CSR2, Assignment 2: Term Paper. What is the United Nations Global Compact Management Model (“GCMM”)? How is the GCMM helping companies to assess, define, implement, measure and communicate a corporate sustainability strategy? Illustrate with examples. 3881 words. By Federico Werner (fedewerner@gmail.com).
1. Context: birth and development of the UN Global Compact After the end of the Cold War, in the last decade of the 20th Century, the economic forces from western societies were released from the ideological challenge that the Soviet Union posed in terms of dominance. Economic liberalism was seen as triumphant, and fueled by accelerated technologic development the largest corporations from the West now faced no restrictions for a truly worldwide expansion (May, 2006:273; McIntosh, Waddock, & Kell, 2004:14). The process of globalization was at its peak, and the predominance of economy over politics was a characteristic of this time. The influence of international organizations such as the World Monetary Fund (WMF), World Bank (WB) and the World Trade Organization (WTO) shadowed other international policy institutions such as the United Nations (UN) (Achcar, Gresh, Radvanyi, Rekacewícz, & Vidal, 2003: 7). Previous waves of globalization had occurred before, such as in the 19th Century, but the unrestricted capitalism of that time lacked completely of social legitimacy which led to two world wars. The process ‘reflected neither the needs nor the aspirations of the vast majority of ordinary people’ (McIntosh et al., 2004:16). However the current process is different because is not led by states but by companies. We have moved from an international world to a global world, where governments can no longer mediate at the border by tariffs and exchange rates. The global markets leave behind the national social bargains (McIntosh et al., 2004:16). In this context, the need for international regulations guiding the process was also peaking. The UN’s major attempt to develop a ‘code of practice’ for transnational corporations (TNCs) began in 1977 and was completed in 1990, but was fiercely opposed by the TNCs and Western governments, who did not allow it to come into force. 1
Simultaneously, several national and international organizations, non-governmental organizations (NGOs) and business groups did also develop a ‘plethora’ of codes of conduct, benchmarks and verifications systems applicable to the multinational corporations (MNCs) globally, in order to fill the gap of regulation from the institutions of global governance (McIntosh et al., 2004:17; Sethi & Schepers, 2014:194). With a new emphasis and the personal support of its Secretary-General Kofi Annan, the UN launched the ‘Global Compact between UN, business (the private sector) and society’ at the 1999 World Economic Forum, stating that the UN would now be working with MNCs rather than against them (May, 2006: 273). The GC’s purpose is to ‘humanize globalization’, and to “bridge the gap between business as a profit maximizing machine and business as an integral part of society, adding value not just in economic terms but also in societal terms, while not doing harm to nature” (McIntosh et al., 2004: 13).
2. How does the UNGC work? The GC is the UN’s project for bringing businesses into action in order to resolve the deficiencies of global capitalism (McIntosh et al., 2004:16). In order to achieve this, “companies around the world are called to align their strategies and operations with ten universal principles (See ANNEX I) in the areas of human rights, labour, environment, and anti-corruption, and to take action in support of broader UN goals” (UN Global Compact & Deloitte, 2010). In line with most of the initiatives in the matter, the GC has a ‘voluntaristic’ approach. This means that signing in the compact does not impose companies with compliance of specific criteria or set of rules. Once they commit with the Compact, companies are asked to integrate the values it expresses into their mission statements and management practices, and regularly report on their progress toward fulfilling the aims of the Compact itself (May, 2006:274).
Commitment The GC’s design is set to maximize the reach of engagement with a huge array on enterprise types in size and industry and geo-political contexts. The most important feed a signatory needs to demonstrate towards the Compact is commitment to continuous improvement towards sustainable practices, rather than specific results.
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The GC is not a standard, management system or code of conduct; nor will it monitor performance or compliance. Instead, it offers a learning platform, a forum for exchanging experiences in order to stimulate best practice and foster innovation (UN Global Compact, 2008:7). In order to assist companies to modify its practices, the GC focused initially on facilitating multi-stakeholder discussions on good practice related to difficult sustainability risks. This ‘engagement’ mechanisms were: policy dialogues, learning forums, partnership projects and local networks. But over the years, the initiative has moved to producing an increasing amount of guidance on how to manage and disclosure sustainability performance. More than 250 tools and guidance resources have been produced over the past 15 years, helping to clarify good corporate practice on a wide range of environmental, social and governance issues such as operating in zones of conflict or handling child labour risk in the supply chain. The GC has also produced several practical frameworks and specific tools for companies to conduct risk and other types of assessments, for instance to measure and report on performance (DNV GL & UN Global Compact, 2015: 76).
