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Dilemmas in Competitiveness, Community and Citizenship Business and Human Rights Seminar - "Toward Universal Business Principles"

The London School of Economics and Political Science
Remarks by Georg Kell, United Nations
22 May 2001

Thank you for the kind introduction. I am pleased and honoured to be with you here today at the prestigious London School of Economics to talk about the Global Compact. I truly welcome the opportunity to share with you a few thoughts on the subject and hope that some of the open questions I submit to you will be taken up for further exploration. I will focus my talk on two parts. First, I will concentrate on where we came from and where we stand, and in the second part, I will discuss some open questions that remain unsettled.

I. Where We Came From and Where We Stand

We really did not know where we were headed when we started talking about the Global Compact two-a-half-years ago. The truth is we had no intention of actually doing something. The Global Compact was a call-to-action to business leaders by UN Secretary-General Kofi Annan in a speech he delivered at the World Economic Forum in Davos in January 1999. Although Mr. Annan was most sincere in his remarks, and the contents of the speech had been very carefully constructed, we had no plans at that time to embark on a major initiative. Mr. Annan proposed to the business leaders that they, together with the United Nations, initiate a global compact of shared values and principles to give a human face to the global market.

He emphasised that restrictions on trade were not the way to tackle these issues and that corporations should tackle them directly. Specifically, companies should apply nine principles. In the area of human rights, they should ensure that they support and respect human rights within their sphere of influence and are not themselves complicit in human rights abuses. Regarding labour standards, they should uphold freedom of association and the right to collective bargaining, make sure that they are not employing under-aged children or forced labour, and that they do not discriminate in their hiring and firing policies on grounds of race, creed, gender or ethnic origin. In relation to the environment, companies should support a precautionary approach to environmental challenges, promote greater environmental responsibility, and encourage the development and diffusion of environmentally friendly technologies.

The overriding objective of the speech was to offer a framework for filling the governance void at the international level for social and environmental issues that were being bundled with trade and to protect the open global market from protectionism. The idea was to propose a reasonable way forward to help bridge the gap between economic issues, which enjoy a strong set of governing rules, and social concerns, which do not.

The self-serving intent was to boost the three United Nations agencies charged with worker and human rights and the environment, which are the International Labour Organization (ILO), the Office of the High Commissioner for Human Rights, and the UN Environment Programme (UNEP). In the Davos speech, the UN Secretary-General called on leaders to encourage governments to give the UN the resources and authority to do its job.

A second goal was to give meaning to universal principles long agreed upon by member States of the United Nations but lacking implementation.

In essence, the Global Compact speech was an opportunity to position the United Nations as part of the solution to tensions both at the global rule-making level and at the micro-level for social change. In the speech, we put the UN squarely into focus where tensions were the highest: trade and globalisation, corporate social responsibility, human rights, environmental protection and workers' rights.

Now, I'll talk a little bit about the overall environment that produced the speech and the call for action in the form of the Global Compact.

It was ten months before the Seattle meeting of the World Trade Organization but the fragility of globalisation had become obvious. The debate about trade could no longer be reduced to the oversimplified battle of liberalisation versus protectionism. The situation was more complex. It was no longer a case that could be solved solely through negotiations between states. It was apparent that issues of trade, investment and the role of multinational corporations had become thoroughly intertwined with most aspects of domestic policy making and nearly every aspect of economic life.

Secondly, there was the void in governance. Trade negotiators and governments seemed ill prepared to respond to growing public awareness about the imbalances between a fairly robust economic rule-based system and the neglect of valid concerns such as human rights, the environment, and development. People were questioning a system that stood ready to enforce intellectual property rights but turned a blind eye to basic human rights.

Thirdly, it was apparent that globalisation had not brought about a convergence of income as had been hoped. Widespread poverty was not shrinking. Billions of people remained extremely poor and poor countries, especially the least developed, were questioning the rules. With the number of millionaires and billionaires growing and their wealthy lifestyles highlighted in the media, the differences between the richest people and the poor became even more obvious and troublesome.

Fourthly, rising public pressure about the negative aspects of globalisation —however mistaken some of it may have been—was reinforced by changing perceptions about the role of the international business community. It was no longer sufficient that corporations merely comply with laws. There was a push for them to do more—especially in the areas of labour, the environment and human rights where international rules are weak.

