D+C Development and Cooperation (No. 4, July/August 2002, p. 20-22)

Since Kofi Annan took office as United Nations Secretary-General in January 1997 the world body has stepped up its efforts to improve its relations with the private sector. That includes building up public-private partnerships (PPPs). In addition to specific PPP projects, especially in the development sector, the Global Compact is an example of partnership between the UN and the private sector.

Kofi Annan went public on the Global Compact idea at the World Economic Forum in Davos in January 1999 when he challenged world business leaders to “embrace and enact" the Compact both in their individual corporate practices and by supporting public policies. The Global Compact was founded in New York in July 2000 and completed its pilot phase in October 2001.

Regulation of the world economy

Besides aiming at improving and intensifying dialogue with the private sector, the Global Compact is also about the UN’s influence in shaping economic globalisation. This process with emphasis on deregulation of the economy has developed strongly along neo-liberal concepts since the 1980s. Driven by global trade in goods and services, direct foreign investment and international capital flows, the control and power potential of multilateral companies has risen to the point where it increasingly ignores national boundaries and evades government regulation.

To maximise their profit the so-called globalisation-intensive branches (UNCTAD 2001), such as the textiles industry, invest in developing countries and in the transformation states in Eastern Europe in order to benefit from low wages - especially those of women - tax incentives and poor or non-existent industrial safety regulations. The working conditions in such ‘special economic zones’ are similar to those of the early days of capitalism in the 19th century. At present, about 10 per cent of the value of goods in world trade is produced in violation of core labour rights. But because of the low level of productivity in many developing countries, the number of workers affected by this situation as a proportion of all workers in export-oriented industries is very high.

The extractive industries, too, have for many years exploited the developing countries’ economic plight and need for capital. The extraction of raw materials often threatens the ecological and cultural bases of life of the people affected. In many countries the oil multinationals operate in an environment of violence. Many of these countries have gone downhill in economic and political terms because their corrupt ruling elites have pocketed the proceeds of raw material extraction. In some cases, the companies use the state repression machinery to assert their own interests, and they strengthen corrupt regimes by giving them bribes.

Trade unions and NGOs worldwide are opposing such abuses and the further neo-liberal deregulation of the world economy. Thanks mainly to their PR work, leading branded goods companies in various industrial sectors are being faced more and more by consumers who are not prepared to buy products made - e.g. - by child or forced labour. Regulations for transnational companies in the form of social clauses in international trade agreements (as called for to become part of WTO treaties), codes of conduct and seals of approval are aimed at bringing the private sector to observe internationally recognised social, environmental and human rights standards, including in their business activities in developing and transformation countries. These attempts at regulation are disputed in those countries because they can be abused as an instrument of protectionism and worsen the countries’ position in global competition.

Codes of conduct, in particular, are playing an ever greater role in regulating the world economy. A code of conduct is a formal, written declaration by a company of its corporate values and activities, which also may include its suppliers. The code formulates minimum standards to which the company subscribes and pledges to uphold on a voluntary basis. The OECD listed 233 such codes in 1999. The OECD’s Principles of Corporate Governance for Multinationals in their revised edition of June 2000 comprise the current leading code of conduct, which is endorsed by industrialised nation governments in particular.

Codes reflect the growing pressure on the private sector to recognise international standards, but also its willingness to enter into voluntary agreements. Codes may be subject either to in-house or external monitoring. They are meant to guarantee the basic rights of workers and environment-friendly and transparent production processes. This positive association is aimed at boosting sales of products made under socially acceptable working conditions. Codes of conduct have their greatest potential impact when they are subject to external supervision.

The codes are often classified as so-called ‘soft law’. They do not have legal force, but because the agreed rules are clear to all involved and endorsed by them, they have a quasi-legal effect. That means that in the long run codes could become binding regulations for commerce and industry, and thus a ‘soft law’ rule could one day be a real standard under international law.

The Global Compact -
an open learning experiment

The Global Compact is not a set of rules and thus not a code of conduct. Rather, it is conceived as a forum of dialogue and learning and therefore is more open and weaker than a code of conduct. Its basis are nine principles (see box below) covering the sectors of human rights, labour rights and the environment. The principles are based on central international documents, namely the United Nations Universal Declaration of Human Rights of 1948, the Declaration on Fundamental Principles and Rights at Work adopted by the International Labour Organisation (ILO) in 1998, and the declaration of the ‘Earth Summit’ in Rio de Janeiro in 1992, especially its Agenda 21. These texts contain clearly outlined general values which all governments in the world acknowledge - at least in their rhetoric.

Besides the UN Secretary-General, the UNHCHR, ILO, UNEP and UNDP are also participating in the Global Compact. About 50 transnational companies and commerce and industry associations also signed up to it at its founding. About 400 companies from around the world now acknowledge the pact. Civil society actors involved include international trade union associations and major NGOs in the human rights and environment sectors (www.unglobalcompact.org - Outreach).