Implementation Among these resources, the GC Management Model (MM) stands out as the newest and strongest support tool for the implementation of the Compact’s principles within companies’ organization. Through an iterative self-improving process, the model helps companies ensure that their corporate sustainability strategy is aligned with the spirit of the GC (UN Global Compact & Deloitte, 2010:5). The MM is described in more detail in the following section of this paper.
Reporting In the sequence of steps that define the ‘structure’ of being part of the GC, the final and only formal requirement that the GC officers do monitor, is reporting. It takes form in annual ‘Communications on Progress’ (COPs), which are a public communication to stakeholders (e.g. consumers, employees, organized labour, civil society, investors, media, government) on the progress the company has made in implementing the ten principles. The COP policy is based on the concepts of public accountability, transparency and continuous improvement. With COPs, signatories ensure the credibility of its engagement in the GC and contribute to the repository of data on corporate 3
responsibility practices that can be used by companies and stakeholders for purpose of learning and analysis (UN Global Compact, 2008:19). Many of the mentioned guidance resources that the GC provides to its signatories are related to the elaboration of the COPs. Each COP must contain: (a) a statement by the chief executive expressing continued support for the GC and renewing the participant's ongoing commitment to the initiative and its principles; (b) a description of practical actions that the company has taken to implement the GC principles in each of the four issue areas; and (c) a measurement of outcomes (i.e., degree to which targets/performance indicators were met, or other qualitative or quantitative measurements of results) (UN Global Compact, 2013:1). Businesses who fail to submit its COP after a year of its initial commitment to the GC or previous COP submission, are designated “non-communicating” on the GC website, and expelled from the Compact if this “non-communicating” participant fails to submit a COP that meets all COP requirements within a year of becoming non-communicating (UN Global Compact, 2013:3). The Compact welcomes the participation of non-businesses organizations, such as NGOs and business associations. The reporting requirement for his type of signatories is a Communication on Engagement (COE) which must be submitted every two years.
Engagement The primary means for company engagement in the Global Compact is the integration of the principles in business strategy and operations. However, as mentioned the GC offers companies numerous additional mechanisms to engage in activities that maximize the benefits and value of participation. These are (UN Global Compact, 2008:23, 2014:43):
Partnerships: the GC encourages participants to engage in partnerships with their stakeholders in support of broader development goals, such as the UN’s Sustainable Development Goals (SDGs). Partnerships focus on the many areas where private actors and public institutions can engage in win-win relationships, such as poverty reduction, health, education and community development.
Local Networks: they are nation-wide bodies which group a country’s signatories, providing them with support on implementing the Compact’s principle according to the particular social, economic and cultural context.
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Advocacy and awareness: as a signatory to the GC, a company is expected to publicly advocate the Compact and its principles via press releases, speeches, and other communications vehicles.
Policy dialogues and learning: each year, a variety of GC-related events are held around the world, designed to enable learning and the development of practical solutions to pressing problems.
Collective action: companies can also choose to engage in collective action with other companies. This can be an effective way of creating a level playing field on which to compete create synergy among a group of signatories under a common objective. Examples include ‘Caring for Climate: a Business Leadership Platform’, the ‘CEO Water Mandate’, the ‘Extractive Industries Transparency Initiative’, among others.
Subsidiary engagement: it is important that companies spread their commitment to the GC throughout their operations around the world, including subsidiaries, local branches and local ventures. For multinational participants of the Global Compact, the engagement of subsidiaries can generate significant business value and is one of the most important contributions that can be made to scale up corporate responsibility efforts.
