Do Corporations Threaten Globalization?

This talk by Georg Kell, coordinator of the United Nations Global Compact, was the keynote address at the Center's February 2003 conference, "Business Ethics in a Global Economy."

The theme I was given for my presentation this evening is more than a rhetorical question. Do companies threaten globalization? The theme allows me to reflect on the role of business in society in the context of growing uncertainty and interdependence between people and nations.

The argument I will make is very simple: As markets and business have gone global, so has the recognition that viable and long-term business growth can no longer be separated from the well-being of societies abroad and from the way in which we deal with problems and challenges that transcend national boundaries. Staying aloof is no longer a choice we can afford. Building a culture of responsibility and becoming more actively engaged in finding solutions to broader societal challenges is one way forward.
The case for responsible, global corporate citizenship can be made both at the level of collective interest-at the global level-and at the micro-level from the perspective of an individual company. As companies have built up global production and supply systems, as foreign investment has reached unprecedented levels throughout the 1990s, companies have learned to benefit from liberalization and technological change.
But, at the same time, the viability of the operations has been exposed to ever greater risks and has been tied up with broader political, economic, and social developments. At this juncture, a landscape of uncertainty and sometimes fear spreads before us. We leave behind us the 1990s, a decade which may well enter the history books as the second golden decade of globalization.

Just consider the following political uncertainties and the challenges to collective security and what this could mean for multilateralism regarding trade and investment: [Inaudible] ever since the Second World War ended. Consider the demographic changes and the threat of inflation in major consumer markets and how painful adjustments in post-modern societies may play into [inaudible] orientation and protectionism. Consider also the emergence of new fault lines along religious and ethical divides, threatening to undermine the very understanding that we have tried to nurture ever since the U.N.charter was born and adopted here in San Francisco.

Above all, consider the persistence of extreme poverty in many parts in the world and the pressure that arises from immigration bringing home the message that poverty anywhere is a threat to prosperity everywhere. I don't think I have to invoke nightmare scenarios of weapons of mass destruction or the prospect that tens of millions of angry, young, male Muslims may decide to become terrorists. The message is clear. It is not an exaggeration to say that the very fundamentals of wealth creation, a commitment to open markets, a commitment to understand that trade investment is more than exchanging goods and services and a commitment to cooperation is under great strain at this point in history. Unilateralism, protectionism, and terrorism could easily derail a commitment to openness and cooperation. Globalization as we know it could end as an unfinished experiment. The stakes are high for everybody, but they are especially high for business.

One might argue that business has always operated in an environment of risks, but clearly risks have taken on different proportions and their nature has changed. Business has a choice: remaining a passive bystander, a prisoner of events, or recognizing that in order to manage this uncertain environment, it is essential to work towards a positive position-to counter uncertainty and fear, to become more assertive and engaged, and to work towards a vision that understands that the very foundation of wealth creation requires sufficient social legitimacy and support in order to sustain itself.

The case for responsible corporate citizenship can be made not only at the global level, appealing to the collective interests of business, but also at the micro-level from the perspective of individual companies. The issue of corporate social responsibility is here to stay, irrespective of sluggish economic growth or downsizing. This is so for four reasons:

1) Social expectations are on the move. So long as trust in public institutions and for-profit enterprises remains low, social legitimacy for making profits cannot be derived from legislation and compliance laws alone. It must also be earned in society.

2) So long as markets remain imperfect, increased social and environmental responsibility will remain part of the price to maintain a strong market position, and to maintain a license to innovate and to operate. Ultimately, power and responsibility cannot be separated.

3) One could argue that corporate social responsibility is in essence a response to governmental governance failure and as such, is merely a tool, an intermediate solution with a possibly short life span. But it is also true that governmental governance failure will be with us for a long time, both at the global and at many, many national levels. Simply speaking, there is no consensus or sufficient political will to tackle the big social and environmental problems of our time. As long as this situation prevails, we don't have a choice but to experiment, even if this means transgressing some of the conventional divides between public and private responsibilities.

4) Acting in a more responsible manner-recognizing that human rights are universal, treating people well, being sensitive about the environment and the community where you work-increasingly makes good business sense. As more and more companies are converging around these insights, there is a good chance that, over time, a new business model will emerge, from value to values, from shareholders to stakeholders. Leading companies should have an interest that this transition will actually happen.

