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The UN Global Compact

Published: 18. 10. 2002

Multinationals in the social and environmental vanguard? - Article published in: Swiss Coalition News, No. 32, October-November 2002

Global CompactFor years now the multinationals have been lobbying for the rights of foreign investors to be regulated by binding rules. Yet they angrily reject any binding regulation of their social duties, as is being demanded of them by social movements. Instead, they advocate voluntary «self-regulation», for which the most outstanding major project is the Global Compact of the United Nations (UN).

The Global Compact binds the signatory companies to implement human rights, core labour standards and the principles of sustainable development in their spheres of influence. Yet it does not prescribe what specific obligations arise from it, and lacks a body that could monitor implementation by enterprises. Instead, the UN describes the Compact rather vaguely as «a value-based platform designed to promote institutional learning».

UN Secretary-General Kofi Annan unveiled the idea in 1999 at the World Economic Forum (WEF) in Davos. With the active support of the International Chamber of Commerce (ICC) the Compact was established in summer 2000. Today, the UN lists the names of 82 multinationals and 18 international economic associations as members of the Compact, as well as the International Federation of Free Trade Unions, the WWF or Amnesty International, amongst others.

A new social contract «light»


In 1999, Kofi Annan justified his suggestion with the «fragility» of globalization. There was an enormous imbalance, he said, between economy, society and politics that could not be allowed to persist. The industrialized countries had last experienced such tensions during the 1930s: «In order to restore social harmony and political stability, they adopted social safety nets and other measures, designed to limit economic volatility and compensate the victims of market failures.» Today, a similar compact should be sought after in order to «underpin the new global economy». «If we succeed in that, we would lay the foundation for an age of global prosperity», comparable to the golden post-war period in the industrialized countries.

Many critics of globalization would welcome such a «Global Compact». Kofi Annan's words could be construed as a plea for a kind of international Keynesianism and universal welfare state. That would be strong medicine. The real Global Compact is no more than a placebo by comparison. The voluntary undertaking by transnational corporations to do good would hardly be enough to eliminate the imbalances of globalisation and comes nowhere near the economic and social commitments of the post-war period.

Priority for human rights would be the right thing …


Kofi Annan is certainly right about one thing: If the basic principles of the Global Compact were to be implemented in most countries, the world would look quite different. Yet, political and economic power relations do, albeit to varying degrees, militate against an ideal world where human rights are realized. Implementing them calls for arduous emancipation processes in the various countries, which cannot be replaced by any «dictate» from outside. The United Nations as well as governmental and non-governmental players can exert a positive influence in this regard. Yet they have often negatively impacted such emancipation processes.

The role of multinationals is being looked at in this connection. They take economic advantage of the differing standards between poor and rich countries; they sometimes oppose improvements to them and tend to compose with even the most horrendous regimes. This is why social movements are demanding that multinationals should be obliged by international conventions to observe the higher standards that apply in the wealthy industrialized countries.

The multinationals argue in their defence that they must obey the laws of individual countries and that they are not responsible for the latter’s development. The enforcement of human rights etc. is the task of politicians and not of economic players, they say.

… but: the business of business is profit


Kofi Annan turns this argument completely on its head. At the Compact's founding ceremony, he stated: «Companies should not wait for governments to pass laws before they pay a decent wage or agree not to pollute the environment … If companies lead by example, the governments may wake up and make laws to formalize these practices.»

Naturally, the economic leaders were happy to be described by Annan as being in the vanguard of progressive social and environmental change. Yet they were unwilling to accept the concomitant demands on them. The ICC has therefore made it clear that outside their areas of activity, companies cannot accept any responsibilities «that are properly the preserve of governments».

«The business of business is profit, not ethics», scoffed the Management Editor of The Economist concerning the Global Compact. It is not up to companies to take initiatives «to protect the environment in South America, stamp out corruption in Africa or end human rights abuses in China». «If people want companies to do that, they should vote for regulation, not let governments off the hook».

Giving globalization a «human face»


The point is of course that the multinationals are fighting tooth and nail against any such regulation. This was their main concern in the talks on the Compact. ICC President Adnan Kassar said: «There must be no suggestion of hedging the Global Compact with formal prescriptive rules. We would resist any tendency for this to happen».

Kofi Annan did not have anything else in mind. He had proposed the Compact out of concern that protest against a deregulated economy could gain the upper hand. «If we do not act», he told the WEF in 1999, «there may be a threat to the open global market, and especially to the multilateral trade regime».

As such, the Global Compact is part of the policy measures being taken by the World Bank, IMF, WTO and many western governments for some years now against mounting criticism of globalization. They are meant to give globalization a «human face», but do not go very much beyond rhetorical advocacy on behalf of the poor and the environment. The policy of permanent deregulation that has been giving globalization its «inhuman» face for the past 20 years is still being dogmatically and inflexibly held up as the ideal way to a future era of unprecedented prosperity.

The woes of Novartis


The voluntary nature of the Compact is also causing problems for individual companies. This is borne out by a text from Global Compact member company Novartis, written by Klaus Leisinger, Director of the Novartis Foundation. Even when individual companies carefully implement the Compact, he states, abusive practices by other firms will tarnish the public reputation of all multinationals. That is the dilemma of any voluntary «self-regulation», however: It does not encompass all companies and is not comprehensively implemented.

Secondly, a mere internal operationalisation of what human rights meant to Novartis, Leisinger writes, was hardly sufficient to their universal validity. Novartis was therefore addressing the obligations together with external experts and «stakeholders». In these terms, Leisinger is describing ordinary lawmaking. Nevertheless, nothing that any individual firm privately «legislates» for itself will ever achieve the legitimacy that Novartis desires and which would be automatically inherent in a United Nations convention on the duties of multinationals.

Lastly, Leisinger finds «external verification» necessary. Only such verification would be credible in the eyes of the public. Purely PR exercises would convince no-one and ultimately damage the cause. Of course, the ideal would be external verifiers who do not exaggerate isolated shortcomings and overlook all the good things.

Novartis might have been helped if the UN had assumed responsibility for the monitoring of the Compact. Yet the International Chamber of Commerce (ICC) had staunchly resisted precisely this in the wake of NGO demands to that effect. The UN itself stated that it had neither the mandate nor the capability to monitor compliance with the Compact.

Switzerland and the Global Compact


At a High-Level-Conference in Geneva on 29 October, Swiss companies have been invited to join the Compact. The Swiss business association «Economiesuisse» sees it as a good thing. That was why it approved and campaigned this year for Switzerland's United Nations membership. The Compact, says Economiesuisse, is proof that the UN has now given up its once hostile attitude to multinationals and is today seeking constructive cooperation with the economy.

There are two departments addressing the Global Compact within the Federal Administration, namely the Development and Transition Division of the State Secretariat for Economic Affairs (Seco) and, in the Foreign Ministry the Political Division IV, which is responsible for human rights. Besides, the government is making available to the Compact's office an officer funded by the Swiss Agency for Development Cooperation (SDC), for a two-year period. It describes this commitment as a focal point of its UN policy. So far, the UN Web site lists ABB, Novartis, Credit Suisse and UBS as Members of the Compact.

Peter Niggli, Director of the Swiss Coalition of Development Organizations

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