3. What is the UN Global Compact Management Model? The GC Management Model (MM) was developed by the GC and Deloitte (a Swiss business consulting firm, funding signatory of the GC) and presented in 2010. From all the tools and guidance provided by the GC, the MM is the one that most specifically address management practices and approaches, using concepts and terminology from the business administration discipline. Its intended audience are all GC signatories, and its goal, to support them in their effort of bringing commitment to corporate sustainability into everyday, mainstream business practices. The MM consists of a series of sequenced steps which form a cyclical, iterative process that once completed begins again following a continuous-improvement logic. This design allows the tool to be relevant for all the signatories, considering the diversity of companies and organizations involved, not only in terms of size, industry, profit-orientation but also
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their degree of experience in corporate sustainability (UN Global Compact & Deloitte, 2010:6). However, in order to further increase its adaptability, the model is flexible and companies may for example customize the order of steps if doing so meets their specific needs. It may also be applied by the company itself or in collaboration with one or more stakeholder groups. The Compact also stands out the value of the tool for fueling innovation in the long-term operating scenario of the company, with respect to the creation of value for shareholders and stakeholders. Besides the steps, the MM highlights the need of developing “crosscutting efforts”: elements that serve to support a company’s ability to manage with success its implementation of the GC’s principles. These efforts include governance, transparency and engagement, and are essential to every step of the model.
Commit The first step consists of the public commitment from the company’s leadership to support the GC and making the ten principles part of the strategy, culture and day-to-day operations. For initial signatories to the Compact, this commitment is stated in the Letter of Commitment, and for previous signatories, it is referenced on every year’s COP. Commitment is of most importance because once it is communicated to the stakeholders, it fuels collaboration and engagement, and is also the internal mechanism to leverage the allocation of resources to the implementation of the sustainability strategy.
Asses In this step, the company assesses risks, opportunities and impacts across the GC issue areas:
Risks are the possible events that can affect the company’s performance and reputation from nonalignment with the GC and its ten principles. The understanding of the company’s risks will enable it to prioritize its goals, strategies and action plan.
Opportunities are possible positive outcomes of enhancing the company’s performance derived from the implementation of the principles.
Impacts: consist of the result of the company’s operations calculated through the lens of the ten principles in order to determine goals, strategies and policies. This 6
‘calculation’ involves the adoption of metrics and/or performance indicators. The difficulty in determining which metric to use can be reduced by analyzing what the stakeholders frequently ask, benchmarking (see what the competitors report) and also and most recommended, using the performance indicators developed by the Global Reporting Initiative (GRI) or other initiatives in the matter.
Define With the feed from the risks, opportunities and impacts assessment, the company develops and refines goals and metrics specific to its operating context, and creates a roadmap to carry out its program. The outcomes of this step are:
Goals: they help prioritizing the addressing of risks, the reduction and mitigation of negative impacts and enhancing the positive impacts.
Strategy: or plan of actions that guides the company’s effort to achieve its goals. It requires to identify owners, milestones, investments required, and key actions to achieve.
Policies: The company refines its policies to support goals and strategies and to ensure it is compliant with local and international norms and regulations.
Implement This step consists of the implementation of strategies and policies defined previously through the company and across the value chain. It involves work with four elements:
Processes: adjustment of existing and developing new ones, in order to execute the company’s strategy throughout the organization.
People: the company must engage, learn with and empower leaders, employees and business partners. As a first step, developing a communications plan in needed to fully communicate goals, strategies and policies throughout the organization.
Information technology (IT): the company must seek ways to adjust and use its IT to accelerate execution of its strategy .
Suppliers and business partners: consists of engaging with them in order to ensure they support the company’s sustainability goals. An example action is to develop a supplier code of conduct.
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Measure This steps includes the actions taken to measure and monitor impacts and progress toward goals. The organization must develop, or adjust if it already exists, a performance management system to capture, analyze and monitor the performance metrics established in the Assess and Define steps. Progress is monitored against goals and adjustments are made to improve performance.
Communicate Finally, the company communicates its progress and implementation strategies by developing a COP and engaging in dialogues with stakeholders to identify ways to improve performance continuously.
Figure 1: The cyclical process of the GC MM. Source: UN Global Compact & Deloitte (2010)
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4. Effectivity of the GC and influence of the management model In order to understand the effectivity and impact of the MM, as stated in the research question of this paper, I will first begin by discussing the impact of the GC itself on the way companies attempt to implement sustainable practices in their operations. 2015 marked the 15th year anniversary of the initiative, a fact that motivated the release of a special report from the GC: ‘Impact: Transforming Business, Changing the World’ (DNV GL & UN Global Compact, 2015). This report summarizes the role the GC has had in bringing change in the way corporations operate, focusing on three areas: corporate practices, corporate operating environment and in dominant worldviews. Its key findings are:
The GC’s focus on outreach, knowledge-sharing and dialogue, as well as the launch of Local Networks, has encouraged companies and other stakeholders to join the initiative, reaching a total over 8.000 business signatories in 2015. Yet the vast majority of companies worldwide has not committed to the CG’s principles (Op cit., pg. 61).
