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The Global Compact: The UN's New Deal with 'Global Corporate Citizens'

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"As you know, globalisation is under intense pressure. And business is in the line of fire, seen by many as not doing enough in the areas of environment, labour standards and human rights. This may not seem fair, but it is a perception that will not go away unless business is seen to be committed to global corporate citizenship. The Global Compact offers a reasonable way out of this impasse."

- Kofi Annan in a speech to the American Chamber of Commerce [1]

"The Global Compact is not a code of conduct. Neither is it a disguised effort to raise minimum standards, nor a vehicle for special interest groups. It is a Compact to help markets deliver what they are best at -- while at the same time contributing to a more humane world."

- Kofi Annan in speech to Swedish businessmen [2]


n July 5th, following an all-day meeting with a heavyweight delegation from the International Chamber of Commerce (ICC), United Nations Secretary-General Kofi Annan launched the "Global Compact". Annan described this new international

covenant between the UN and business as "the most sensible way forward to safeguard open markets while at the same time creating a human face for the global economy." [3] Despite the flawed social and environmental records of involved corporations including Rio Tinto, Siemens and Norsk Hydro, this agreement on 'global corporate citizenship' is completely non-binding, with no enforcement mechanisms whatsoever. At a time when global economic deregulation has made mandatory and enforceable international rules for corporate behaviour more necessary than ever, the Global Compact is a questionable initiative.

ICC President Adnan Kassar was accompanied by captains of industry from Norsk Hydro, Rio Tinto, Unilever, Shell, Siemens and 22 other major transnational corporations at the 5 July endorsement of the new agreement.[4] Accompanying Kofi Annan were Juan Somavia (Director-General of the International Labour Organisation), Rubens Ricupero (Secretary-General of the UN Conference on Trade and Development, UNCTAD), Mary Robinson (UN High Commissioner for Human Rights), and Klaus Toepfer who leads the UN Environment Programme (UNEP).[5]

The covenant was first proposed by Kofi Annan at the January 1999 World Economic Forum in Davos,[6] where he addressed the growing backlash against trade and investment liberalisation and suggested the initiation of "a global compact of shared values and principles." [7] Annan "challenged business leaders to embrace three sets of universal principles in the areas of human rights, core labour standards and the human environment." [8] As Annan explained, "I choose these three areas because they are ones where I fear that, if we do not act, there may be a threat to the open global market, and especially to the multilateral trade regime." [9]

The Global Compact statement refers to the Universal Declaration of Human Rights, the 1995 Social Summit in Copenhagen, and the 1992 Rio Earth Summit, but remains very general. UN institutions are to assist business in "incorporating these agreed values and principles into mission statements and corporate practices... The International Labour Organisation, the Office of the High Commissioner for Human Rights and the UN Environmental Programme are currently joining forces under the guidance of my Office to create the capacity to encourage global corporate citizenship and to foster the translation of these principles into corporate practice." [10]

"From a more narrowly self-interested point of view," Annan explained to an audience of Swedish businessmen, "corporations which embrace these principles are better placed to deal more constructively with pressure from single-issue groups." [11] At the July presentation of the Global Compact, Annan told business that the UN would help in establishing "a dialogue between you and other social groups, to help find viable solutions to the genuine concerns that they have raised." [12] For this purpose, a special UN website will be launched to present "the specific pledges made by multinational corporations and allow independent aid groups and non-governmental organisations to publicly challenge companies if they do not abide by the substance of these pledges." [13]

According to George Kell, an officer working directly under the Secretary-General on this project, the new website, which is independent from the existing UN/business website, "will be ready on a trial basis around 1 November. We will continue to add content and actors and hope that by early December we can go public." [14] Kell explained that the website is "a joint effort by the Executive Office of the Secretary-General, International Labour Organisation, United Nations Environment Programme and Office of the High Commissioner for Human Rights to facilitate the implementation of the Global Compact." [15]

