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There is one thing stronger than all the armies
in the world; and that is an idea whose time has come.
Victor Hugo
Has the time for a Global Compact that integrates
business and social interests, is based on principles accepted
by countries around the world, and asks companies to think
beyond the bottom line in terms of their operating practices,
actually come? In 1999, UN Secretary General Kofi Annan called
upon global business leaders to create a ‘global compact’
in which companies agreed to live up to nine fundamental principles
that, if fully implemented, would shape the world economy.
Many people were and still are skeptical that business could
or would live up to those commitments. Annan’s words
presented a significant challenge to world business leaders:
…I want to challenge you to join me in
taking our relationship to a still higher level. I propose
to that you [corporate leaders] …and we, the United
Nations, initiate a global compact of shared values and principles,
which will give a human face to the global market.
Globalization is a fact of life. But I believe
we have underestimated its fragility. The problem is this.
The spread of markets outpaces the ability of societies and
their political systems to adjust to them, let alone to guide
the course they take. History teaches us that such an imbalance
between the economic, social and political realms can never
be sustained for very long. …
We have to choose between a global market driven
only by calculations of short-term profit, and one which has
a human face. Between a world which condemns a quarter of
the human race to starvation and squalor, and one which offers
everyone at least a chance of prosperity, in a healthy environment.
Between a selfish free-for-all in which we ignore the fate
of the losers, and a culture in which the strong and successful
accept their responsibilities, showing global vision and leadership.
Kofi Annan, Secretary-General, United Nations,
challenging the 1999 World Economic Forum of
business leaders to form The Global Compact
By the time the first US-based conference on the Global Compact
was held in April 2002 at the University of Notre Dame, hundreds
of companies globally had submitted letters of commitment
to upholding the nine principles of the Global Compact. But
the Global Compact had not yet reached a ‘tipping point’
where the nine fundamental principles articulated in it were
considered essential to doing global business. Few of the
‘signatory’ companies were US companies, despite
the apparent need for leadership by US companies to make the
GC effective in the long run.
One of the unspoken questions underlying the
Global Compact conference, thus, was the fundamental question:
what will it take to create this tipping point for corporate
responsibility especially among US firms? That is, what will
it take to make managing corporate responsibility into what
colleagues and I have elsewhere termed the ‘new business
imperative?’ The issues raised at the conference by
various participates suggest some of the transitions, corporate
activities, and practices that are needed to create this tipping
point. Below I will synthesize my impressions, from the meeting,
of what these issues and practices are.
Many observers have argued that companies need
to manage their responsibilities to stakeholders, to societies
in which they operate, and to the natural environment, in
much the same way that they manage quality, product/market
development, and customer relationships. Using a framework
for managing corporate responsibility developed in collaboration
with Charles Bodwell of the International Labor Organization,
the key issues facing companies that arose during the Global
Compact Conference are developed below. This framework, called
TRM for total responsibility management, provides an outline
of managing corporate responsibility that (as with quality
management) can be applied within units, divisions, or even
functions as well as across entire enterprises.
Analogous in many ways to managing quality,
responsibility management involves three major processes:
1) inspiration, which combines creating a vision for the company’s
responsibilities that generates leadership commitment, identifying
foundational values to which the company adheres, and stakeholder
engagement; 2) integration the responsibility vision and values
into the company’s strategies, human resource practices,
and management systems; and 3) developing innovation and improvement
systems that remediate where necessary and create a learning
environment for the enterprise, all based on a set of indicators
that help the company measure progress toward its responsibility
goals.
The Global Compact has the credibility and clout
of the United Nations behind it. Its nine principles have
been agreed upon by nations throughout the world. It is simple
to understand and aspirational in its intent. As participants
in the meeting suggested, its very simplicity works in its
favor with respect to companies’ willingness to sign
on, even while its voluntary nature creates concern among
actors in other sectors of society.