The initiative’s accountability mechanisms have been strengthened: in 2004 reporting through COPs became mandatory, in 2008 non-communicating companies started to be delisted from the Compact (Op cit., pg. 61, 65).
Through the launch of more the 85 Local Networks around the world, the GC has played a key role in spreading responsible business practices (Op cit., pg. 61).
Still a gap remains between the adoption of policies and actions such as risk and impact assessments, foot-printing and training, as the results of a survey shows (Op cit., pg. 74).
Some critic views argue the way GC measures its impact. Sethi & Schepers (2014:203) state that having as the most important indicator of impact the number of signatories, doesn’t provide meaningful information about how and in what manner the signatory companies have improved their conduct on environmental, social and governance (ESG) issues. Yet the number of participants in highly significant. What motivates companies to take part in the initiative? Reputation and networking are still stated as major factors according to Arevalo & Fallon, (2008:458) and McIntosh et al., (2004:21).
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An undisputed success of the GC has been in providing a convening platform for a growing global conversation about social development that engages actors from all important sectors of society and bringing previously undiscussable issues into the conversation about globalization (McIntosh et al., 2004:14). However, this positive impact has been more relevant during the first stages of the initiative, when the conversation about sustainability in the corporate environment was just beginning.
5. Study case: Adoption of the GC in Argentina In order to obtain empirical data regarding the impact of the GC and its MM on specific cases, I collected information on the adoption of the Compact in Argentina from the GC’s website (UN Global Compact, 2016). For Argentina, a total of 387 signatories are listed. From them, 41 (11%) are listed as noncommunicating. Regarding the latest information each signatory has provided to the GC on implementation of the principles (and including the non-communicating signatories), 157 companies (41% of signatories) have presented a COP and 64 NGOs or business associations (17%) have presented a COE. The rest of signatories, either businesses or not, adding a total of 43% of signatories, have signed to the Compact during the last year and have consequently presented only a letter of commitment (LOC) (37%) or have requested a grace period (5%).
Table 1: Status and last information provided to GC from signatories in Argentina. Signatories according their COP submitting status
387 signatories
100%
Active
446
89%
Non-communicating
41
11%
Last document submitted to the GC
387 signatories
100%
Communication on Progress (COP)
157
41%
Letter of Commitment (LOC)
145
37%
Communication on Engagement (COE)
64
17%
Grace Letter
21
5%
Source: Global Compact (2016).
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I also identified the type of COP presented by businesses, in the search for evidences that the MM has been utilized for the implementation of the principles. Considering only active signatories, whose last presentation was a COP (businesses) results in 139 signatories. The types of COP presented are indicated in Table 2.
Table 2: Types of COP. Companies whose last presentation was a COP
128 businesses
100%
Stand Alone Document
70
55%
Stand Alone Document (Basic COP template)*
8
41%
Part of an Integrated Sustainability Report
53
6%
Part of an Annual Financial Report
5
4%
Express COP*
3
2%
Type of COPs:
(*) Based on template COPs provided by GC on its website. Source: Global Compact (2016).
Finally I individually analyzed the following COPs:
Table 3: Individual COPs analyzed. Evidence of Name of company
Type of business
Type of COP
having used the MM
Banco Ciudad
Corporation
SAD
No
Milicic S.A.
Corporation
SAD
No
SME
SAD
Corporation
PSR
No
SME
PSR
Mo
Granda, Laballos, de Castro, Ganem y Pontevedra LAN Argentina S.A. ESET Latinoamerica SRL
No
(*) SME: Small or Medium Enterprise; SAD; Stand Alone Document (see table 2); PSR: Part of an Integrated Sustainability Report (See Table 2).
The type of COP presented did not provide enough evidence on the type of methodology used for implementing the GC’s principles. The companies using the Stand Alone Document (SAD) model most clearly state the “define” and “measure” steps from the MM, because they are explicitly included as requirements in the CG policy on Communicating Progress.