The website is the most tangible element of the Global Compact, which made the media ask questions about the status of the agreement. Guardian journalist Peter Capella reported that "privately, UN officials admit that they will not be able to check if companies do respect the voluntary agreement on good practice." [16] A Reuters correspondent came to the same conclusion: "Neither UN officials nor private sector leaders were able to say how their new-found cooperation would translate into practice when dealing with multinationals accused of degrading the environment or working with governments violating human or labour rights." [17]

The Global Compact's joint statement includes two points that were clearly added by the ICC. Firstly, it stressed that "companies cannot be expected to take on responsibilities outside their own sphere of activity that are properly the preserve of Governments." [18] Moreover, the statement says that "the capability of companies to create wealth and to meet their responsibilities to their customers, employees and shareholders is indispensable to fulfilling the compact." [19] These two passages are 'safety valves' for corporations which further dilute potential positive impacts.

THE UN-BUSINESS PARTNERSHIP

Readers of the Corporate Europe Observer will be familiar with Kofi Annan's on-going efforts to build stronger relations with the ICC and transnational corporations in general. [20] Annan is a frequent speaker at business events around the world and makes use of every possible occasion to 'sell' the UN. "Advocating a strong United Nations and greater authority and resources for the UN," he told Swedish industrialists in May, is "the most sensible way of ensuring that markets remain open and that the benefits associated with economic interdependence can be spread more widely." [21]

Annan stresses the role of the UN in providing the "'soft infrastructure' of the global economy, ensuring the free flow of goods, services, finance and ideas... The United Nations I am asking you to support is in fundamental respects a changed organization," [22] Annan told the US Chamber of Commerce, and renewed his request for their help in making the US government pay its full contribution to the UN. [23] The US has US$1.6 billion worth of outstanding dues to pay, which causes serious financial problems for the UN. [24]

As Annan puts it, "a fundamental shift has occurred in recent years in the attitude of the United Nations towards the private sector. Confrontation has taken a back seat to cooperation. Polemics have given way to partnerships." [25] In a speech to the US Chamber of Commerce, Annan concluded that "both the business community and the United Nations are engaged in the service of something larger than ourselves: human security in the broadest sense." [26] Annan continued to stress the common ground: "Values, stability, services: it is no surprise that the United Nations and the private sector are joining forces. The voice of business is now heard in United Nations policy debates." [27]

COMMON VALUES?

A look at the social and environmental records of the companies that have been most actively involved in developing the Global Compact is cause for concern. Present at the July 5th launch of the Global Compact in Geneva were, for instance, the CEOs of Rio Tinto (formerly RTZ), a company involved in massively destructive opencast mining projects in the rainforests of West Papua (Irian Jaya), [28] and Siemens, a major arms producer and the only German company still involved in nuclear power plant construction. Also present were Norsk Hydro, whose drilling operations continue to cause serious environmental damage and repeated human rights abuses, [29] and Unilever, an aggressive promoter of biotechnology in food production and a company with a poor record of compliance with environmental regulations.[30] The destructive social and environmental record of the Shell oil company needs no further elaboration. [31] The reality of corporate behaviour leaves no doubt that, rather than "human security in the broadest sense," the corporations with which Annan has engaged in the Global Compact are primarily interested in the pursuit of profit and returns for their shareholders. Indeed the discourse of 'global corporate citizenship' is deeply flawed as it implies that the social and ecological problems caused by corporate-led globalisation can be solved by appealing to the moral consciousness of these corporations.

