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The Global Compact: Corporate citizenship - When the global ‘why’ meets the local ‘how’

In the first of Ethical Corporation’s new series of interviews with leaders, editor Tobias Webb speaks with Georg Kell, executive head of the United Nations Global Compact. This is an extended version of the interview that appeared in the magazine print edition in June 2006

It seems appropriate to begin a series of interviews with leaders and company chief executives with Georg Kell, executive head of the United Nations Global Compact.

Few corporate citizenship initiatives have generated as much interest from companies, non-governmental organisations and the media as the compact.

Founded in 2000 by Kell, a former financial analyst turned UN adviser on trade and development, the Global Compact now has 3,000 members.

Kell and UN secretary-general Kofi Annan personally pushed its development to draw in business to help tackle global problems, which are broadly outlined in the compact’s ten principles, which signatories should attempt to adhere to.

Recent times have been busy for the compact. In the past few months it has launched a foundation to provide funding and a board to govern its direction, and has set in motion an initiative to transform international financial markets on sustainability issues.

New board: a ‘critical element’

On the issue of the new board, the creation of which seems in line with the compact’s pro-business outlook, Kell says it is “a critical element” in the maturing of the compact, from a small unit in the secretary-general’s office to a fully fledged entity. The Global Compact Office is now recognised by the General Assembly of the UN.

The compact has local networks of members working on the ten principles on a national basis. The new multi-stakeholder board, chaired by Sir Mark Moody-Stuart, former Shell chairman and current chairman of Anglo American, the mining company, is there to give “overall guidance” and to “steer the compact forward”, says Kell.

The board will oversee quality management, and will connect with local networks via an annual forum in Barcelona where local network representatives will discuss progress and share ideas. Sub groups and working committees may devolve from the board to tackle particular issues, Kell says.

Board members from business are geographically spread out, from Chile to India. This may help maintain a global perspective for the compact and allow input from business not just in Europe or the US, but also from regions where corporate citizenship needs to find its own local flavour, such as Latin America, Africa and Asia. It is about “connecting the global with the local level”, says Kell.

The foundation

The newly launched fundraising arm may solve a long-standing Global Compact problem: funding. The UN itself – with the equivalent of its annual budget spent every 33 hours by the Pentagon – is notoriously short of cash.

The compact has represented something of an energetic, unflagging microcosm of this over the past half decade, with only a handful of core staff begging and borrowing experts from institutions such as GTZ, the German development agency, or other arms of the UN, such as UN Environment Programme and UN Development Programme. Until now the Global Compact Office has been funded by a trust fund supported by ten governments.

These have encouraged the securing of complementary funding from Global Compact participants, says Kell, hence the creation of the foundation. The foundation is chaired by overall board chairman Sir Mark Moody-Stuart.

The idea is to raise $1 million a year to help the compact develop tools for members to help them live up to the compact’s ten principles and for strengthening local networks, particularly in developing economies.

Is the compact maturing? “Absolutely,” says Kell. The recent changes are to give the compact “an organisational underpinning to create growth”. Kell says a flexible business structure rather than a more top-down traditional bureaucracy works better for the compact.

“We borrowed heavily from the Visa model,” he says, referring to the money-transfer system that is used by companies worldwide. He also noted the influence of top NGOs Transparency International and Amnesty International on how the compact is now organising itself.

The Compact now has some 53 local networks, designed to help embed compact principles on a local, self-organising basis. Thirty of these are in developing countries, which are encouraged to compete with each other on a quality basis. “Their licence to operate has to be renewed on an ongoing basis,” says Kell.

He admits that comparisons between networks are tough, since starting points in, say, Brazil are very different from, for example, Ukraine or Pakistan, which have only just launched their local networks of firms. The compact has minimum standards that networks must adhere to, which are individually negotiated with the local network partners.

“Our next meeting will work out the incentives,” says Kell, under which local networks can become even more robust and more representative. This local flavour of global minimum standards is important to the compact as local networks use its name and brand, even though their structures vary to take account of local conditions.

All compact members must produce what the compact calls a “communication on progress”, essentially an accountability measure to demonstrate how they are adhering to the ten principles.

