Spain is world champion!

On January 20, the UN Global Compact announced that 2,048 companies from around the world had been expelled for repeated failure to communicate on progress in integrating the initiative’s ten principles into their strategies and operations. The number was reached following the recent expulsion of more than 200 companies. This was at the end of a 2010 moratorium on expulsions in less developed countries. Following the recent expulsion, the total number of active business participants in the Global Compact stands at 6,066 companies in 132 countries.

In October 2010, the Compact introduced a differentiation framework, in a bid to motivate companies “to strive for greater integration of the principles”. The framework categorizes business participants based on levels of progress disclosure.

The list with expelled companies provided by the Global Compact Office forms an interesting basis for analysis. One of the most interesting findings is that about 65 percent of the expelled companies are small and medium-sized enterprises. Another noteworthy discovery is that some of the most efficient local networks are found in Ukraine, Belarus, Panama and Kenya, while local networks in China, USA and Switzerland lag far behind.  In this blog post we provide an overview of the best and worst performing local networks. In our evaluation of efficiency, we have disregarded very small networks (with a membership of less than 50 companies since 2000).

Popularity 

Spain is the absolute Global Compact champion, with 510 active business participants. France follows with 472 active companies. Other countries where the Compact is popular have a lot less business members. The local network in Brazil is smaller than the network in the United States, although the former has a higher number of active business members. The US has 274 business participants, of which 103 do not communicate on progress. The largest local network in Asia is the Chinese network, with 112 active companies and 48 non-communicating members. The networks in Africa are much smaller. The Kenyan network is the largest in Africa and consists of 44 business participants.

The Danish network is quite large compared to other networks in Northern Europe. This probably has to do with the law that requires the 1,100 largest companies in Denmark to report on their corporate responsibility efforts. It is mandatory for publicly listed companies, state-owned companies and institutional investors to include information on CSR in their annual financial reports. Participants in the Compact or signatories of the UN Principles for Responsible Investment (PRI) can refer to their Communication on Progress in these annual reports.

Most efficient networks

The top ten of most efficient local networks demonstrates that companies in certain developing countries and ex-communist states have been rather successful in complying with the Compact's reporting requirements. Kenya and Panama are very likely to have well-structured and informed local networks. Panama has 56 active and only three non-communicating members. Over 75 percent of the members of the Kenyan network since 2000 are active companies. Japan has the most efficient Global Compact network. 98 percent of the Global Compact members in Japan have complied with the policy on communicating on progress. Only two business members were expelled. Somehow unexpectedly, Belarus and Ukraine outperform Sweden and Denmark when it comes to the ratio of active companies to expelled and non-communicating companies. 

Idle networks

Some networks have lost many more members than they have gained over the years. The most striking case is the Philippine network. Since its creation, nearly 90 percent of its business members were excluded. The networks in the Dominican Republic and Mexico have to deal with the same issue. Only 16 percent of the members of the Dominican network are active; over 80 companies have been expelled. In Mexico, 221 companies have been sent packing. Another 40 are failing to communicated on progress. Bulgaria has the most deficient network in Europe, with 35 active business participants, 10 non-communicating members and 48 expelled companies. 

Winners in the non-compliance category

Typically, big and popular networks have had many business participants expelled for not complying with the Global Compact’s reporting requirements. France, which has the second largest Global Compact network, champions the list with expelled members. Since the introduction of the policy on communicating on progress, the French network has lost 230 business members. Another 148 French companies have failed to report on progress on time. Spain faces a similar problem. Although the country has the largest number of active Global Compact members in the world, 159 of its business participants have been ejected and 208 are currently not fulfilling the reporting requirements. Other countries with many ousted companies are Mexico (221), the Philippines (105), Argentina (103), China (97) and the Dominican Republic (84).

Poor communicators 

Spain and France have the largest Global Compact networks, but also lead the list of networks with most non-communicating companies. The network in the United States stands out for its amount of non-communicating companies (103). Less than half of the business participants the US network has had since 2000 are active members. And by the way: US member Edelman is late again. The PR agency's communication on progress is now 11 months overdue (mirror), according to the Compact's database.

More detailed information on the best and worst performing Global Compact networks is available here and below.

CEO blind spots: revisiting the Accenture study about the Global Compact

By Peter Utting, deputy director of UNRISD.

The Global Compact-Accenture study, “A New Era of Sustainability”, published on the occasion of the Global Compact Leaders Summit in June 2010, is said to be the largest inquiry of its kind ever undertaken. Some 766 CEOs responded to a survey that sought to gauge the extent of corporate commitment to the principles of sustainability and future prospects…

The study confirms the view that the main achievement of both the corporate social responsibility (CSR) movement, in general, and the Global Compact, in particular, has been their instrumental role in generating global awareness amongst the business community that sustainability matters for people, the planet and profits. It concludes that the key challenge now is not so much that of raising awareness but “execution”. But is this really the case?

With such a large number of respondents, readers of the study could be excused for thinking that the results are representative of the wider business community. The universe for this survey, however, is a particular category of business, namely the approximately 6,000 pro-CSR companies that have signed up to the Global Compact principles. This, of course, is a small fraction of the broader universe of companies that includes some 80,000 TNCs, their 800,000 affiliates, and millions of suppliers or SMEs. As regards the level of commitment to sustainability, other studies tell a more cautionary tale. For example, the world’s largest corporations still remain heavily “inactive” or “reactive”, as opposed to “active” and “proactive” on a range of CSR-related indicators (See Rob Van Tulder, 2008. “The Role of Business in Poverty Reduction: Towards a Sustainable Corporate Story”). The findings of the recent O2 survey of senior executives of 500 large UK companies suggests that embedding sustainability confronts some major hurdles and is not much of a priority in the wake of the global financial crisis (See “Short-term profits put corporate sustainability commitments at risk”, available here.