BUSINESS FIGHTING BINDING RULES

The corporations involved in the Global Compact continue to do everything in their powers to avoid the imposition of binding rules - and particularly international standards - upon their activities. Instead, they promote 'self-regulation' as the solution. Even when the proposed Multilateral Agreement on Investment (MAI) ran into strong opposition in 1998, business groupings like the International Chamber of Commerce (ICC) refused the OECD's proposals to include some rules for corporate behaviour. The ICC has campaigned vigorously against binding regulations in numerous multilateral environmental treaties, including those on climate change, biodiversity and ozone-depleting chemicals (the Montreal Protocol), promoting self-regulation instead. The US Council on International Business (USCIB), the US affiliate of the ICC, fiercely resists corporate codes of conduct promoted by trade unions and environmental and human rights organizations. [32] In December 1998, the USCIB issued a statement saying that "such externally imposed codes are unacceptable to the business community, are unworkable, and would be ineffective in resolving labour and environmental problems." [33] The USCIB calls the demands made on business by NGOs "unrealistic, contradictory, and counter-productive" and rejects "the notion that companies can be held responsible for the overall behaviour and policies of their subcontractors and suppliers throughout the supply chain." [34] The USCIB furthermore rejects the desirability of standardising corporate codes of conduct, and is vehemently opposed to the independent auditing and verification of "these imposed codes," warning against "the hazards of accepting such an intrusion." [35]

UNDP: BINDING RULES NEEDED

The USCIB and the ICC are no doubt satisfied that binding standards for corporate behaviour are not part of the Global Compact. From a non-business perspective however, this absence is a missed opportunity given the valuable work which has been carried out within the UN, particularly until the early '90s.

Until 1993, the UN had a Centre on Transnational Corporations (UNCTC) which carried out research and worked with the Commission on Transnational Corporations, an intergovernmental body with the mandate of developing a code of conduct for TNCs. The 1986 draft UN Code of Conduct on Transnational Corporations, according to Friends of the Earth, "would have required not only compliance with host countries' laws and respect for human rights and fundamental freedoms, but also adherence to economic goals, development policies and socio-cultural objectives and values of the host country." [36] Although the draft Code of Conduct would not have been binding, it included important elements such as "placing prohibitions on TNCs interfering with host country politics" and on "TNCs lobbying home country governments to influence host country politics in their favour." [37] Unfortunately, the draft code was increasingly watered down and a final version was never approved, mainly due to pressure from industry and the US government. In 1993, the UNCTC was dismantled as part of an internal 'reorganisation', and UNCTAD became the new UN focal point for work on TNCs. UNCTAD, however, has not addressed the regulation of TNC activities, but rather works closely with businesses in order to stimulate foreign investment flows to the Third World.

There are, however, still people within the UN institutions who have not been convinced by industry's gospel of self-regulation. In fact, in its latest Human Development Report, the UN Development Programme (UNDP) came to conclusions that contradict the voluntary approach underlying the Global Compact. The 1999 Human Development Report, launched in June, concludes that "the new rules of globalisation - and the players writing them - focus on integrating global markets, neglecting the needs of people that markets cannot meet. The process is concentrating power and marginalising the poor, both countries and people." [38] The UNDP leaves no doubt about the need for binding international rules for TNC activities, considering the dominance of corporations in the global economy too great for voluntary codes to suffice. "Tougher rules on global governance, including principles of performance for multinationals on labour standards, fair trade and environmental protection, are needed to counter the negative effects of globalisation on the poorest nations." [39]

The UNDP's new proposal for binding rules provoked a prompt and furious reaction from ICC Secretary-General Maria Cattaui. In an open letter printed in the Financial Times, Cattaui claimed that the Human Development Report "is on the wrong track in calling for a mandatory code of conduct for multinationals." Such binding rules, she argued, "would put the clock back to a bygone era... Governments in the poorer countries now compete to create a hospitable climate for foreign direct investment," she concluded and referred to the ICC's cooperation with Annan and the UN as an example that "times and perceptions have changed." [40]

THE WTO CONNECTION

The Global Compact deals with more than only 'global corporate citizenship'. The joint ICC-UN statement of July 5th expresses strong support for "a new round of trade negotiations that is expected to be launched at the end of the year." [41] According to the statement, "The early and successful conclusion of a new trade round would contribute to reinforcing the economic momentum generated by trade liberalisation." By embracing the corporate trade and investment agenda, Annan has clearly taken sides in one of the most heated issues in the current debate about the global economy. He not only alienates himself from a very large part of the 'civil society' he otherwise speaks so positively of, but also from the large number of Southern governments which oppose the idea of a comprehensive round of liberalisation negotiations that would include new issues not previously part of the WTO. More than 1,200 groups from over 80 countries have signed a joint statement against the proposed WTO Millennium Round and for "a comprehensive and in-depth review and assessment of existing agreements" as well as effective steps to change them. [42] Many of these groups and networks such as the Peoples' Global Action (PGA) maintain that the WTO is flawed beyond reform.

