The United Nations Global Compact

Resistance (1940s to the 1970s)

Corporate resistance to the call for socially responsible behavior was common from the 1940s to the 1970s. The most prominent multinationals (also referred to as “transnational corporations”) operated in such conspicuously global industries as petroleum, mining, agriculture, banking, and telecommunications. Not surprisingly, then, the calls for more responsible behavior involved operating practices, environmental externalities, respect for local communities, recognition of indigenous peoples, and political corruption.

The 1970s proved to be a turning point in the evolution of corporate responsibility practices and policies. This development was driven by a combination of scandal, political pressure, and the emerging power of new voices. A number of political scandals heightened public intolerance of corporate misdeeds. One striking example was the involvement of communications giant International Telephone & Telegraph (ITT) in a military coup to overthrow Chile’s president, Salvatore Allende, in 1973, whose government had nationalized ITT’s assets. It was later discovered that ITT had also paid huge sums of illegal money to the reelection committee of U.S. President Richard M. Nixon. Other U.S. companies were also involved in political corruption scandals, leading to the passage of the U.S. Foreign Corrupt Practices Act, which later became a model for the Organisation for Economic Cooperation and Development (OECD) policies on corruption. Throughout these crises, business leaders took the position that their actions were necessary responses to local conditions or because such actions were a “necessary evil” to counter competitors who were also doing so. (These arguments gave rise to the phrase, “race to the bottom.”)

Elsewhere, countries such as Cuba, Guatemala, and Nicaragua became examples of corporate domination of local governments. United Fruit became a legendary example of such behavior in the way it managed its banana plantations throughout Central America. From the late 1800s to the 1970s, United Fruit exercised a powerful influence throughout Central America and Latin America. It maintained a virtual monopoly in some regions, which came to be called “banana republics.” The company had a deep and long-lasting impact on the economic and political development of several Latin American countries. Critics accused it of exploitative neocolonialism and described it as the archetypal example of the influence of a multinational corporation on the internal politics of the banana republics.

Two events took place in the 1970s that began to turn the tide of exploitive multinational business practice. These “game changers” helped to redefine the concept and meaning of corporate responsibility.

Beginning in the 1970s, a serious effort was made to raise legitimacy questions about the continued presence of multinational corporations in South Africa, a nation then burdened with the heavy weight of systematic racial separation known as “apartheid.” Religious communities—including churches, social action organizations, and humanitarian groups—were making the moral case against corporate involvement in South Africa and, in particular, requested that banks not loan to, or buy sovereign wealth instruments of, the South African government. Manufacturers were asked to divest their assets and leave the country. The human rights arguments were powerful but not persuasive to most business leaders. In time, the groups refined their requests and strengthened the “business case” against further investment in South Africa. It was increasingly clear that companies operating in South Africa would pay a price—in the form of lost sales, bad publicity, and damaged image—for their continued presence and support of apartheid. Resistance eventually began to give way; companies struggled to find other, middle-of-the-road responses through “constructive engagement” and commitment to the Sullivan Principles (1977), enunciated by Reverend Leon Sullivan, an African American churchman and member of General Motors’ board of directors. Several hundred companies eventually withdrew from South Africa; many others adopted integrated work policies that defied apartheid; a few openly challenged the apartheid laws. As the controversy continued into the 1980s and 1990s, virtually all MNCs were forced to think deeply about the challenge of harmonizing their business with stark human rights abuses and political repression. No corporate CEO would, or could, defend the apartheid system, and options for staying in the country steadily narrowed as international sanctions took hold.

The second “game-changing” event that took place during this period was the Nestle boycott. The critique of the infant formula industry’s marketing practices in developing nations began in the late 1960s when medical doctors and nurses recognized that bottle-fed babies were suffering higher-than-normal rates of malnutrition. Research showed that infant formula was being promoted as an alternative to breast feeding, a natural and inexpensive form of infant feeding. The industry was initially defensive but slowly recognized the validity of the medical community’s concern. In 1974, a British charity group, War on Want, published “The Baby Killer,” a booklet that documented Nestle’s marketing activities in Africa. The booklet cover featured the picture of a malnourished baby trapped inside baby bottle. Nestle sued the group in Switzerland for defamation and a lengthy set of legal proceedings followed. Nestle won the battle but lost the war. The Swiss court issued a ruling in the company’s favor, but the advocacy group won the public relations war, securing enormous worldwide coverage for the cause.