So, business has an enlightened self-interest in being part of the solution, contributing more actively to broader social challenges. But what, besides doing no harm, can business do to make openness work and strengthen the foundation upon which this capacity to create wealth is based? And how exactly can business contribute to solution finding, if some of the challenges left alone could threaten corporate and ultimately societal welfare? If job creation, technological innovation, and philanthropy are not sufficient, how can business broadly and collectively contribute to a broader vision so that individual efforts add up to more than the sum of individual actions?

One answer, I submit, is the vision Kofi Annan has given us through the Global Compact. He has challenged international business communities everywhere to embrace nine universal principles that governments have long recognized. He argued that businesses do not have to wait for government to get it right everywhere. Businesses can act now within their own sphere of influence.

The vision behind the compact has been and remains unchanged. If businesses everywhere were to act upon these nine universal principles, covering the area of human rights, labor, and environment, that would be a significant contribution to a more stable and inclusive global market-more stable because markets would be embedded in shared social and environmental values, more inclusive because businesses together with other actors would be willing to enter into dialogue and partnership.

The assumptions behind the compact are straightforward. First, if globalization is to succeed, we cannot afford for the economic sphere to be disconnected from the social and environmental spheres. Second, companies, especially those who operate in different countries, have an enlightened self-interest in acting now within their sphere of influence, even and especially if governments are lagging behind. Third, from our perspective, companies are not the problem; failing governmental governance is. Poverty is not the result of too much investment or employment opportunities; poverty is the result of the lack of business activities. Fourth, companies for reasons I've outlined above, are ready to experiment with partnerships for a variety of reasons, whether they'd be to secure investments, to build markets for the future, to safeguard reputation and image, to improve productivity, or to learn how to deal with other actors in society who have a better intelligence about the challenges ahead.

Let me stress, very clearly, that the compact is a voluntary initiative and, as such, can only work if the participants take it seriously. The nine principles are not meant to be interpreted in a legal sense. For the lawyers among you, there's bad news: There is no fine print. The nine principles are meant to inspire, to be a point of reference, to bring about a global movement so that businesses everywhere can join in and build the missing social and environmental pillars. Nor, and this is important in the U.S. context in particular, does the compact interfere with or supplant national laws.

The compact uses a leadership model. We believe that the commitment must come from the CEO and be passed back through the board. Real change must come from the top. Therefore, we ask companies to make a public statement on their commitment to aspire towards the nine principles and to do so in writing to the secretary-general. We also expect that companies will report on the actions they have taken in their public documents, such as annual reports, thereby bringing accountability and transparency into the process.
Other than that, our key interest is to promote action, action around learning, dialogue, and projects. We promote good examples and practices, hoping that by identifying what works and what doesn't, it is possible to promote change. We forge partnership approaches covering all the priority needs that governments have long identified, from access to water to energy to bridging the digital divide.

I do want to mention two examples to exemplify how this can work in practice. Cisco Systems has introduced training academies in a number of less-developed countries, thereby preparing the infrastructure to take advantage of new technologies. And Hewlett-Packard has entered partnership projects in several African countries with the hope that information technology will lead to more business growth and productivity. These are just micro examples, but they can serve as models. They can inspire many others to fill the void that is out there.

The good news is that the Global Compact today includes close to 800 companies from all continents and many countries around the world. We still have a long way to go to realize the vision that Kofi Annon has given us, and clearly the compact cannot solve all problems of globalization. But it can make a difference that counts.

My hope is that many more American companies will join this initiative. American companies have long been on the leading edge in innovating, in creating networks around the world. Their contribution is crucial. New members would join the leader of the movement, companies such as Dupont, Hewlett-Packard, Visor, Cisco, Nike, and many others.

The compact, I am convinced, offers a window of opportunity to build a much-needed positive vision of the world. But to make that happen requires leadership from CEOs and boards. It requires a commitment to aspire to universal values, which governments have long recognized. I very much hope that here, close to San Francisco, where the U.N.charter was born, this spirit will prevail and more American companies will step forward and join this global movement.

Click here to view more ethics related articles.