Corporate Social Responsibility (Human Rights Watch Letter, July 28, 2000)

Corporate Social Responsibility

July 28, 2000

His Excellency Kofi Annan
Secretary-General
United Nations
New York, NY 10117

In our view, three obstacles threaten to impede the Compact's effectiveness: the lack of legally enforceable standards, the lack of a monitoring and enforcement mechanism, and a lack of clarity about the meaning of the standards themselves.
Kenneth Roth
Executive Director, Human Rights Watch

Dear Mr. Secretary-General,

Having attended the opening session of the UN Global Compact, I am writing to suggest some ways to strengthen this effort and enhance its chance of improving corporate responsibility.

Human Rights Watch believes that the Global Compact represents a positive but limited first step. It could encourage corporations to act responsibly, but only if it is implemented effectively. In our view, three obstacles threaten to impede the Compact's effectiveness: the lack of legally enforceable standards, the lack of a monitoring and enforcement mechanism, and a lack of clarity about the meaning of the standards themselves.

As you have noted, the Global Compact is a voluntary set of principles. It applies only to those corporations that choose to join the Compact, and even then, it does not bind them. We thus hope that the Compact is seen not as an end in itself but as a first step toward promoting a binding legal regime for corporate conduct, and that this regime is backed by an effective enforcement mechanism. Developing such binding standards and enforcement mechanisms would be consistent with a role that the UN traditionally has played in other areas.

Moreover, as we saw in the case of corruption, there is a competitive dynamic that discourages some corporations from adopting socially responsible standards unless they are convinced that their competitors will do so as well. Much as the OECD did in the case of corruption, the UN can break through this competitive dynamic by using the multilateral forum provided by the Compact to develop a binding, multilateral legal regime for human rights, labor rights and the environment. We hope, under your leadership, that the UN will begin this process soon.

Contrary to the assertion of some, it is not enough to suggest that nongovernmental organizations (NGOs) will assume this monitoring and enforcement function. Human Rights Watch has devoted substantial resources to promoting corporate respect for human rights, but our efforts are just a drop in the bucket. Neither we nor other NGOs begin to have sufficient resources to assume an enforcement role that should be the province of governments and the UN.

In conjunction with the Global Compact, the UN released guidelines to "facilitate … cooperation between the United Nations and the business community in a manner that ensures the integrity and independence" of the UN. While the guidelines prohibit partnerships with corporations that are "complicit" in human rights violations, they do not define complicity. Do they address the complicity of doing business in a country that does not allow labor unions, or that legislates discrimination against women, or that uses abusive security forces to defend corporate property? We believe they should. But without defining the meaning of complicity, we fear that the guidelines could be applied arbitrarily and subjectively. To avoid tarnishing itself through partnerships with corporations that pay lip-service to the Compact but are nonetheless complicit in violations of its standards, clear, firm, and principled definitions of complicity should be developed promptly.

To guard against the Compact becoming a forum for hypocrisy, the UN should also develop a mechanism for monitoring and evaluating corporate compliance. In the absence of such a mechanism, there is a troubling possibility that the guidelines could be misinterpreted, misapplied, or ignored. That would result in corporations being given what they might claim is a "UN Seal of Approval" without having taken meaningful steps to implement the Compact's standards. We hope the UN will address this clear problem as soon as possible. In the process, we hope the UN will also actively highlight best practices among corporations as a tool to hasten the development of socially responsible corporate behavior.

Finally, we encourage the UN to apply the Compact's guidelines to the UN's procurement and contracting activities. By living up to the Compact's principles in its procurement decisions, even in a limited manner, the UN could provide a powerful incentive for corporate responsibility and substantially strengthen the impact of the Compact on corporate behavior. Each year the UN issues some 135,000 contracts and procurement orders worth approximately $3 billion. The average contract is worth about $20,000, but about 2 percent of UN contracts are worth $1 million or more. Even if the UN were to extend its guidelines only to those contracts in excess of $1 million, it would provide a strong inducement for corporations to maintain high standards.

As the Global Compact continues to evolve, we hope that these steps will be taken to enhance its effectiveness. A Global Compact augmented by clear, legally binding standards that are monitored, enforced, and backed by the UN's procurement power would be extremely valuable.

Sincerely,
Kenneth Roth
Executive Director

HUMAN RIGHTS WATCH