In 1977, a Minnesota public action group named INFACT (Infant Formula Action Coalition) launched a boycott of Nestle, the industry’s largest firm and dominant marketer in LDCs. The U.S. boycott soon became an international boycott, with coordinated actions taking place against Nestle in the United States, the United Kingdom, Australia, and more than a dozen other nations. By 1979, local groups formed an international network of activists, International Baby Food Action Network (IBFAN), which coordinated the global campaign to reduce infant and young child morbidity and mortality. Thirty years later, these organizations still exist. In 1978, the U.S. Senate held hearings, chaired by Senator Edward M. Kennedy, into the role of the infant formula industry in “excessive” marketing in third world countries. The publicity fueled the boycott, which continued for 7 years. More important, perhaps, the World Health Organization (WHO) was asked to intervene, eventually producing a precedent setting international code of marketing for breast milk substitutes.

The WHO Code was a landmark, establishing the precedent of a code produced through a consultation process involving international experts, industry members, and United Nations (or related agency) staff members. I participated in this consultation process, working with international colleagues to develop early drafts of the code. This “engagement model” would prove important in succeeding decades as the United Nations addressed a series of global economic and social issues. For the industry, it became important that an international body established its legitimacy as an actor in the field of infant nutrition, but at the price of a set of standards and norms reflected in the WHO Code. That code ultimately proved to be voluntary, but under the spotlight of publicity in home and host countries, the industry members reassessed their interests and came to agreement. In 1984, Nestle established an independent commission, chaired by former U.S. Secretary of State, Edmund Muskie, to monitor that company’s compliance with code provisions; it continued its work until 1992.

South Africa and the Nestle boycott taught leaders of multinational companies a number of powerful, game-changing lessons about expectations of global corporate responsibility and the need for responsiveness to legitimate issues. These lessons would become cornerstone concepts in building the case for the United Nations Global Compact.

The central lessons from South Africa are these: Multinational companies can no longer operate behind a cloak of secrecy in nations that suppress human rights violations. There is a global community that actively supports universal standards of human rights. The South Africa disinvestment campaign also demonstrated the power of external advocacy groups (churches and nongovernmental organizations) to become new stakeholders in the global corporate responsibility debate.

The foremost lesson from the infant formula controversy was the establishment of a principle that multinational companies cannot close their eyes to the downstream effects of their product marketing. A company is responsible for what happens in its market channels, all the way to the end user. Nestle and its competitors could foresee the misuse of infant formula and resultant infant malnutrition by mothers who were unable to read mixing instructions, lacked clean water, and had inadequate income to purchase sufficient quantities of formula. These “market externalities” were no longer acceptable as normal consequences of multinational business behavior. Foreseeability creates an affirmative duty to exercise precaution and restraint.

Responsiveness to Global CSR (1984-1990s)

By the 1990s, important lessons had been drawn from the conflicts of the previous decades. The Global Sullivan Principles (a revised version of the earlier Sullivan Principles) had taken root, offering a model of corporate responsibility and engagement that a significant number of multinational firms began to implement. The Foreign Corrupt Practices Act was being enforced, and whole industries—such as the defense industry—had begun to develop voluntary codes of conduct to vigorously implement new norms of corporate responsibility.

Tragedies still clouded the corporate responsibility landscape. The chemical industry had a long history of industrial disasters, including such well-known events as Seveso (Italy, 1976) and Windscale (UK, 1957). But it was the 1984 explosion at a Union Carbide chemical plant in Bhopal, India, that killed an estimated 25,000 people and became a major landmark in the global CSR story. Twenty-five years later, thousands of victims of pulmonary disease are still being treated in Bhopal. Legal proceedings continue in both India and the United States, including recent efforts to have Carbide’s CEO in 1984, Warren Anderson, extradited to India for criminal prosecution in conjunction with the Bhopal plant’s operations. Union Carbide no longer exists as an independent company, having been acquired by Dow Chemical.

However, in the aftermath of Bhopal, the global chemical industry recognized that it was nearly impossible to secure a license to operate without public confidence in industry safety standards. The Chemical Manufacturer’s Association (CMA) adopted a code of conduct, including new standards of product stewardship, disclosure, and community engagement. Over time, the CMA’s efforts raised the bar of corporate industrial performance around the world.