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6. Discussion Among the diverse options business have to use as a tool for introducing sustainable practices in their operations, the GC has proven useful in several aspects, namely providing a platform for discussion and interaction with stakeholders such as regulation institutions, international NGOs and governmental organizations. These provide knowledge and establish a good framework to foster innovation and set the target direction for improving business practices with regard to SEG issue areas. Yet it remains unclear the degree to which the Compact has helped companies with the provision of more specific methodological approaches towards implementing sustainable practices. If signatory companies did effectively improve their performance in SEG issue areas, it is not certain that this improvement was a consequence of adopting specific operational guidance such as the MM. The development of the MM seems to show the intention of the Compact in increasing the technical depth of the guidance it provides to its signatories. However, better monitoring approaches be developed in order to increase the evidence that the adoption of the Compact has resulted in effective implementation of sustainable practices and in consequence improved performance in the SEG issue areas. Finally, the launch of the Sustainable Development Goals (SDGs) represents a substantial challenge for the Compact. It stands in a relative good position to act as a bridge between the UN’s institutions responsible of the development of the SGDs and the private sector. At least in Argentina, the Local Network states as an objective to “connect the Compact with the SDGs through strategic guidance (Mesa Directiva de la Red Argentina del Pacto Global, 2015:10).
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References Achcar, G., Gresh, A., Radvanyi, J., Rekacewícz, P., & Vidal, D. (Eds.). (2003). El Atlas de Le Monde Diplomatique. Buenos Aires: Capital Intelectual. Arevalo, J. a., & Fallon, F. T. (2008). Assessing corporate responsibility as a contribution to global governance: the case of the UN Global Compact. Corporate Governance, 8(4), 456–470. http://doi.org/10.1108/14720700810899194 DNV GL, & UN Global Compact. (2015). Impact: Transforming Business, Changing the World. UN Global Compact. Retrieved from http://globalcompact15.org/report/downloads-and-multimedia/impacttransforming-business-changing-the-world May, C. (2006). Global Corporate Power and the UN Global Compact. In C. May (Ed.), Global Corporate Power (pp. 273–282). Colorado: Lynne Rienner Publishers. McIntosh, M., Waddock, S., & Kell, G. (2004). Introduction. In Learning to Talk. Corporate Citizenship and the Development of the Global Compact (pp. 11–27). London: Greenleaf Publishing. Mesa Directiva de la Red Argentina del Pacto Global. (2015). Memoria de la Red Argentina del Pacto Global 2015. Buenos Aires: PNUD Argentina. Retrieved from http://pactoglobal.org.ar/wp-content/uploads/2016/04/Memoria_2015-1.pdf Sethi, S. P., & Schepers, D. H. (2014). United Nations Global Compact: The PromisePerformance Gap. Journal of Business Ethics, 122(2), 193–208. http://doi.org/10.1007/s10551-013-1629-y UN Global Compact. (2008). After the signature: A guide to engagement in the United Nations Global Compact. Retrieved from https://www.unglobalcompact.org/library/241 UN Global Compact. (2013). UN Global Compact Policy on Communicating Progress. Retrieved from https://www.unglobalcompact.org/library/1851 UN Global Compact. (2014). Guide to Corporate Sustainability: Shaping a Sustainable Future. New York, NY: UN Global Compact. Retrieved from https://www.unglobalcompact.org/library/1151 UN Global Compact. (2016). Our Participants. Retrieved December 5, 2016, from
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https://www.unglobalcompact.org/what-is-gc/participants UN Global Compact, & Deloitte. (2010). UN Global Compact Management Model Framework for Implementation. New York: UN Global Compact Office.
Other sources UN Global Compact. (2016). Our Participants. Retrieved December 5, 2016, from https://www.unglobalcompact.org/what-is-gc/participants
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ANNEX I
The Ten Principles of the United Nations Global Compact
HUMAN RIGHTS Principle 1
Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2
make sure that they are not complicit in human rights abuses. LABOUR
Principle 3
Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4
the elimination of all forms of forced and compulsory labour;
Principle 5
the effective abolition of child labour; and
Principle 6
the elimination of discrimination in respect of employment and occupation. ENVIRONMENT
Principle 7
Businesses should support environmental challenges;
Principle 8
undertake initiatives responsibility; and
Principle 9
encourage the development and diffusion of environmentally friendly technologies.
to
a
precautionary
promote
greater
approach
to
environmental
ANTI-CORRUPTION Principle 10
Businesses should work against corruption in all its forms, including extortion and bribery.
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