Business management and challenges of global compact


In January 1999, the then UN Secretary General, Kofi Annan announced the initiative of a Global Compact. The Compact listed 9 principles as a basis for businesses to embrace voluntarily. The principles covered human rights, environment and labour. By the official launch of the Compact, at the UN Headquarters on July 26, 2000 a tenth principle covering anti corruption had been added. In essence the initiative was to develop partnerships with business where human dignity was respected, risk was managed and opportunities were maximised in the supply chain, by taking an ethical and proactive approach.

The ten principles now enshrined in the Compact, cover respect and support for international human rights. Businesses should make sure they are not complicit in any abuses of those rights. Businesses should recognise the rights of employees to collective bargaining and freedom of association. Child, compulsory and forced labour should be eliminated. Businesses should abolish discrimination in respect of occupation and employment. They should seek to promote environmentally friendly technologies and recognise and work to overcoming environmental challenges. The final principle asks businesses to work against corruption in all its guises.

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The Global Compact is a voluntary initiative, it has no legal base. Its design was intentionally flexible and vague, to encourage discussion which could include labour organisations, companies and governments.

The Compact very clearly states however that whichever country or business declares their support for the Global Compact principles. "This does not mean that the Global Compact recognizes or certifies that these companies have fulfilled the Compact's principles."

The Compact itself says that once companies declared their support for the Global Compact principles "This does not mean that the Global Compact recognizes or certifies that these companies have fulfilled the Compact's principles."

The Compact's goals are intentionally flexible and vague, but it distinguishes the following channels through which it provides facilitation and encourages dialogue: policy dialogues, learning, local networks and projects.

Table of Contents

Corporate social responsibility and capitalism.

Corporate Social Responsibility and globalization.

UN Global Compact and the Stock Exchanges.

The challenges facing global business today, should all companies listed on stock exchanges adopt the UN Global Compact on responsible management?


1. Corporate social responsibility and capitalism

To generalise about global business in today's world is difficult. The influences of businesses, countries and individuals can be widely dissimilar within the context of the environment they work or live in. Harrison, A. (2009) focuses on the global context of the business environment. He looks at the various geopolitical regions and gives an insight into the different issues facing them including the impact of globalisation and the recent financial world crisis. Hart, S (2007) suggests that capitalism is at the crossroads, he believes that:

"Sustainable global enterprise represents the possibility for a new private sector approach to development, creating profitable businesses that simultaneously raise the quality of life for the world's poor, respecting cultural diversity, and conserving the ecological integrity of the planet for future generations."

He argues that multinational corporations (MNC) are the organisations that have the technology and resources to implement beneficial changes to the environment, poverty and disease. He suggests that today's MNC are truly trans-national and have the resources and capacity to implement the context of the Global Compact and that a properly focussed profit motive could be the mechanism for that change.

In their new book on sustainable enterprise economy, Waddock, S, and McIntosh M (2011) believe that returning to usual business practices, after the economic upheaval that rocked financial markets, ruined banks and highlighted the disastrous effects that "casino capitalism can have on people and planet" must be resisted. They argue that a new form of capitalism is both possible and necessary and they believe that some forward thinking political, business and civil society leaders have now recognised this as a fact. Waddock and McIntosh go on to argue that innovation, enterprise, and creativity, like caring, conversation and sharing, are part of what it means for us to be human. They think that we need to redefine our affiliation with commerce to square our relationship with the Earth.

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As Harrison and Hart state in their books, Waddock and McIntosh believe there are signs that there is a new and fundamentally different attitude to entrepreneurship, government and accountability "being planted and beginning to grow". Though equally, like Harrison and Hart, they appear reluctant to say where.

2. Corporate Social Responsibility and globalization.

The notion of the UN Global Compact by its very concept refers to globalization and the expansion of business and social life on a worldwide scale. The ultimate conclusion seeing the growth of a global consciousness, eventually leading to the consolidation of world society in all its guises. Different and opposing definitions of globalisation however are quite numerous and convey different assessments of global change. Among critics of global inequality and capitalism, globalization now has an especially negative ring. The opposite view see globalization as a route to paradise, where poverty and starvation are eliminated and all countries, businesses and people work together to promote positive change.

Alongside the Global Compact and promoted by the UN Secretary General, Kofi Annan in 2005, companies are encouraged, once again voluntarily, to embrace the principles of Corporate Social Responsibility (CSR). This set of guidelines determines a system of corporate self regulation which is integrated into a business model for the company. The principles determine that the company will produce a sustainable business plan that frames a long term strategy. This strategy will connect to customer and employee action and discover and deliver projects that lead to beneficial social change.