At the same time, the governments of rich countries were facing conflicting priorities from their constituencies at home. Many labour unions were concerned with protecting jobs and viewed globalisation, more specifically—the outflow of direct foreign investment, free trade, and the inflow of immigrants—as threatening. Some political parties also continued to champion the protection of jobs at home and the stemming of immigration.

NGOs, church groups, and labour unions were all marching against free trade because of perceived resultant job loss and low labour standards, inadequate environmental standards and violations of human rights in poor countries. And they were advancing their agendas by calling for restraints on market access. Corporations, of course, were lobbying for free trade when it benefited them. And political parties were also generally pro-free trade.

At the same time, developing countries were putting out the message that globalisation was not benefiting them as much as they would like. And they were opposed to linking labour, environment and human rights to trade agreements.

Against this background, the United Nations seemed to offer part of the solution. Organisationally, we had the agencies to deal with labour, human rights and the environment and address some of the governance issues. We had the international standards in these areas that had been agreed upon by all countries—specifically, the Universal Declaration of Human Rights, the International Labour Organization's Fundamental Principles on Rights at Work, and the Rio Principles on Environment and Development that had been adopted at the Earth Summit in 1992. And we had the legitimacy of being the paramount international organisation headed by a Secretary-General who was perceived as having moral authority.

Having said all of that, as I mentioned earlier, we did not really plan to mount a separate initiative on the global compact. We just thought that the Secretary-General's call to action would generate action and run its own course. Well, it did all right! And that course ran right back to the Secretary-General. The response to the speech was extraordinary. Leaders wanted to collaborate with the United Nations and move forward. CEOs and Foreign Ministers took up the concept of the Global Compact with enthusiasm and in six months we realised that we had to do more than just produce fine words and be available for individual meetings. We had to develop the idea further and build an organisational framework.

So, together with the three UN agencies, we started on a long journey with two basic assumptions:

  1. We thought that if the nine principles of the Global Compact became an integral part of economic activities everywhere then economic rules and social concerns would be more balanced. The threat of protectionism would be reduced and millions of people around the world would benefit, directly and indirectly, through increased opportunities, better working conditions, protection of the environment, and respect for human rights. We also thought that keeping protectionism at bay would foster development.
  2. We believed that if the international business community would embrace the nine principles as a broad value platform then their actions would be closer aligned with the goals of the international community and we would have a better chance of implementing the goals through action, advocacy and practical partnerships.

Clearly, the key challenge was to motivate business to act out of self-enlightened interest. And in this, we assumed that doing the right thing made good business sense. If this were not true, we thought it would become true once a sufficient number of businesses took up the challenge and raised the bar. A sufficiently large number of first movers could be motivated to step forward and bring others on board. We believed we were capable of devising a framework of action that was credible enough and practical enough to gain support.

So at that point we began to cultivate endorsements from global actors of the basic concept and the principles of the Global Compact. Some of the first endorsements came from the International Chamber of Commerce, the International Organization of Employers and the International Confederation of Free Trade Unions. We then realised that unless individual CEOs took it up we could never succeed in making the nine principles truly operational. Our first encounters with business were in late 1999. We then realised that we needed major civil society organisations, without which we would not be fully effective either. So we decided we needed at least three major organisations for both environment and human rights. And we got the support of Amnesty International, Human Rights Watch, the Lawyer's Committee for Human Rights, the World Resources Institute, the World Wildlife Fund for Nature and the World Conservation Union.

In July 2000, we launched the operational phase of the Global Compact at a meeting at UN Headquarters in New York, in which about 50 business leaders, labour leaders and about 12 civil society organisations participated and took a stand, giving much impetus to the initiative.

Today, I am proud to announce that the practical framework for implementing the Global Compact is now in place. The infrastructure and concepts have been refined and are ready. We are employing three instruments: learning, dialogue and action.