Local networks are also encouraged to be multi-stakeholder and encompass civil society groups as well as business. The UN Development Programme helps out where it can with local networks in poorer nations, particularly in Africa.

Making the principles part of organisational change

When it comes to levels of engagement with the ten principles by existing members, “obviously we have leaders and laggards”, says Kell. Signatories defined as “non-communicators” and “inactive participants” by the compact are publicly listed as such. This is what Kell calls “exercising pressure, a little bit of the stick”.

Local networks use peer reviews of each other’s work to judge progress, Kell says, and one of the objectives of local networks is to work collectively together, particularly on areas such as corruption, which can sometimes only be tackled by group action in a particular region or country.

The area of laggard member accountability has been one of the major areas of complaints by NGOs about the compact. Groups such as Oxfam have complained that some companies do much less than others and that a tougher line is needed. T

he compact’s approach now seems to be something of a compromise between FTSE4Good’s approach – the ethical index announces who has failed to make enough changes to stay in its index – and the compact’s original need to build up members before gently applying pressure to drive progress.

Kell says that dialogue with NGO critics of the compact “has improved significantly” in the past few years. He describes the past few years as revealing some important trends, one being that the debate over voluntarism versus regulation may be maturing a little.

“I think it is increasingly understood that voluntary initiatives are not a substitute for regulation but a complement. You need both in the real world. Different situations need different approaches … understanding about that finally seems to be sinking in.

“However, I wouldn’t rule out a new wave of backlash in a year or two, these things seem to move in cycles.” A change in the US administration, he points out, may mean a refocus on the corporate world from NGOs and politicians.

Institution building

When it comes to business environments in developing nations and local standards and law enforcement, a common complaint from companies is that governments, nationally and locally, often lack both capacity and will to enforce their laws.

Kell agrees that companies have a role to play in helping build civil society and governmental capacity outside the NGO sector in such nations. “I think it’s unavoidable,” he says. A company has a responsibility, he says, to “contribute to more robust public institutions”.

Business has taken a cautious course in this area since the political turmoil of the 1970s, says Kell. “In today’s new world order, business has long gone global and governments have remained local. Some governments do not have the capacity or the will to act in the best interests of their people. Business has to demonstrate greater engagement in building more robust, stable and fair policy frameworks. It is unavoidable.”

Growth strongest in emerging economies

The Compact already has 3,200 participants from 93 countries, 110 of which are S&P global 500 companies and 1,000 “very large corporations”. Thirty per cent of members are small and medium-sized enterprises.

Growth is currently greater in developing countries. Four to five hundred other participants are made up mostly of NGOs, some universities and a few city authorities. About half of Global Compact participants are from outside the OECD.

Kell on Paul Wolfowitz, president of the World Bank:

“We could be in for a positive surprise. The drive on anti-corruption is a welcome one. If there is a commitment to come up with a fair and a credible approach across the board and not politicise the issue, we all stand to benefit…If governments fail, markets cannot succeed.”

“Asking business to come clean on corruption while society at large and public institutions fail to do so is not only not fair, it does not tackle the root cause of the problem.”

On the financial markets and corporate citizenship demands:

The UN’s principles for responsible investment in public pension funds were launched in Paris and New York at the end of April. By early May institutional investors controlling more than $4 trillion in assets had signed up to the principles. The financial markets are vital to the future of better corporate citizenship, says Kell: “They are the decisive factor”.

They “forge a much-needed link between corporate responsibility and decision-making in the financial markets”, says Kell. “Long-term investors are now recognising that in an inter-dependent world the price-risk analysis is changing, and unless and until organisations internalise sound principles in their own organisations they are not well prepared to manage risks and opportunities. Financial markets are now adjusting their risk paradigms to take this into account.”

Kell considers the launch events as historic; the principles state that environmental, social and governance issues “in today’s inter-dependent world”, as Kell puts it, are “increasingly important for long-term viability of enterprises”. Therefore long-term investors, he says, are taking these factors into account through research and preference setting. “It will fundamentally help to establish the business case,” he says.

On corporate social responsibility standards:

It’s a complex area, says Kell. “Over time the field will sort itself out.” For Kell, what’s important for corporate social responsibility standards to deliver is “process, performance indicators that allow credible and material communication on changes made over time”.