CSR policy works as a built-in, self-regulating mechanism where businesses monitor and ensure their active compliance with the spirit of the law, ethical and international standards. The ultimate target of CSR is to make businesses responsible for their corporate actions and encourage a positive change through its activities on the environment, consumers, employees, communities, shareholders and all other members of the public.

The Global Compact identifies that CSR is a natural progression of its basic principles and is integral to the long term success of a business. It believes that CSR has to be a fundamental part of a company's business plan and culture and that no longer can companies implement isolated measures, but they must be increasingly mindful of the impact their actions and policies have on society at large.

It could not be argued that global business interests are responsible for causing all the problems the world faces, it could be argued that a world wide amalgamation of those industries might help and indeed resolve some of those problems. HIV/Aids are a typical example. Millions of people suffer and eventually die of AIDS every year, it brings suffering and poverty to vast areas of Africa, India and Asia. If the businesses of the world combined their scientific skills and technology, it would be interesting to see what effect that might have on determining a cure. The same argument could be made for cancer and malaria. It was made and implemented, to a much smaller degree against smallpox, which has virtually been eliminated throughout the world. In realistic terms businesses may be the only group of institutions capable of addressing some of these problems. Certainly child and forced labour could be attacked, starvation and water shortage substantially reduced and communications between peoples and countries improved. There are other organisations beside The Global Compact that attempt to address these problems for business and their social and global corporate responsibility. Global Challenges in Responsible Business (GCRB) challenges the implications for businesses in the context of globalisation and social and environmental responsibility

This organisation combines research from North America, Europe, Africa and Asia. They focus on three major themes covering corporate responsibility, corporate responsibility in developing countries and corporate responsibility in marketing.

The other element that has to be examined when reporting on globalisation and its effect on populations is that represented by corporate terrorism. One definition is that these are crimes perpetrated to create more consumers, such as bribing politicians to pass bills into legislation forcing people into becoming consumers, fraud and spreading misleading propaganda. It is also a term used to describe an action that creates widespread panic and nervousness for businesses and private individuals' which could result in the loss of monies or rights. It is claimed that America, the home of the United Nations that determined the original Global Compact has corporate terrorism as its most active terrorist movement with every extreme capitalist who resort to fear mongering and violence to spread panic to the American population and other countries to coerce them to buy something to make them feel safe.

3. UN Global Compact and the Stock Exchanges.

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The world economy is just leaving a period of severe economic and financial disruption, with conditions of financial turmoil, widespread recession, growing unemployment and social discomfort. Greece, Portugal and Ireland are just three countries that have asked and received billions of pounds in loans to overcome their debts, The Bank of England has held interest rates at 2.5% for the tenth month, but inflation is still rising. Unemployment at 2.6 million is at a level which 10 years ago would have caused uproar in Fleet Street, but now hardly gets a mention. Petrol and diesel prices that brought protest on motorways and oil refineries five years ago, are now accepted as a fact of life. There are signs of recovery and stabilization including stock markets and there are further signs of business and consumer confidence, however the situation is uncertain and significant risks remain to financial and economic stability.

As at January 2011 there were 583 business associations, 44 civil partnerships, 112 public sector organisations, 50 cities, 504 academic institutions 54 labour groups and 10 stock exchange listed as members of the Global Compact. The London, New York and Tokyo exchanges were not. On Thursday, 8 April 2004, Bovespa, the Brazilian Stock Exchange became the first stock exchange in the world to join the Global Compact. In a letter to UN Secretary-General Kofi Annan, the President of Bovespa, Raymundo Magliano Filho, stressed out his organization's support of the Global Compact's nine principles. He also expressed his organizations' support for the introduction of a tenth principle on corruption. At that time the number of Brazilian participants in the Global Compact stood at 87, making Brazil, as a country, one of the largest embracers of the principles.

These participants are from every continent and virtually every country in the world, but by the very nature of the small numbers represent only a very fraction of the total number of companies, institutions, cities and organisations in each category.