Learning takes place through the Learning Forum, which is based on annual submissions by corporations of a concrete action or set of actions undertaken to apply at least one of the nine Compact principles. These examples or actions will form the basis of a learning bank about what works and what doesn't in putting the principles into practice. Companies will learn directly from one another's experiences and from the comments made by unions, civil society organisations and the academic community. The Warwick Business School as well as the MIT and think tanks from Brazil and India are supporting the Global Compact office in the operation of the Learning Forum, which is in the midst of a pilot phase and should be ready by October.

Dialogue happens through policy dialogues, which take place each year on specific themes. The first dialogue took place this past March on the theme, "The Role of the Private Sector in Zones of Conflict." As an outcome, progress is being made on such issues as collective action to break the cycle of corruption, measures to enhance transparency, capacity building to create a culture of peace and the elaboration of tools to increase understanding of the impact of business in conflict situations. Basically, the dialogues provide a platform for Compact participants to exchange views and develop concrete action plans to address key challenges of globalisation. Next year's dialogue will review practical experiences dealing with sustainability issues, in preparation for Earth Summit II in South Africa.

Action takes place through partnership projects that contribute to broad United Nations goals such as poverty reduction and development. In addition to applying the nine principles, the Compact also encourages companies to act on broader corporate responsibility issues external to the company, especially to benefit poor countries. Ideally, these projects are undertaken in collaboration with other organisations in support of United Nations goals. So far, dozens of partnerships have been formed to reduce carbon dioxide emissions, combat HIV/AIDS, provide basic education, assure micro-credit, and promote investment in less-developed countries.

We are also doing individual country outreach to bring the Compact to the local level and ensure that the initiative is truly global. We have more companies participating from developing countries than we have from OECD countries. Currently Brazil, China, Ghana, India, Indonesia, Lebanon, Pakistan, South Africa and Thailand are participating and we will shortly move into many more countries. By the end of this year, we will have established the Global Compact in every region. That will solidify its political underpinning and enable us to feed local experiences into the global learning forum and it will offer a local platform for action where business can mobilise concerted support for development. More broadly, the goal is to align corporate social responsibility goals with UN goals and to promote partnerships.

Today we have several hundred companies participating. However, we do not publish the list of companies whose CEOs have written a letter to the Secretary-General pledging their support for the Compact because just pledging support is not sufficient. Of course, it is a good start; we welcome and encourage that first step but we cannot publicly list names until case studies come in and we have something concrete to go on.

Needless to say, there is much activity at all levels. In two months, by mid-July, one year after the operational launch, we will be in a position to communicate progress. What I can tell you now is that dozens of projects are taking shape. Many companies are carrying the principles into the core of their companies. Labour is concluding framework agreements, and NGOs are undertaking concrete initiatives.

Now that I've told you where we came from and where we stand, I would like to address some of the open questions that have arisen during this journey that, in my opinion, require further exploration.

But before I do, I would like to stress that the Global Compact remains an experiment. Success is not assured. Tensions and conflicting interests need to be balanced and managed on four fronts:

  1. Companies have conflicting goals. A few want to be "free riders". Others want to be strategic partners around certain issues that are of particular interest to them. Still others are interested in being true global citizens in full acknowledgement of their social responsibilities and for most of them doing the right thing is nothing new.
  2. Governments have different agendas and expectations. Some want control. Some fear infringement of their sovereignty. Some want to level the playing field while others want to use business to become a partner in development.
  3. Civil society organisations come in three camps. They are ambivalent, supportive or opposed to the Global Compact. Those who are supportive view the Compact as a constructive tool for positive change. Those who are opposed view it as a futile, if not destructive instrument that could damage the integrity of the United Nations.
  4. Then there is the United Nations itself. The UN machinery is not always ready to embrace an issue network that functions outside of the organisation's structural parameters. Luckily, we have Kofi Annan, an innovative leader.

As an initiative of the UN Secretary-General, the Global Compact thrives on leveraging authority and inspiring others to take action. As a campaign tool, we would like all civil society organizations to advocate the principles of the Compact. But in order for them to participate we need them to meet the following five criteria: Ability to act globally, willingness to go beyond a single issue, ability to work with all actors in society, capacity to make a difference and not only a point, and a minimum of accountability in terms of being able to show who the members are and who provides financing.

Concerning business participation we employ a set of criteria that are embodied in general guidelines that we are working to better operationalize. We will soon need to create an instrument to secure the integrity of the initiative.