As a policy dialogue forum, the Global Compact focuses on interests that are central to both the private sector and the United Nations. In 2001, the dialogue was about problems of ‘The Role of the Private Sector in Zones of Conflict’. In 2002, the forum is concentrating on ‘The Private Sector and Sustainable Development’.

The pact’s goal as a learning forum is to identify and promote good corporate practices that are compatible with the nine principles of the Global Compact. For this purpose, companies are asked to submit reports with specific examples of their experience and the progress they have achieved in implementing the principles by changing corporate strategy, management, systems and day-to-day operations. The reports, posted on the Global Compact’s Website, are the basis for comparing notes by all parties to the Compact.

Completion of the pilot phase in
October 2001

After more than 18 months the pilot phase of the Global Compact was concluded in October 2001 with a conference in London. On the whole, its balance sheet must be rated as ambivalent. Only 44 reports were submitted. Most of them were of poor quality, and some did not even cite the Compact. There was also no exchange of opinion on the reports by the actors participating in the pact. That shows how much it is in its infancy.

Measures taken following completion of the pilot phase attempt to take account of this situation. To improve the quality of the company reports, a difference will be made between examples and case studies. The latter are more demanding and optional. All participants must once a year submit examples, which are posted directly on the network, have a clear format and must not be more than 250 words in length. They must also give clear answers to two questions:

• what activities has a company undertaken to promote the Global Compact principles? and
• what are the results?

Furthermore, cooperation with the Global Reporting Initiative (GRI) was agreed. This project, begun in 1997 by the UNEP together with the Coalition for Environmentally Responsible Economies, is aimed at achieving standardised reporting on business, environmental and social issues. Companies can cite their participation in GRI as an example of their promotion of the Global Compact. The GRI principles are also aimed at supporting the companies in their reporting to the Compact.

The setting up of an Advisory Council to monitor the overall project critically and constructively will be important for the future of the Global Compact. If the body is able to tighten the criteria for admission and possible exclusion of companies it will strengthen the Compact as a whole. Established by Kofi Annan in January this year, the Advisory Council is composed of 17 leading figures, 10 from commerce and industry, two from trade unions and five from NGOs and the academic world. They are participating as independent experts, not as representatives of their organisations. Permanent Representatives from five UN member countries in the North and South support the body.

The Advisory Council is billed as the first body within the United Nations to have brought together civil society activists and business managers (UN 2002). It is to focus on core issues of governance and strategy in order to strengthen the Global Compact initiative. Its tasks include:

• improving the standards for membership of the pact to ensure its efficiency and integrity;
• advising individual pact members and the UN Secretary-General and his staff on core issues of strategy and policy;
• developing measures to ensure that the commitment of company directors who have signed up to the pact does not flag; and
• identifying corporate behaviour inconsistent with the spirit of the Global Compact. In addition to its focus on the international level, the Global Compact is also in future to spotlight national learning forums. That means that national peculiarities will be given greater consideration and governments which were excluded from the original concept will be integrated. The academic backup of the project will be done by an academic infrastructure in countries in both the North and the South (see chart: The Global Compact Network).

The Nine Principles of the Global Compact

Human rights:
1. World business should support and respect the protection of international human rights within their sphere of influence, and
2. make sure their own corporations are not complicit in human rights abuses.
   
   Labour rights:
3. World business should uphold freedom of association and the effective recognition of the right to collective bargaining,
4. the elimination of all forms of forced and compulsory labour,
5. the effective abolition of child labour, and
6. the elimination of discrimination in respect of employment and occupation.
   
   Environment:
7. World business should support a precautionary approach to environmental challenges,
8. undertake initiatives to promote greater environmental responsibility, and
9. encourage the development and dissemination of environmentally friendly technologies.

Summing up the Global Compact

Even if criticism of the Global Compact, such as calls for monitoring and binding rules for the participating companies are actually based on a mistaken perception that it is a code of conduct, it is reasoable to ask what the pact can deliver.

So far, the pact has come across more as a hierarchical institution and exclusive club than an open dialogue and learning forum. Greater transparency on its membership and debates is pivotal. The new Advisory Council, in which core issues such as observance of the membership guidelines and perhaps also criteria for expulsion are to be considered, could provide that.

Above all, there was a lack of true dialogue during the pilot phase of the Global Compact because critical comments from participating trade unions, NGOs and the academic side were not posted on its website. Instead, the site offered the companies a free forum to polish their images without their inputs being qualified by critical comment or even questions.

The open construction of the Global Compact as a dialogue and learning forum is a new concept, which both offers opportunities and involves risks. But what is lacking most of all is experience of what such a forum can produce, and the pact is, after all, still in its test phase.

What ‘value added’ can a learning
forum deliver?

The Global Compact brings together disparate actors who openly get to grips with their differing opinions and, possibly, will end up talking the same language. The learning forum is voluntary, although there are differences in the degree of voluntariness. Taking international human rights conventions as a benchmark, a country which ratifies a treaty accepts an obligation under international law to observe it. But observance is more or less voluntary because international law does not provide for sanctions. However, shaming by reports from NGOs, by public discussion in the UN Commission on Human Rights or in a committee responsible for a convention often results in good governance on human rights issues. Governments do not want to forfeit their recognition by the international community and their standing among their own people because of human rights violations. So the voluntary observance of obligations under international law is tied closely to the question of greater legitimation for the respective government. A similar effect could apply to the producers (in the broader sense) of branded goods. In their aim to market their products profitably they have to pay attention to satisfying the interests of various stakeholders and do not want to have their brands given bad marks.

