Business ethics 88.
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This weekend is the Leaders Summit of one of the most ambitious business ethics/social responsibility initiatives in existence: the UN Global Compact.
The Compact was initiated by the outgoing UN head Kofi Annan. Its Web site (unglobalcompact.org) describes its mandate as follows: Through the power of collective action, the Global Compact seeks to promote responsible corporate citizenship so that business can be part of the solution to the challenges of globalization. In this way, the private sector - in partnership with other social actors - can help realize the Secretary-General's vision: a more sustainable and inclusive global economy.
The Compact is a voluntary association of business firms who commit themselves to uphold a set of core ethical principles and, more recently, to report on their progress in meeting this commitment.
Currently about 4,000 firms worldwide belong to the Compact; each year a few hundred drop out (or are "delisted") while over 1,000 join.
The heart of the compact is a list of 10 principles based on various UN declarations. They are: support and protect human rights, and ensure they are not implicit in abuses; uphold freedom of association, eliminate forced labor, child labor, and discrimination; support a precautionary approach to environmental challenges, undertake environmental responsibility initiatives, encourage development of environmentally friendly technologies; and work against corruption.
We see that the emphasis is less on traditional "business ethics" topics like conflict of interest or ethical advertising and more on corporate social responsibility. The topics are particularly relevant to companies doing business in underdeveloped countries.
Why do companies join this Compact? The first reason is public image; the second is that membership provides concrete assistance in attaining the goals, some of which are correlated with effective corporate governance and business performance. Global Compact membership is, in effect, a bit like a new kind of ISO (International Organization for Standardization) benchmark, which is likewise coveted for both PR goals and for its value as quality standards.
News stories cited Compact head George Kell as stating that while most companies joined the organization to enhance public relations, "there has been a significant shift towards quality."
On the eve of the conference, the group released a survey reviewing the successes and shortfalls in the approach. The evaluation was based solely on self-reporting by participating firms. The conclusion: there is progress, but also "much room for advancement."
I think that the basic idea of the Compact is excellent. Many companies are willing to upgrade their level of ethics and social responsibility but need a way to convince the public that they have a serious commitment. A serious, recognized international group gives instant credibility and indeed the organization comments that the UN "brand" is a major draw for member businesses.
Another very important feature is self-reporting. Theoretically, an enforcement mechanism sounds more attractive. Unfortunately, these mechanisms typically create more problems than they solve. Policing violations at this scale requires immense resources and expertise, beyond what any private organization can realistically carry out.
Furthermore, even when enforcement is practical, equitable enforcement is not, and so policing "ethics codes" creates its own very serious ethical difficulties.
Finally, the set of core principles is on the whole narrow enough to be relevant to most companies worldwide but broad enough to involve a meaningful commitment. Some are very challenging for an individual firm yet are designed to set in motion a positive dynamic. For example, it is not easy for an individual firm to avoid "complicity in human rights violations," yet if enough firms have a basic commitment to this ideal then it may constitute an effective brake on efforts of tyrannical governments. Likewise fighting corruption is a daunting challenge in countries where the entire system is built around bribery, but again, creating a critical mass of companies committed to fighting bribery can help change such destructive norms.
I must, however, express one important reservation. In my opinion, eliminating child labor should not be included at all, certainly not as a fundamental principle. In many countries child labor is a vital economic necessity and sometimes even an educational necessity if the de facto alternative is street life. Even in advanced countries some degree of child labor is a valuable economic and educational experience, e.g. paper routes (if anybody remembers those). A better formulation would be "ensuring that child labor is not at the expense of basic education."
Despite the somewhat pessimistic tone of the report, and of reactions from some commentators including Amnesty International, I am not at all discouraged by the self-reporting results showing poor performance in some areas. If anything, I am pleasantly surprised by the honesty of the firms. I think that the UN Global Compact has the potential to become a highly progressive influence on the ethical standards of world business.
The writer is research director at the Business Ethics Center of Jerusalem (www.besr.org), an independent institute in the Jerusalem College of Technology.
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