Inspiration
Creating a vision around not only the company’s
strategic mission and vision, but also its responsibilities
as they relate to the principles of the Global Compact is
a necessary first step for companies engaging in the GC.
Leadership Commitment.
The ‘inspiration’ process of managing corporate
responsibility involves getting top leadership (and others)
committed to a responsibility vision. In the case of the Global
Compact, this involves assessing the company’s commitment
to and leadership on the GC’s nine principles. Several
companies considering signing on or having already done so
have created steering committees to investigate how the GC
could become a sustainable element of corporate strategy and
practices, while simultaneously providing guidance and oversight
at the board of directors level. Top management commitment
to the GC’s principles is clearly essential for driving
understanding about the importance of implementing the principles
down into the organization.
Foundational Values.
The very act of signing the Global Compact creates a sense
of legitimacy for the foundational values, or what some call
‘hypernorms,’ embedded in the principles. Foundational
values are those that are generally accepted throughout the
world, as the GC’s principles have been by the countries
signatory to the declarations and conventions from which the
principles are drawn. Foundational values create a baseline
or floor below for standards, going below which can create
ethical and reputational problems for the company. In recent
years, there has been a proliferation of codes and standards
and the GC has the benefit of codifying the most important
values in a relatively simple framework.
Many companies have articulated their own core
values, which provide guidance on decision making, strategies,
and every-day practices. Several presentations highlighted
the critical importance of the company’s core values
as they developed their responses to the GC. Particularly
for companies in service or knowledge-based industries, integrity,
trust, and cultural diversity play important roles in the
company’s success, for as a participant stated, ‘people
are our business. For this company, participation in the GC
was the ‘right thing to do.’ It also, however,
provided additional motivation to improve the company’s
performance because paying attention to anti-discrimination
policies enabled it to build a more diverse client base served
by a more diverse employee base, enhancing long-term profitability.
’ Another company articulated that trust, respect, and
fairness are our fundamental values, answering the question
‘what do we stand for?’ For this company, responsibility
is ‘not optional. You must be it’ and find the
sources of competitive advantage that arise from being responsible.
The GC’s principles themselves can result
in important dilemmas. For example, pharmaceutical companies
struggle with the issue of providing access to medicine combined
with the need for funding future research and current profitability.
Other companies struggle with issues of living wage, diversity
and harassment, noncomplicity with human rights abuses, and
the precautionary approach (not principle) to environmental
sustainability because of the commitments implied and their
business implications. Further, some companies operate in
countries where labor standards, such as freedom of association,
are not permitted. If companies are to take the GC seriously—to
mean it, as one participant said—these issues need to
be resolved in ways that make continuing to do business feasible.
Stakeholder Engagement.
Stakeholder engagement involves figuring out ways for the
company to interact with key internal and external stakeholders.
The engagement process allows companies obtain their opinions
and inputs into corporate activities, and work collaboratively
with them to ensure that mutual needs and interests are addressed,
without the company’s having to give up its own responsibility
for strategic initiatives and business development. As one
participant noted, this issue comes up particularly with respect
to the long supply chains that companies today have evolved
and creates a need for building awareness that external stakeholders
may not differentiate between the company’s and its
suppliers’ practices, especially with respect to the
GC’s principles. Initial reactions by executives may
be that supplier practices are ‘none of my business,’
that avoiding cultural imperialism might dictate staying out
of the suppliers’ businesses, or that a pluralism of
values globally exists that cannot be dealt with. By working
with NGOs (and other stakeholders) that are willing to engage,
some companies have found, however, that reasonable solutions
to obvious dilemmas with no clear or straightforward solution
can sometimes be found.
Integration
Involvement in the Global Compact means taking
seriously the need to operationalize the principles into strategies
and everyday practice, not just rhetorically articulate them.
The key is to ensure that the principles go beyond rhetoric
into practices that are known both from the top down and the
bottom up.
