a link between profitability and corporate social responsibility, ultimately the interrelationship of various external factors will inform a corporation’s approach to human rights. Indeed, Kell and Levin argue alternatively that the UN GC could facilitate UN objectives whilst moving away from the UN co-regulatory intentions in direct participation, thereby minimising any role of the UN in the GC. To this end, Kell and Levin posit that “the importance of the evolution of these local networks cannot be overstated. It represents a shift towards the decentralisation of the network and the distribution of ownership, both critical to the longevity of the initiative…..the Global Compact office has increasingly empowered “enablers” such as the World Business Council for Sustainable development …….to expand the network and manage issues related individual companies. Such decentralisation will enhance the potential of the Global Compact to embed markets around the world” (Kell and Levin (2003) in Macintosh 2004 at 18). However, the UN assumption that non-state actors such as multinational businesses, trade unions and civil society organisations are willing to impose the GC is flawed. For example, Macintosh et al comments that “as a UN initiative, the Global Compact thrives on the convening power and moral authority of the organisation as well as the universal legitimacy of its principles. However, these strengths come with the liabilities of bureaucracy and cumbersome intergovernmental protocols that stifle innovation”. (Macintosh et al, 2004 at p.353). Nevertheless, it is submitted that the Global Compact is important as an experimental measure in testing the boundaries of corporate initiative in self regulatory moves towards corporate social responsibility. If anything, the inherent weakness is the assumption regarding the concept of “partnership” between the UN and corporate organisations. Indeed, Wilkinson and Hughes observed that the “The Global Compact took forward Annan’s previous calls at earlier WEF meetings for the UN to form a “creative partnership” with the private sector, on the basis that the two share mutually supportive goals, and because without such action the course of globalisation will be challenged”. (2004, p.128) Conversely, the ICFTU argues that “global and binding rules are necessary to protect people” (in Wilkinson & Hughes, 2004: p.128). Therefore there remains a distinct chasm between Global Compact policy and practice. To this end, it is submitted that the objectives of the Global Compact are not without merit and from the UN perspective in advocating human rights it is arguably too dogmatic to brandish the Compact is a merely grandiose gesture. The central problem is the compromise pertaining to self regulation and the broadly defined principles of the Compact. These facilitate disparity in corporate strategy due to the inherent variables in state institutional framework. This lack of consistency further perpetuates ad hoc measures with little incentive for compliance. As such, it is the lack of regulatory measures at UN level in practice has effectively undermined the objective of corporate social responsibility. BIBLIOGRAPHY Beneria, L. & S. Bisnath (2004). Global tensions: challenges and opportunities in the world economy. Routledge. Fellner, K. (2008) Wrestling with Starbucks: Conscience, Capital Cappuccino. Rutgers University Press. Kent, S., G. Cheney & J. Roper (2007). The debate over corporate social responsibility. Oxford University Press. Macintosh, M, Sandra Waddock & G. Kell (2004). Learning to talk: Corporate citizenship and the development of the UN Global Compact. Greenleaf Publishing Peter T Muchlinski., (2007). Multinational Enterprises and the Law. 2nd Edition Oxford University Press. Rodriguez, P., Uhlenbruck, K., & Eden, L. (2005). Government Corruption and the Entry Strategies of Multinationals. Volume 30 No. 2 383-396. Shleifer, A., & Vishny, R. (1993). Corruption. Quarterly Journal of Economics, 108: 599-617. Slaughter, A. (2004). A New World Order. Princeton University Press. Wilkinson, R. & S. Hughes (2002). Global Governance: Critical Perspectives. Routledge The Norms on the Responsibility of Trans-national Corporations and Other Business Enterprises with Regard to Human Rights UN Doc E/CN.4/Sub.2/2003/12/Rev.2 The UN Global Compact and Ten Principles available at www.unglobalcompact.org accessed 26 May 2009 Universal Declaration of Human Rights (UDHR) adopted by the UN General Assembly in 1948 (available at www.un.org/en/documents/udhr Websites and Sources www.UNHCR.org/HighCommissioner Read More