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The United Nations Says It’s Changing Big Business For The Better, But Is it?

Many big companies now stand by a U.N. mandated list of principles for responsible business. But what happens when the principles get in the way of the bottom line? More often than not, they’re out the window.

The United Nations Says It’s Changing Big Business For The Better, But Is it?
[Image: Abstract via Shutterstock]
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How seriously do companies take issues like human rights and corruption these days? Judged from a distance, the answer is “very seriously”–or, at least, “much more seriously than they used to.” Over the last decade, there’s been a clear shift: businesses are now more aware of risks associated with, say, sweatshop conditions in a foreign factory.

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Up close, the reality is less peachy. As you can see from a new report from the United Nations Global Compact, the world’s largest corporate responsibility group, there’s a big gap between what companies say at a high level and what happens on the ground. About 8,000 companies have now signed up to the U.N.G.C.’s 10 principles on human rights, corruption, labor welfare, and the environment. But many are still not following through.

The supply chain is the biggest “roadblock to improved performance,” according to the report, which is based on responses from 1,712 companies. More than 80% say they want suppliers to abide by the principles, but just 18% “assist them with setting and reviewing goals and just 9% take steps to verify remediation.” Only a third conduct a regular review, the report says.

“It is disheartening to see that a high number of companies expect to see suppliers be good on these issues, but that the actual support given is very low,” says Georg Kell, the Global Compact’s executive director, in an interview. “Companies need to move from a defensive approach–just codifying something in their requirements–to a proactive one, where they’re exploring capacities and providing investment.”

That means setting up training workshops, and spreading technological know-how, Kell says. Recent incidents in the textile industry–including the collapse of a factory in Bangladesh–show companies need to look deeper and ask more questions. “Many companies assume they can outsource all the risk and in-source all the opportunities with cost advantages. That has proven to be wrong, because with power comes responsibility and nobody can pretend not to know what is going on in the second tier of suppliers,” Kell says.

It’s not much better in other areas. Almost three-quarters of respondents (72%) mention human rights in corporate codes, but just 29% “monitor & evaluate performance,” and only 23% provide “operational guidance notes.” Similarly, 70% have formal language about corruption. But only 25% carry out risk assessments, 33% sanction employees for breaches, and 30% evaluate performance.

Still, Kell does see progress–not least that thousands of companies have signed up at all. He points to companies like Nike, which was mired in sweatshop controversy when the Global Compact launched. “They joined in 2000 at the peak of their challenges. The CEO turned those into an opportunity and went on a huge journey through the supply chain. Today, they are in a leadership position on these issues and they see the benefits in protecting their brand.”

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The Global Compact has faced controversy of its own. Critics have accused it of letting in companies too easily, allowing CEOs to bask in the U.N.’s halo without doing very much. They were particularly critical of a decision to admit PetroChina as its parent company worked closely with the genocidal regime in Sudan. The public company is still a participant today.

Kell says it’s not up to the Global Compact to judge individual companies, rather to offer a “platform for disclosure and public accountability” (the website talks of being “more like a guide dog than a watch dog”). Since 2007, all companies have had to release annual “communications on progress” reports. And failure to do so can result in expulsion. About 4,000 companies have left so far. “We almost do public shaming. It creates a lot of news at a country level, which is good,” Kell says.

The Global Compact’s own survey shows the limitations of the approach. But Kell wants to keep expanding the membership, believing participation is ultimately more likely to bring results.

“These 8,000 are actually the silver lining, so to speak. The great majority [of companies] are still sitting on the fence. They are still pretending that these issues don’t matter to them and that it’s the business of governments to worry about these issues. We have a long way to go still to find critical mass.”

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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