Integration into Corporate
Strategies and Vision. Making the GC principles real
is a key concern of companies as they consider whether to
sign on or not. As one corporate representative stated, it
is necessary to make the principles ‘part and parcel’
of the company’s purpose, as an ‘owned’
affair, rather than an add-on to existing activities.
Integration into Human
Resource Practices and Systems. Among the key issues
in the Global Compact are human and employee rights. Because
employees are the stakeholders who actually carry out the
company’s strategies, they are critically important
stakeholders. Principles such as the anti-discrimination principles
(#6) make clear, as a conference presenter stated, that ‘ethics
count and are inseparable from doing business.’ And
as another presented noted, the reality is responsibility
to employees and other stakeholders is important because ‘core
business practices have greater impact in the long run’
than practices outside core business (e.g., charitable contributions).
Interestingly, as companies become involved
in the GC principles, they sometimes find, as one participating
company did, that the problems they had originally thought
would be found in their supply chains are sometimes internal.
In this situation, the issue was that of paying a living wage
and the company found that it was not so much suppliers’
employees that had the problem as the company’s own
custodial staff.
Integration of the Principles
into Management Systems. The GC’s principles
lay out a set of standards and draw attention to issues, such
as human rights, living wage, and freedom of association,
that are not entirely familiar to management. Focusing on
implementing the principles causes the company to pay attention
to such issues.
Participants in the conference made clear that
signing the GC principles is only the first step in a multi-pronged
process of implementation. Not only is awareness building
with respect to the principles needed internally, but also
companies need to find ways to integrate the principles into
management systems. Still, there is considerable uncertainty
among participating companies about how to actually apply
the principles in practice, particularly with respect to specific
functional areas like research and development, marketing,
and manufacturing. What was clear from the discussion was
the complexity of the integration process, simply because
of many companies’ size, geographic spread, structure,
and product/market mix.
Innovation and Improvement
No company will ever be perfect. While the Global
Compact establishes what amount to aspirational principles,
it is, as a participant pointed out, inevitably likely that
there will be a gap between the ideal and the reality of day-to-day
practice. This gap creates the need for on-going efforts at
improvement and learning, that is, for the establishment of
a long-term process by which the company copes with problems
and issues as they arise.
Indicators: Measuring
and Assessing Progress on the Principles. Critical
to the implementation of the voluntary Global Compact is the
issue of measurement and monitoring progress toward achievement
and implementation of the principles in practice. Issues raised
around the credibility that companies have when they sign
onto the GC hinge on the reliability and validity of implementation
of responsibility goals toward the principles, especially
in the eyes of employees and external stakeholders that include
non-governmental organizations (NGOs) and customers. As one
participant pointed out, as companies become more explicit
about their own core values and raise expectations about living
up to the foundational values inherent in the GC, they can
create vulnerabilities for themselves that might not previously
have been in public awareness. For example, many managers
today are unaware of issues surrounding human rights or certain
labor standards, especially deep within their supply chains.
Adherence to GC principles raises up such concerns to top
management, as well as NGO, attention and creates the potential
need for external monitoring and verification of adherence
to stated goals.
One issue that comes up for companies as they
consider the GC is how to measure cost avoidance. Adherence
to some of the principles can mean that certain problems are
not experienced, e.g., NGO or consumer protests against labor
practices, productivity problems that do not develop because
employees are well treated, or environmental clean-up costs
that need not be incurred. But, as a participant stated, ‘cost
avoidance is hard to measure.’ Dealing with this issue
effectively, very likely means rethinking corporate measurement
systems and creating new standards for transparency and external
accountability, as discussed in the next section.
Transparency and Accountability
for Results. One of the implications of signing onto
the Global Compact’s principles may be that companies
need to create considerably more transparent—and correspondingly
credible—external reporting systems than many have today.