Other NGOs and many trade unions are campaigning for social and environmental clauses to be added to the WTO's rules. Annan warns against this "enormous pressure from various interest groups to load the trade regime and investment agreements with restrictions aimed at preserving standards in the three areas (human rights, labour standards and environmental practices)," and the UN-ICC statement mirrors this by saying that "the rules-based multilateral trading system was not designed to address these non- trade issues. To call on it to do so would expose the trading system to great strain and the risk of increased protectionism, while failing to produce the desired results."

At the press launch of the Global Compact, ICC vice-president Richard McCormick described the multilateral trading system as very fragile "to the degree that its link with labour, its link with environment could cause a disaster in that trading system." [43] McCormick said that instead of embroiling labour and environment issues in the new round of global trade talks expected to be launched in Seattle, the ICC would try to convince the U.S. government to address these issues through side agreements as was done for the North American Free Trade Agreement. [44] Instead, "enhancing the authority, effectiveness and the resource base of these UN bodies is the most productive way forward," the statement concludes. [45] There is no mention of even the most moderate of NGO demands, for example that multilateral environmental treaties should not be undermined by WTO rules.

BINDING RULES FOR TNCS

While at first glance Annan's Global Compact initiative might appear to be a praiseworthy step to improve corporate behaviour in the global economy, its vague and voluntary character means that it will likely do more harm than good. In an analysis of the history of the regulation of TNCs, Friends of the Earth concludes that "non- binding agreements are less effective than mandatory ones and in many cases can actually delay the introduction of strong agreements." [46] Annan has made it no secret that the Global Compact is a chance for corporations to improve their public image and counter the backlash against trade and investment liberalisation. Disturbingly, it is certain that through the Global Compact the UN will contribute to the largely incorrect impression that corporations are on the way to becoming socially and environmentally responsible actors. The Compact raises a number of important questions. For starters, why has Annan not at any stage of developing this covenant consulted with the many public interest groups involved in campaigns against corporate power abuse around the world? The big question for Kofi Annan, however, is why business should not simply be forced to follow mandatory international standards for corporate behaviour.

Campaign groups around the world have presented very detailed proposals for how an international framework of binding rules for TNCs could look. [47] An international NGO statement on the global economic crisis from earlier this year stressed that "corporations must be held accountable to standards through effective binding mechanisms for monitoring and enforcement, such as international courts with citizen standing, access to local courts, standing to pursue justice in the home country courts of TNCs, and financial sanctions for non-observance." [48] The UK- based World Development Movement (WDM) proposes an international Core Standards Commission to which citizens groups could submit complaints about corporations failing to live up to a set of enforceable global minimum standards, based on a wide range of existing UN agreements (on human rights, working conditions, equality, consumer protection, environment, local communities, business practices and sovereignty). [49] The victory over the Multilateral Agreement on Investment (MAI) and the generally increased awareness about the role of transnational corporations in the globalising economy could give new momentum to the necessary move away from Global Compact-style corporate self-regulation and towards international rules through which corporations can be held accountable.

For more information on the liaisons between corporations and the United Nations, see the special website maintained by Corporate Watch US: http://www.corpwatch.org/trac/globalization/un/index.html

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NOTES

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1. Secretary-General, addressing United States Chamber of Commerce, highlights fundamental shift of United Nations attitude towards private sector, text of the address by Secretary-General Kofi Annan to the United States Chamber of Commerce, in Washington, D.C., 8 June 1999, UN Press Release SG/SM/7022.

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2. The Secretary-General Address to Svenska Dagblates Executive Club, Stockholm, 25 May 1999 - Issued by the United Nations Department of Public Information, originally as Press Release SG/SM/7004.