The field of corporate citizenship is “moving away from end of the pipe measurements” like some of the investment and benchmarking schemes, and is now more about positive screening than negative screening (where ethical funds seek to engage companies rather than simply counting them out by industry). “The financial markets will ultimately have the final say in terms of what will emerge in the market place”.

On Sudan and the current divestment campaign:

“It’s a huge dilemma”. Some of the Global Compact members have said they want to form a campaign to pressure governments to do more on tackling the genocide in Sudan, he says. “I’m always reluctant to advocate a divestment approach. I have yet to be convinced that divestment has ever really worked.”

Studies that have looked at the divestment campaigns that took place with regard to South Africa have shown that companies that implemented the right policies on the ground and stayed, “have probably contributed more to a peaceful transformation than those who left”.

Kell’s tips for chief executives:

“If you want to become a leader in this field you really have to practise what you preach at the top, building transparency, accountability and sound ethics into your operations globally.”

Chief executives must have strict incentives in place, make sure the culture of the company lives the values of the firm and Kell says “redesign your whole incentive structure” so that corporate responsibility becomes a board issue of strategic significance. “This is so fundamental to long-term value creation.”

In order to achieve this, argues Kell, a chief executive must really be willing to “push it down the line into the last outreach of the supply chain”. “This requires turning corporations into learning organisations which come to grips with the imperatives of the 21st Century.”

On internalising the ten principles within the United Nations itself:

The UN pension fund has also signed up the newly launched principles for responsible investment. “It took us two years to make the case … the next order of the day is to get our procurement fully in sync with the Global Compact. These kinds of organisational change issues are really tough; this is one step in a long change process.

“My dream is to make the United Nations the most transparent of all public institutions and to make it as accountable as possible; we need to set an example.”

The compact has recently published a report called Business UNusual, looking at what it can learn from companies about how to reform the UN and better reward performance.

On the value of Global Compact local networks:

“Usually, companies start off by doing little partnership projects with an NGO or with one other company. Increasingly, local networks act as catalysts to bring together a larger number of like-minded companies together to work more on the systemic change issues.”

On anti-corruption in countries such as Argentina, Bulgaria and Malawi:

“It’s not enough if just business takes steps. We also need to bring on board public institutions, hence the idea of collective action. The idea of a local network, with public institutions working together, is increasingly gaining momentum.

“The more general challenge is how to combine global advocacy with local action.

“We are experimenting with a number of models. We don’t know which works best, but we do know you need buy in at the local level but we also know that a global authority and push can help sometimes to kick start something.

On organising a local network in China, where the government is institutionally biased against organised groups:

“China is a special case. We have decided to focus more on the broad-based educational efforts and institutions that have the capacity to work towards large-scale change. In part the CEC, the China Enterprise Confederation, is working on a large scale with the compact to translate documents and hold workshops. We are betting on a long-term educational effort. CEOs of companies like TLC and Conoco really seem to get the message and have made very bold moves and statements [on corporate citizenship].”

On companies saying that the compact just puts a badge on what they do already:

“It doesn’t matter at all. We are proud to act as accelerators and facilitators and re-enforcers.” The recent McKinsey study on the impact of the compact found that the compact gave companies connections to other companies to share learning on the ten principles. “In many markets the compact is de facto the first initiative of this kind to bring on board champions in emerging economies.”

Others on the Global Compact:

“We believe the Global Compact has the potential to contribute positively to sustainable development. At the micro level, the GC can provide legitimacy and strength to CSR departments in the member company. At the macro level, the GC can create a greater understanding in the business community of the need for increased corporate accountability …

"If the Global Compact is to contribute to sustainable development, the limits of voluntary initiatives should not be under-communicated within the Global Compact, neither should the secretariat use its agenda-setting and legitimising power to define corporate responsibility as a strictly voluntary matter. Sustainable development is not that easily achieved.”

Maria Gjølberg and Audun Ruud, The UN Global Compact − A Contribution to Sustainable Development? Working Paper no. 1/05, University of Oslo, 2005.

By Tobias Webb, editor of Ethical Corporation, June 2006

(Last update 20 June 2006)