With clearly stated principles and interaction with key stakeholders
who hold the company up to the stated standards, comes anew
level of accountability. Although may companies have recognized
that NGOs and other activists are already holding them accountable—and
publicizing transgressions widely—the visibility of
signing onto the GC creates more impetus than ever for transparency.
It is also the case that NGOs are not democratically elected
and may represent a diffuse set of interests, thus creating
a system that works will take time, engagement to build trusting
relationships, and very likely a long-term process orientation.
Reporting standards for the triple bottom line
of economic, social, and environment goals are just beginning
to emerge. The major contender is the GRI, the Global Reporting
Initiative. The GRI is attempting to create standards similar
to generally accepted accounting principles (GAAP) for social
and environmental reporting that are applicable on a global
basis. As such reporting standards become better established,
according to some participants in the conference, it is likely
that NGOs will have more credibility in verification and monitoring
than will the major accounting firms. It seems clear that
some form of independent monitoring and verification system
will be needed to satisfy corporate critics that companies
are actually living up to their pledges.
Issues
Numerous issues associated with signing on to
the GC—or not—were raised by participants. What
follows is a brief explication of some of the issues raised
during the conference.
Sustainability:
One of the important things to come out of the discussion
on the Global Compact at the conference was a shared understanding
of the need to create a sustainable approach to managing and
implementing the principles embedded in the Global Compact,
thus sustainability is a key issue. The definition of sustainability
that appeared to underlie the presentations and conversation
at the meeting, however, is broader than the more typical
usage in its environmental context. Companies themselves need
to be sustainable and to engender sustainable relationships
with key stakeholders, as well are recognizing the need to
create more ecologically sustainable approaches to the use
of environmental resources. This broad concept of sustainability
was captured in the phrase used by one of the corporate participants
recognizing that the company needed a ‘societal license
to operate’ in order to be successful long term.
Credibility and Trust:
Additionally, it was clear that companies considering
signing were taking both the letter of commitment to the UN
Secretary General that signals their willingness to participate
in the Global Compact and the need to live up to the principles
articulated very seriously. In part it seems that the credibility
arises because of the UN’s involvement in the initiative,
putting the weight of international agreements behind the
principles. In part, the seriousness comes because of the
requirement for a letter signed by the CEO of the company,
which puts the full weight of the company’s own reputation
behind the letter. In part, the seriousness rests on the reality
that any signatory company’s own credibility is at stake.
Its stakeholders need to trust the company to stick to its
work—and to adhere to the standards of integrity implied
by the company’s own core values, as well as the foundational
values embedded in the GC. Stakeholder engagement or social
dialogue is a needed part of the process for establishing
trust and credibility among entities and individuals with
differing perspectives.
Contract: Some
companies raised concerns about what the signing the principles
amounted to a contract, rather than a set of aspirations and
goals. One of the risks perceived by companies, participants
indicated, is that the GC principles will be interpreted literally
or legalistically, especially by external critics of companies.
Visibility and Vulnerability.
Signing on to the Global Compact creates leadership opportunities
for companies, and generates a degree of external recognition.
With this awareness of the company’s stated commitment
to uphold the GC’s principles comes also a bit of vulnerability
if the company does not live up to the standards. Issues of
responsibility, accountability, and transparency are real
when signing the GC, hence companies need to be aware of this
source of potential vulnerability. Combined with the relatively
lack of credibility of companies and the great degree of credibility
of NGOs, some companies realize that getting ‘out in
front’ on these issues creates not only leadership but
also vulnerability. Recognition of this vulnerability may
be why companies represented at the conference appear to be
taking signing the letter to Kofi Annan as seriously as they
are. At the same time, one participant noted that the GC’s
principles give NGOs a tool to go to non-signatory companies
and ask ‘what about you?’
Engagement with NGOs.