British Telecom (BT Group plc) is one of the largest companies quoted on the London Stock Exchange. The company has many thousands of employees based world wide with influence not only on communications but the environment and economies of the countries they work in. They have an intense level of commitment to their corporate social responsibilities and have a very detailed publicity programme to outline their beliefs and objectives

BT believes that investors in general are developing more interested in the social and environmental issues relating to business performance and how it keys in with their business strategy. They indicate in their brochures that they manage the issues of social, environmental and ethical risks to develop and preserve shareholder value.

The key issue for investors is the business case for corporate social responsibility (CSR) and how social, environmental and ethical risks and opportunities is managed to preserve and develop shareholder value.

BT believes it has a long history of commitment to CSR, and sees it as the right thing to do and as part of our strategy to increase value for shareholders.

Set against the Global Compact, BT would be an ideal partner with its size, political influence, communication skills and beliefs in environmental improvements. However they do not mention in their brochures the abolition of child labour, an issue where they were found to be using forced child labour on their cotton farms in Gujarat, West India, or the protection of human rights. They certainly mention environmental protection issues, but not the elimination of corruption and bribery. In June 2010 BT was accused of illegal mass communication interception, computer misuse, fraud, commercial copyright infringement, data protection violations, and failure to comply with company law. As at today's date no further action has been announced by the Crime Prosecution Service (CPS).

4. The challenges facing global business today, should all companies listed on stock exchanges adopt the UN Global Compact on responsible management?

In summary, the Global Compact exists to assist the private sector in the management of increasingly complex risks and opportunities in the environmental, social and governance realms, seeking to embed markets and societies with universal principles and values for the benefit of all.

With these objectives in mind, the Global Compact has shaped an initiative that provides collaborative solutions to the most fundamental challenges facing both business and society. The initiative seeks to combine the best properties of the UN, such as moral authority and convening power, with the private sector's solution-finding strengths, and the expertise and capacities of a range of key stakeholders. The Global Compact is global and local; private and public; voluntary yet accountable.

The Global Compact has some very fine principles and defines a strategy for business and countries that is difficult to question. The question though has to be asked, if it is that good why has it not been accepted by a much larger group of partners. It is a United Nations initiative and therefore almost has a captive audience. It has, by way of UN member contributions, unlimited funding. Equally with its UN partner it should have the influence to stop even the basic infringements of some, if not all, of its principles, like the use of child labour and corruption. It would be a wonderful dream, if all companies listed on stock exchanges, adopted the Global Compact, but who would fund the changes and who would police it. Equally should it still be a voluntary code or should it be enshrined in Law. The Health & Safety at Work Act (1974) went through a similar debate in the UK but eventually all the elements were accepted. The UK with its moral values and existing legislation would have little difficulty extending the Global Compact principles into law and by default persuading the stock exchange to adopt them as compulsory, but it is difficult to see many parts of the world doing the same. The emerging markets of India and to a far greater extent the massive expansion of China will, if not already, be fighting Europe, Japan and America for a greater market share for their products. This fight for competitive advantage could bring all the negatives of corporate terrorism, corruption, forced labour and environmental disasters into play. The recent earthquake off the coast of Japan and the resulting tsunami which destroyed the nuclear power stations at Fukushima was certainly not Japans fault, but by switching capacity around the world, almost over night, showed Japan's ability to globally overcome their production problems with hardly a ripple in their financial markets.

The political upheaval in recent months in the Middle East with Libya, Bahrein, Saudia Arabia and Tunisia caught up in anti government demonstrations has focussed many eyes on the stock exchanges throughout the world and that speculators by hiking up fuel prices could, if not checked, seriously affect the economic recovery of oil and gas reliant countries. However, to date, this does not seem to have happened. The economies of the United States and the UK have wobbled, but not fallen back into depression. China, Japan Russia and Europe are having a series of meeting at high economic level to open up markets and pool resources to overcome market and political problems. China has determined a level of pollution emissions which it is hoped will produce substantial environment change. It would be nice to feel that all this was an embryonic start to global cooperation and an acceptance of at least some of the ten principles of the Global Compact. The research into this report has identified some optimism from writers of books and articles on, first of all the economic recovery, which is slowly taking place throughout the world. Secondly, on the environmental awareness of capitalism with its effects on global warming and thirdly about the appalling poverty and labour abuses that is prevalent, not only in small businesses and countries, but in so called civilised societies and large corporations. It could be argued that the world is embracing the UN Global Compact by default. As a voluntary set of principles and with ever improving communications and technology, pinpointing and highlighting these anomalies to the world at large, it does not appear to be a necessary action to force stock exchange listed companies to embrace it.