In the case of the Global Compact, voluntary commitment to it has less clout than treaties under international law and codes of conduct. In the context of the Compact there is to be no outspoken criticism of participating companies, only discussion of good practice, meaning positive examples. Also, the participating NGOs have not yet systematically exposed contradictions between the claims and realities of companies that are parties to the pact. But that is being done from outside. In particular, CorpWatch and the Alliance for a Corporate-Free UN, a global network of human rights, environment and development NGOs and institutions, of which CorpWatch is the Secretariat, publicise business practices by pact member companies which violate its standards (www.corpwatch.org)

With regard to the relationship of the Global Compact and codes of conduct, it should be noted that the pact is perceived of as a supplement, not an alternative, to such codes. The pact’s non-binding character, generality and diffuseness could appear to companies to be a welcome alternative to tougher codes of conduct. Unlike the more down-to-earth and precisely formulated codes, the pact can deliver a corporate identification effect simply by means of symbols (the United Nations and Kofi Annan) and thus serve the companies’ marketing interests. Codes of conduct, be they in-house or even the OECD’s principles on corporate governance cannot project such a strong positive image, which is also cheap to come by - at least for the moment.

The Global Compact’s more pragmatic orientation on the interests of companies also could result in governments and the UN foregoing binding codes of behaviour for the private sector. This would mean that legislative control would give way even more to voluntary agreements and thereby further deregulate commerce and industry. This would be a wrong understanding of global governance of the world economy. For voluntary agreements to be sustainable and continually effective they need to be a supplement to general legal conditions that apply regardless of cyclical business fluctuations and whose observance is monitored.

Disappointing results of
pilot phase as seen by NGOs

The exchange between companies and the UN has prospects, at least at the declamatory level, of making companies and the public more aware of standards. But the disappointing results of the pilot phase - including low participation by companies, an almost complete lack of and late information on the conference in October last year, the non-publication of the names of the pact members, and the poorly run Global Compact Website - reinforced the initial fears of NGOs such as CorpWatch that the pact was mostly about serving companies’ self-projection. Of the two leading actors of the Global Compact, the United Nations and the private sector, the UN above all will lose respect if the pact - following its headline-grabbing launch - turns out to be merely a symbolic nine days’ wonder. So it must be of particular importance to it that the project is given more ‘bite’.

Because it brings different actors and levels together, the Global Compact is potentially an input to global governance. But what is its goal? The pact aims to convey the values enshrined in the Nine Principles and thereby contribute to giving the global market a human face. Thus, in a certain way, the Global Compact functions on the meta-level, where learning a common language alone is a gain.

If the Global Compact - despite its generality - is to become a true dialogue and learning forum and thus relevant to global governance, specific criteria must also be observed in the case of this ‘soft’ instrument and in the work of the newly-established Advisory Council:

• the Global Compact must develop into a genuine multi-stakeholder forum in which all participants have the same say (criterion of participation);
• important for its success is also the criterion of transparency, such as publishing the names of the participants;
• although a dialogue and learning forum, the Global Compact should not forego benchmarking. That includes clear guidelines on targets which have to be met within a certain timeframe. Consequences for the non-fulfilment of the goals must also be laid down.

If these and other criteria help to give the Global Compact sharper teeth it will be worthwhile paying more attention to the project and putting more effort into it. For in principle all initiatives that contribute to binding the private sector more strongly to international standards is to be welcomed.

But it should still be noted that initiatives such as the Global Compact, codes of conduct and seals of approval are only a drop in the ocean. They are not enough to steer economic globalisation. To achieve that, countries and international organisations must fulfil their responsibility and put in place obligatory framework conditions in order to assert social, environmental and human rights standards in the global economy.

But shaping globalisation according to ethical principles, meaning worldwide observance of these standards, cannot be realised either by binding laws nor by combining them with voluntary rules. Rather, efforts to achieve a just world economy system must be strengthened at the same time. To date, economic globalisation has widened the gap between the South and the North. The people of the South in particular are globalisation losers. Although big transnational companies and also medium-sized businesses are increasingly investing in countries of the South and awarding contracts to local firms, the national economies of the South are being ‘conned’ even further. Most of the profits from these transactions flow back to the countries of the North. The cheap labour factor is still the main interest of transnational companies investing in developing countries or Eastern European transformation states. That does not automatically result in an increase in productivity and a higher development level of these countries, and thus also not to more prosperity for all.

UNCTAD (2001) World Investment Report 2001; //www.unctad.org/wir/contents/wir01content.en.htm United Nations (2002) Note to Correspondents: Secretary-General to Convene First Meeting of Global Compact Advisory Council at Headquarters, 8 January, Note No. 5705, 7 January 2002.