NGO opinions on corporate responsibility are likely to carry
more credibility than corporate opinions. Still, one of the
points stressed at the meeting was that there are differences
among non-governmental organizations that companies need to
weigh when considering their engagement policies. Some NGOs
are ideological and likely to be unwilling to engage in constructive
conversations with companies, while less ideological NGOs
may well be able to engage in fruitful collaboration. If constructive
stakeholder engagement—or social dialogue—is in
place, companies can learn from mistakes and problems, which
will inevitably happen, rather than simply taking the heat
from them.
Trade-off or Win/Win:
The GC provides a framework for companies to move forward
on meeting global standards, but many corporate leaders still
believe that there is necessarily a ‘trade-off’
between being responsible and being profitable. Although considerable
empirical evidence exist within both the social investment
and corporate responsibility literatures to suggest that the
more likely reality is that creating win/win scenarios, the
‘trade-off’ mentality still needs to be dealt
with. Cases and examples, highlighted in the GC’s website
can provide further evidence that helps deal with this perception
over time.
Transparency:
The Missing Tenth Principle: One point noted at the conference
was that there is a ‘tenth principle,’ an anti-corruption
and transparency principle that is still missing. This principle
was omitted because there was at the time of the GC’s
creation no universally accepted declaration against corruption,
however, the UN realizes the need for such a principle. When
the declaration or convention is accepted, it will be included
in the Global Compact.
Toward the Tipping Point?
It was clear from both the participants in the
conference and the conversation that the Global Compact had
not yet reached a ‘tipping point’ in the United
States at the time of this conference. Yet it was equally
obvious that there is considerable corporate interest in the
Global Compact and the principles that it stands for, particularly
as the fundamental question with which the GC deals continues
to be raised. That question, as articulated at the conference,
is ‘What is the appropriate distribution of responsibilities
in society?’ Businesses, governments, and civil society
organizations, representing different points of view, are
all involved in this determination, and in making responsible
corporate practice, as articulated by the GC’s principles,
an integral part of doing business not just in the good times
but in every time period.
It was also clear that signing on to the Global
Compact is merely the first step in what amounts to an unending
process of continual learning and improvement. Summarizing
one participant’s remarks, this is not a program. It’s
a process. It has a beginning, but no end. It can help people
make good decisions, share learning across businesses and
regions, build trust and commitment through team-based action
learning, and empower locals to take ownership and accountability
for their decisions. As an organization, the Global Compact
is young and still learning and evolving.
More conversations like the one at this conference
are probably needed as the tipping point is approached. Thinking
back to the analogy to quality management, made at the outset
of this short paper, we might take a lesson from that ‘movement.’
What ‘tipped’ quality into becoming the business
imperative that it is today? Arguably, it was pressures from
a combination of sources that created the tipping point. For
example, competitive pressures (e.g., Japanese competition),
social pressures (e.g., consumers demanding better quality),
education and information (e.g., the NBC White paper of the
late 1970s “If Japan Can, Why Can’t We?”),
and companies requiring suppliers to adhere to quality standards
(e.g., ISO’s quality standards) created momentum for
quality.
A similar set of pressures exists today that
are driving corporate responsibility to potentially become
a business imperative in the future. Imagine a world in which
major corporations that had signed onto the Global Compact
required their suppliers to also do so. Imagine that companies
doing so developed systems of stakeholder engagement for which
they were willing to be held accountable, as the AA 1000 framework
advocates, and required their suppliers to do so as well.
Imagine that they similarly adhered to the labor
standards of the GC with measurement and internal accountability
systems resembling those developed by Social Accountability
International in its SA 8000 standards --and required suppliers
to do so as well. And imagine further that external verification
and monitoring could be assured through accountability and
transparency standards reporting mechanisms like those under
development by the Global Reporting Initiative. Such a scenario,
of course, requires the leadership of major firms, their willingness
to hold themselves accountable—and be accountable to
their stakeholders for the major impacts of doing business.
A hard road, perhaps, but possibly a better road to go down
voluntarily than be forced down it by activists’, customers’,
and social investors’ demands for transparency.
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