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3. Businesses Promise UN Boss to be Good Citizens. Reuters, Geneva, 5 July 1999.

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4. World Business Responds to Kofi Annan's Challenge on Shared Goals with UN, ICC press release, Geneva, 5 July 1999.

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5. Ibid.

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6. The World Economic Forum (WEF) is a major forum for international elite consensus-building and strategizing which holds its annual meeting in Davos, Switzerland. According to the Forum itself, each year "1,000 top business leaders, 250 political leaders, 250 foremost academic experts in every domain and some 250 media leaders come together to shape the global agenda." Source: WEF, "Annual Meeting in Davos".

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7. Secretary-General Proposes Global Compact on Human Rights, Labour, Environment in Address to World Economic Forum in Davos. UN Press Release SG/SM/6881.

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8. The Secretary-General Address to Svenska Dagblates Executive Club. Stockholm, 25 May 1999 - Issued by the United Nations Department of Public Information, originally as Press Release SG/SM/7004.

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9. Secretary-General Proposes Global Compact on Human Rights, Labour, Environment in Address to World Economic Forum in Davos. UN Press Release SG/SM/6881.

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10. The Secretary-General Address to Svenska Dagblates Executive Club. Stockholm, 25 May 1999 - Issued by the United Nations Department of Public Information, originally as Press Release SG/SM/7004.

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11. Ibid.

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12. Business Backs Trade Role for UN. The Guardian 6 July 1999.

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13. Ibid.

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14. Letter from Jessica Jiji, UN Information Officer, Monday September 20th, 1999.

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15. Ibid.

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16. Business Backs Trade Role for UN. The Guardian, 6 July 1999.

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17. Businesses Promise UN Boss to be Good Citizens. Geneva, Reuters, 5 July 1999.

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18. Joint Statement on the Global Compact Proposed by the Secretary-General of the United Nation, Geneva, July 5th, 1999.

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19. Ibid.

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20. See for instance, Issue 3 of the Corporate Europe Observer, UNDP and TNCs: Integrating Two Billion People into the Global Economy.

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21. The Secretary-General Address to Svenska Dagblates Executive Club. Stockholm, 25 May 1999 - Issued by the United Nations Department of Public Information, originally as Press Release SG/SM/7004.

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22. "New management structures are in place as a result of a comprehensive reform effort. New leaders have taken the reins in the fields of human rights, health, development and the fight against crime and drugs. We even have a new web page designed to help business do business with the United Nations." Source: "Secretary-General, addressing United States Chamber of Commerce, highlights fundamental shift of United Nations attitude towards private sector", text of the address by Secretary-General Kofi Annan to the United States Chamber of Commerce, in Washington, D.C., June 8th 1999, UN Press Release SG/SM/7022.

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23. "The United Nations would also like to enlist your help in breaking another logjam. The United States has now been in arrears in its payments to the United Nations for 13 years." Source: Ibid.

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24. A Perilous Partnership: The United Nations Development Programme's Flirtation With Corporate Collaboration. TRAC, 1999.

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25. Secretary-General, addressing United States Chamber of Commerce, highlights fundamental shift of United Nations attitude towards private sector. Text of the address by Secretary-General Kofi Annan to the United States Chamber of Commerce, in Washington, D.C., June 8th 1999, UN Press Release SG/SM/7022.

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26. Ibid.

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27. ibid.

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28. Local people's lands have been confiscated and their sacred mountain ravaged. The World Development Movement writes: "Each day 110,000 tonnes of waste from the mine is dumped into the local river. Local people had not been consulted or given adequate compensation. The protests of the Amungme and other tribal peoples have been met with torture and murder by the Indonesian army. In May 1995, 11 unarmed villagers were massacred." From the WDM website:

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29. Subsidiary Utkal Alumina has been associated with human rights violations against local people in India, according to Norwegian NGO Norwatch. Norsk Hydro is responsible for environmental damage related to oil drilling in northern Norway and Northwest Russia. The company is also the world's foremost manufacturer of PVCs.