It is also important to ask what exactly are the CEO respondents to the survey aware of. For the purposes of the study, “sustainability” was defined as “encompass(ing) environment, social and corporate governance issues, as embodied in the UNGC’s ten principles”, which relate to human rights, labor standards, environment and anti-corruption (p.17). But the examples and views expressed suggest that sustainability relates primarily to environmental issues (for example, waste reduction, increased energy efficiency, investments in renewable energy sources). Apart from specific references to the Global Compact principles, the term human rights is mentioned only occasionally in the analysis; the words “labor” and “corruption” don’t even appear; neither do “wage” or “pay”, apart from the observation (p.52) that senior management should be paid for addressing sustainability issues. The “social” part of the sustainability equation is mentioned regularly in a general sense. The specifics, however, lean fairly heavily towards education and training.

Part of the problem may be the use of the term “sustainability”, which in many circles is often equated narrowly with environmental protection, even though the classic Brundtland definition of sustainable development refers to human needs and implies the integration or balancing of economic, social and environmental objectives of development. Another possible explanation relates to the dynamics of issues management. As Rob van Tulder points out, issues tend to come and go, and new or renewed attention to one issue can crowd out consideration of others. The CSR agenda is prone to fads and fashions or media and political concerns that focus attention on particular issues, be it, for example, child labor or, currently, climate change.

The narrow perspective of the CEOs is disappointing in view of the advances that have taken place within CSR thinking, which recognize that CSR is not simply about picking and choosing from a smorgasbord of issues. Rather, one yardstick of progress must relate to the willingness and ability of companies to systematically address a wide range of issues. Various institutions, processes and social pressures have aided this transition, not least the growing attention within the UN and civil society and academic organizations to how business relates to human rights, and the increased involvement of both trade unions and the ILO, with its decent work agenda, in CSR debates and processes.

Another major concern with the study has to do with the lack of data or analysis that allows readers to assess whether the commitment to sustainability and the process of embedding sustainability principles is substantive or skin deep. While 81 percent of the CEOs agree that environmental, social and corporate governance issues are “fully embedded into the strategy and operations” of their company (Figure 2-2, p. 33), it is not possible to gauge what implementation looks like in practice.
 

As regards “execution”, key challenges from the perspective of CEOs relate to the task of embedding sustainability issues in their supply chains and subsidiaries (Figure 2-4, p.35). To achieve this certain drivers need to be in place. What are the factors that drive CEOs to take action? The results suggest that these relate primarily to the need to protect and build brand, trust and reputation; the potential to increase revenues through cost reduction; personal motivation; and consumer demand (Fig 1-3, p.20).

What gets downplayed in this analysis are other institutional and political drivers of CSR related, for example, to regulation and civil society pressures. Indeed, in the view of the CEOs, NGOs are said to have declined in importance as a “stakeholder” driving businesses’ approach to sustainability (Figure 1-6, p.23). Given that the role of NGOs in the burgeoning CSR service industry and standards-based initiatives appears to have increased significantly in recent years, what might explain this observation? It may simply be because CEOs feel less hostile pressure from civil society campaigns, watch-dog organizations and the media spotlight. Indeed the report notes and praises the shift from confrontation to collaboration and partnership. It could also be because activism and advocacy organizations have engaged in “forum-shifting”, channeling their energies more towards strengthening institutions associated with corporate accountability rather than urging particular companies to adopt voluntary CSR initiatives. Such institutions connect CSR with law and public policy; oblige corporations to answer to or negotiate with different stakeholders; pay some sort of penalty in cases of non-compliance; and / or allow those whose livelihoods, rights and environment have been negatively affected by corporate practices to seek redress through judicial and non-judicial grievance procedures. Initiatives such as the UN business and human rights (Ruggie) process, International Framework Agreements promoted by the Global Union Federations, the current review of the OECD Guidelines for Multinational Enterprises, and the Asia Floor Wage Campaign are relevant in this regard.

On the question of regulation, the study projects a note of realism, revealing that CEOs expect more intervention from governments in the coming years. This is not surprising in the context of the global financial crisis (and the BP disaster), which exposed the dangers of excessive voluntarism, de-regulation and, indeed, what might be called cosy capitalism where relations between governments and big business had become too close for comfort. There is now wider agreement that national and international law and public policy have a crucial role to play in regulating markets. Interestingly, the CEO respondents appear to approve of such developments: 60% said their company would welcome increased government intervention (Figure 2-5, p.37). This rose to two-thirds in the case of CEOs from the smallest corporations (revenues below $250 million). The CEOs of the largest corporations (revenues over $10 billion), however, were of a different opinion. Whereas 81% in this category believed more government intervention was on the way, only 37% said they welcomed it. Since these are the players with considerable political, ideological and policy influence, this is a worrisome finding, albeit not particularly surprising.

What do CEOs want the Global Compact to do to assist them with the task of moving from awareness to execution? At the top of their list are learning about best practices and guidance on implementation. The above concerns suggest that the Global Compact learning networks may first need to go back to basics to remind CEOs of what sustainability is really about and the multiple drivers involved.

To read the Accenture study, click here.

Source: United Nations Research Institute for Social Development (7/1/2011) / © Illustration by Ross Orr.