Overall, success of the Global Compact will depend upon three things:

  1. the extent to which the Compact improves the lives of people;
  2. the extent to which business leaders everywhere embrace the Compact and act; and
  3. our ability to effectively balance conflicting interests and steer the initiative.

II. Questions For Further Consideration

1. Is the Global Compact able to deliver on the development front?

As a UN initiative, the Compact will succeed only if it makes a positive difference for people in developing countries. While the nine principles provide a value platform that can motivate business to align with development and broad UN goals, getting it right remains a daunting challenge. Given that the lack of business rather than business itself is the problem in the poorest countries, we need fresh approaches to tackle long-standing problems.

2. Does the Global Compact represent a new form of governance?

As an issue network, the Global Compact is a response to government or governance failure and institutional imbalances at the international and national levels. It does not have a built-in trajectory to devise new forms of governance, nor is there intent to appropriate a political role for the private sector. Instead, it aims to strengthen prevailing governance structures without blurring the lines of division between public and private responsibilities, which, ultimately, must be drawn by public debate.

3. Voluntary initiatives versus regulation: What are the issues?

The debate about voluntary initiatives versus regulatory approaches is highly polarized and it is often assumed that the two are mutually exclusive. Indeed, this debate oversimplifies or ignores important issues. First, there is no reason to assume that the two approaches exclude each other. Second, we know far too little about self-regulation and how or under what conditions it contributes to public policy goals. Third, the prevailing idealization of international regulation is not supported by facts. Past efforts to achieve public policy goals through international regulation have often failed to mobilize enough political support or taken years to form. Quite often, ratification and implementation were less than satisfactory.

The key questions do not seem to be whether regulation is better than voluntary initiatives or vice versa, but rather what works under what circumstances for what purposes. Finding answers requires a much more in-depth analysis of the issues.

4. How are universal principles internalised and what are the micro-drivers?

For the Global Compact to succeed, CEOs must ultimately take up the challenge. But is a business leader's willingness and readiness to take the challenge based on personality, social and/or economic pressures, ambition, vision, or a combination of many factors? Secondly, on a broader front, to what extent can human rights, labour and environmental concerns become a strategic tool to position a company? Thirdly, how can the Global Compact help business leaders address the challenges of globalisation and perhaps view the global market as 6 billion people?

Another crucial insight could be gained by better defining the micro-driving forces of corporate social responsibility by industry sector. Mapping the drivers could reveal much about who is doing what and why. One might, for example, expect that such a mapping would explain why the public expects pharmaceutical companies to help provide public health services in Africa whereas nobody makes a similar demand on the machine tool industry to meet the continent's industrial needs. Clearly, key variables play a part, such as relative market positions, product visibility and profitability, public awareness and concerted pressure, and, probably most importantly, a gap between capabilities on the one hand and needs on the other.

5. How does the Global Compact contribute to the debate linking trade with social and environmental concerns?

Much of the impetus for the Global Compact centers on trade. As efforts to re-launch trade negotiations are under way, it is quite likely that the link between trade and non-trade issues such as the social clause, environment and human rights will again move to center stage.

To make the Global Compact an effective and constructive instrument to build missing social and environmental pillars into the global open market economy, we need to demonstrate the development dimension of universal standards. In this regard, a distinction between aspirational principles and basic principles seems overdue. While some standards seem to be related to technological and financial capacities or levels of development, others deal with basic human behaviour, irrespective of income levels or technological prowess.

To ensure fairness, it seems appropriate to propose a differentiation for aspirational principles according to capacity. Applying the notion, "Behave abroad as you behave at home," as has been suggested by the esteemed professor of Economics and trade theoretician, Jagdish Bhagwati, would assure that good practices are spread without undermining comparative advantage laws. It would also ensure that developing countries are not punished for lacking the capacity to compete at the same level as rich countries.

Concluding Remarks

So, in conclusion, I hope I have provided some insight into the Global Compact and its place in today's highly globalised world economy. The examination of such issues provides the fuel for solutions, which will determine the well being of millions of people worldwide. I have outlined some open questions that I hope will aid a little in our common search for a better world. For it is only through questioning that we can begin to find answers.

Thank you.