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30. Unilever subsidiary Crosfield was fined 7,500 in 1993 and its UML and Vinamul subsidiaries fined 35,000 and 19,000 in 1995; Unilever was fined 30,000 in 1996 after spilling seven tonnes of oil in Cheshire, UK. The company has admitted that it has no regulations against the use of child labour, and that it cannot guarantee equal opportunities for women.

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31. Royal Dutch/Shell was involved in the crimes against the Ogoni people in Nigeria through its funding of the former Nigerian military regime. Despite plenty of green rhetoric, Shell's investment in solar energy does not exceed the amount that the company recently invested in a single coal-fuelled power plant in Australia.

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32. USCIB Rejects Efforts to Impose and Monitor Standardised Codes on Multinational Corporations. New York, 21 December 1998, PRNewswire.

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33. Ibid.

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34. ibid.

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35. ibid.

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36. FDI Regulation and Corporate Accountability: A Discussion of Policy Options. Discussion paper by Friends of the Earth US, November 1998.

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37. Ibid.

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38. The report points to job losses and job insecurity as major causes for the growing social inequality between and within countries, fuelled in part by a growing trend towards large cross- border mergers and acquisitions - which accounted for 58 percent of all foreign direct investment in 1998.

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39. The report also calls for international rules to limit corporate concentration: "the mandate of the WTO needs to be expanded to give it anti-monopoly functions over the activities of multinational corporations, including production, working in close collaboration with national competition and antitrust agencies." Please note that this proposal is different from the EU's suggestion to expand the WTO's powers to cover competition policies, which would give TNCs a new instrument for removing barriers to market access, for instance in countries where distribution rights are granted to local companies. The Human Development Report is concerned about the fact that TNCs are involved in more than 60 percent of world trade and dominate the production, distribution, and sale of many goods from developing countries, especially in the cereals, mining, and tobacco sectors. "About a third of world trade is conducted as intra-firm trade within multinational corporations, bypassing altogether the free play of genuine market competition," the UNDP argues. Source: Call for Rules on Global Integration. Financial Times, 12 July 1999.

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40. Code of Conduct will Turn Clock Back. Financial Times 21 July 1999.

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41. Joint Statement on the Global Compact Proposed by the Secretary-General of the United Nations.

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42. See Corporate Europe Observer Issue 4.

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43. Businesses Promise UN Boss to be Good Citizens. Geneva, 5 July 1999, Reuters.

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44. U.N. Chief, International Chamber Oppose Linking Labour, Environment in WTO System. International Trade Reporter, Volume 16 Number 27, Wednesday, 7 July 1999.

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45. World Business Responds to Kofi Annan's Challenge on Shared Goals with UN. ICC press release, Geneva, 5 July 1999.

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46. A History of Attempts to Control the Activities of Transnational Corporations: What Lessons Can Be Learned. Discussion paper by Friends of the Earth England, Wales and Northern Ireland, November 1998.

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47. See for instance, Making Investment Work for People: an International Framework for Regulating Corporations. the World Development Movement's People Before Profits campaign, December 1998.

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48. A Call to Action: A Citizen's Agenda for Reform of the Global Economic System. The statement was endorsed by the conference "Towards a Progressive Global Economy", organised by Friends of the Earth, the Third World Network and the International Forum on Globalisation, December 1998, Washington D.C.

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49. Rather than through national governments, the corporations would be directly responsible for complying with these standards and sanctioned if they failed to do so. The WDM suggests the establishment of an international Core Standards Commission (CSC), with representatives from trade unions, governments, business and courts. The CSC would hear complaints against companies accused of breaching internationally agreed core standards, complaints that could also be submitted by citizens groups. The CSC would then decide whether to transfer the complaint to a local court. Governments signing the core standards would agree that TNCs registered in their countries would have to respect home country standards, as well as host country standards, in their operations around the world. "Making Investment Work for People: An International Framework for Regulating Corporations," WDM People Before Profits Campaign, December 1998.

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