Many global industries also began to recognize the increasing importance of reputation and image. Countries and communities did not have to accept corporate wishes to establish facilities, conduct operations, and market to local customers. The benefits of open trade, which the global business community favored, no longer persuaded host countries to grant free rein to multinational companies. The world of “blank check capitalism” was coming to an end.

One example of the new realities of corporate responsibility took place as the North American Free Trade Agreement (NAFTA) was being negotiated. The rationale for NAFTA was simple: By opening their countries to more open trade with one another, Canada, Mexico, and the United States would all prosper through their comparative advantage. Mexico had lower labor costs, which could translate into lower prices for products purchased by customers in the United States and Canada. The latter, in turn, would sell more of their products and services to residents of the other countries who would have more disposable income. The trade pact was portrayed as creating a “virtuous circle.” But labor unions and environmental groups, in particular, objected to a treaty that did not include provisions to protect against unfair labor practices and exploitive environmental activities. In short order, business practices in the “maquiladora” communities along the Mexico–U.S. border became a focal point of scrutiny and debate.

Because the benefits of global commerce are not distributed equally, it is inevitable that some “have nots” will object to externalities that fall on them. Companies have learned to negotiate, compromise, and collaborate with governments to help ensure more equitable distribution of benefits and to minimize costs such as environmental damage.

By the mid-1990s, industries such as the shoe and apparel industry were confronting new demands for corporate responsibility policies and practices. Wal-Mart, the world’s largest retailer became a focal point for criticism of its sourcing practices when it was proven that the company closed its eyes to employment, health, and safety issues in the developing nations where clothing was made by Wal-Mart suppliers and subcontractors.

Another company that became a focus of criticism was Nike, the shoe company, which subcontracted all of its manufacturing to low-cost manufacturing sites in Asian countries. Nike initially resisted all calls for it to assume responsibility for subcontractor workplace practices. A boycott of Nike products ensued. Eventually, the company agreed to monitor supplier work sites, cooperate with subcontractors to improve employment standards, and initiate a proactive approach to improving all aspects of its global business responsibility model. Today, the company is often lauded for dramatic improvements in its level of responsiveness.

The UN Global Compact grew out of this evolving state of consciousness. Human rights, labor practices, environmental protection, and corruption were areas of enormous CR foment during the 1990s. The apparel industry partnership provided yet another example of industry members finding a way to collaborate with diverse stakeholders to craft a solution to complicated but critical issues. The leadership and negotiating skills of Labor Secretary Robert Reich and President William J. Clinton made the Apparel Industry Agreement possible. And on the global stage, no company drew more attention for environmental and human rights issues than Shell in the late 1990s. The company’s twin crises involving disposal of the Brent-Spar oil platform on one hand, and how to deal with human rights abuses in Nigeria on the other, produced enormous pressures to find a new way to operate in the world of global stakeholders.

Engagement With Civil Society (2000-Present)

By 1999, on the eve of the Second Millennium, businesses in many global industries had come to accept the importance of establishing worldwide standards for responsible supplier, manufacturing, and operating practices. This acceptance was the essential precondition for Secretary-General Annan’s effort to create a global compact. Simultaneously, other international initiatives—foremost among them were the Millennium Development Goals—were being launched as the new century drew near. In one sense, the world was thinking more globally about not only its problems but also its assets and capabilities to tackle seemingly intractable development problems. Multinational business was clearly part of the solution, if it chose to be. Kofi Annan’s challenge was to get CEOs and other business leaders thinking in those terms.

As Georg Kell describes elsewhere in this special issue, the process for turning a vision into reality was long, difficult, and challenging. This process is certainly in the spirit of many other international agreements. As I view this history, however, two other currents of change helped propel the development of the Global Compact. First, much public and business attention has been drawn to conditions at the “bottom of the pyramid.” Virtually every book, paper, and article on this subject has called for greater engagement of concerned parties, including multinational business firms, in extending the benefits of capitalism to the billions of people who live each day in desperate poverty. Second, there has been a flowering of multisector partnerships as governments, nongovernmental organizations (NGOs), which have exploded in number, and businesses have found ways to collaborate in addressing a wide variety of problems and opportunities.

These developments suggest that the Global Compact is riding the changing tide of history in commercial affairs. The resistance to corporate responsibility that characterized multinational business affairs for so long seems to have turned in the direction of more cooperation, collaboration, and engagement. This progress is promising, for both the future of the Global Compact and for the planet.