Reaffirming the ten commandments for businesses

Vincent Lingga, The Jakarta Post, Geneva

Business leaders from developing and developed countries have reaffirmed their strong commitments to conducting responsible business practices based on the UN Global Compact's ten principles in human rights, labor, environment and anti-corruption.

The leaders stated in a declaration at the end of the Global Compact Leaders Summit here Friday, that only through responsible business practices can a more sustainable and inclusive global economy be realized.

The ten principles, which have been promoted by the UN Global Compact initiative since 2000, are in essence the core values of what is now well-known as the "corporate social responsibility" (CSR) concept.

But the basic question is: Are the codes of conduct worth more than the paper they are written on? Will voluntary initiatives such as the Global Compact lead to the types of changes needed to contribute to a cleaner environment, better working conditions, more humanitarian development and the curbing of corruption?

This was one of the toughest questions raised during the summit by the representatives of civil society organizations and business leaders who questioned the reputation of several companies attending the meeting.

However, the Global Compact is not a regulatory instrument. There is no enforcement mechanism beyond public scrutiny and the requirement for participants to report annually on progress in meeting commitments to the ten principles.

Rather, the Global Compact relies on public accountability, transparency and the enlightened self-interest of companies, labor and civil society to initiate and share substantive action in pursuing the ten principles.

Some stakeholders are skeptical.

Whatever goals a company pledges to reach, or standards to obey, such as fair working conditions and the protection of human rights, there must be a specific, practical application. Without this, codes will set only the overall ground rules for corporate conduct.

Critics attack the notion that voluntary codes can serve as a method of corporate accountability because corporations can simply use their participation as a substitute for real progress, distracting the public from the continuing violation of human rights, labor rights or environmental standards.

UN Secretary General Ban Ki-Moon, who opened the summit, acknowledged these weaknesses, stressing that companies which fail to meet their commitments within two years will be delisted from the UN Global Compact.

In fact, according to Global Compact Executive Director Georg Kell, 335 companies were delisted from the network last year for failing to report significant progress in implementing the ten principles.

Business executives, however, who have been observing the impact of the CSR campaign as the concerted effort, have kept a spotlight on undesirable practices. At various times, companies have stopped doing business with overseas contractors who disregarded standards.

Often companies lead the way to improvement. For example, a decision by Reebok not to sell soccer balls made through child labor practices was swiftly followed by similar commitments from other companies. This happened despite the (short-term) costs such commitments entailed.

"Our foreign buyers have always scrutinized our operations to ascertain whether our pulp and paper are derived from sustainable plantations," said A. J. Devanesan, president of Asia Pacific Resources International Holdings (APRIL), which operates a two-million ton capacity pulp industry in Riau.

In fact, pulp which is certified as sourced from sustainable managed forests or plantations commands higher prices than uncertified product, added Devanesan, who attended the summit meeting.

The summit urged the Global Compact's 4,000 members to encourage their supply-chain partners and other organizations they do business with to integrate the core values of human rights, environment, labor and anti-corruption into their operations.

Good corporate practices bring commercial benefits too. They help firms achieve a variety of goals: Protect their corporate reputation, improve employee morale, enhance consumer and client loyalty, and avoid costly criminal and civil proceedings.

Even mainstream investors are now paying more attention.

Recent studies by McKinsey & Company consultants conclude that while the capital markets have not yet mainstreamed environmental, social and good governance norms, there have been many investor initiatives which encourage socially responsible, ethically right and environmentally friendly investment.

The consulting company estimated there are now more than US$8 trillion investment funds managed by firms which factor environmental, social and governance issues into their investment analyses and decision-making processes.

So, while some stakeholders feel many companies just pay lip service to standards, these codes do in fact have bite. Companies who do not practice what they pledge risk adverse publicity and customer loss, even black-listing.