From Global Compact to Global Leadership

By Prof. V. Kasturi Rangan (Harvard Business School)
03:52 PM, May 04, 2012

The global financial crisis of 2008 was a stark reminder of business’s role in society. When well governed and well led, the role of business transcends one of profitability for its owners and incentives for its managers. Its role is to create value for society. Profit is a means to an end, not an end in itself. Without profit, there is no growth, and without growth there is no development. But if business does not create value and instead divvies up the same pie over and over again for personal gains (remember the subprime mortgages, collateral debt obligations, and credit default swaps?), then it is bound to fail and cause havoc for society. Responsible business leaders all over the world know this to be true, yet time and again they fall into the trap of short-term profit for long-term value. Here is where the UN Global Compact has an important leadership role to play.

In the first decade since its launch, the UNGC has done an admirable job of mobilizing nearly 6,000 businesses from all over the world to commit to the universally accepted Ten Principles of the UNGC, and even more broadly agree on a common platform that addresses the most difficult problems facing humanity – the Millennium Development Goals. More recently, the process of communicating results and tracking progress has resulted in an ever-improving honor system, whereby the participating companies have raised the stakes on demonstrating action over rhetoric. In spite of such an impressive start, in my opinion, we have just begun the hard work.

The idea of a “triple bottom line,” or the task of reconciling shareholders’ interests with those of society’s, is easier preached than practiced. The natural laws of business, at times, are at odds with the long-term interests of society. Unlike planet earth and its inhabitants, businesses and business careers are not meant to last forever. What is good for one community may not be in the interests of the global community and vice versa. In spite of the win-win rhetoric that many who are enamored by the Global Compact espouse, some businesses that have taken their social and environmental roles seriously will tell you that it has come at the cost of their financial bottom lines. It is exactly for these reasons that we should applaud the 6,000 and more companies that have signed on to the Global Compact. It is an act of faith that they have committed to a path and a course of action. They hope to reach the end destination. Not all of them will succeed in achieving the sought-after integration, but those who do will have done it through innovative business models and visionary leadership. This is the part of the Global Compact work that needs to be cherished, supported, and spread. It is in this spirit that I would like to forward two ideas.

First, that the UNGC promote a collaborative network among clusters of participating companies to share best practices, refine business models, and influence change in the larger industry environment. Second, that the UNGC create a technical advisory unit to help eager SMEs (small and medium enterprises) to make the transition to the Principles of the Global Compact. I elaborate on each of those ideas below.
As currently structured, the Global Compact is a network of companies that undertake significant actions with respect to society and the environment, but do so almost independently. Much of their actions are based on their value systems and their belief that a firm’s profit goals need not be divorced from society’s goals for sustainable development – both in a human and environmental sense. The real power of the Compact will come only when this self-selected group forms a compact among its participating companies to put teeth into what now remains an act of faith. Rather than a one-way channel to and from UNGC headquarters, the idea is to unleash the power of the network by actively encouraging consortiums of companies to get together to set standards, codes of conduct, and other operating principles in a collaborative manner as a way of prodding and helping participants to raise their own commitments and actions.


"The Global Compact

should transform itself

from a participatory

organization to a network

that acts as a catalyst."



Horizontal and speedy collaboration among participants in the different clusters could unleash a simultaneous burst of actions not possible through the vertical “report and communicate” structure implied by the current model. When the decentralized model starts to work well, there is no reason why these standards cannot flow outside the Global Compact to non-participating companies in similar businesses. To put it simply, the Global Compact should transform itself from a participatory organization to a network that acts as a catalyst in helping businesses undertake models that bring business into harmony with society.

 

The idea of a collaborative business coalition working for the larger interests of society is not new. The Marine Stewardship Council in the fishing industry and the Extractive Industries Transparency Initiative in the oil and mining industry are but two examples. Regardless of the origin of such coalitions, their end result is impressive. The Equator Principles, for example, have done much for banking and human rights and has brought a degree of responsibility to project-lending not seen before. The list is even longer when one adds the initiatives of the numerous trade associations and chambers of commerce. My argument is that the UNGC should attempt to replicate such successful initiatives. Its role is to actively aid, abet, and promote business practices in the direction of its Principles. The UNGC is a global body with the weight and credibility of the United Nations behind it and claims an impressive 6,000 participating businesses from 130 countries. Surely there are clusters, both by geography and industry. Engagement within clusters is likely to lead to big wins. By definition, the participating companies have made a commitment to actively engage in harmonizing their interests with those of society. What better starting point than that?

Imagine these clusters getting together formally, not only to share best practices but, even more importantly, to also demonstrate standards that can then be taken outside the participatory framework by dint of example or through force of industry norms. Such apostles and evangelizers who demonstrate how business and social / environmental goals can mutually reinforce each other will transform practice. It is also in their best interests that the industries in which they participate uphold these high standards, thus raising the bar for all competitors. That is where self-interest takes over. The industries will find a way to monitor themselves. When that happens, the UNGC will have started a revolution.

What I have advocated above will work for larger companies, which have the knowledge, commitment, and resources to engage in the transformative business practice under discussion. How about the SMEs? While there surely are exemplars from among SMEs that have made remarkable contributions on the social and environmental dimension, by and large most SMEs simply do not have the knowledge or resources to proactively integrate social / environmental responsibility into their business plans. They would not be immediate candidates for signing on to the Global Compact. Yet we know that in country after country, SMEs are at the heart of job creation, and in many instances significant contributors to national GDP and economic activity, including the use of scarce resources. How can the UNGC get them involved without the heavy directive to comply with the Global Compact Principles? Here is a suggestion that can take many different shapes. A straightforward suggestion would be for the UNGC to set up a technical advisory unit, which would work with those SMEs that request it in order to offer advice and guidance on how to integrate business and social goals for mutual benefit. The task, of course, will not be easy. If small businesses do not see the business advantages, they will not undertake the activity. Frankly, there is no reason that they should, unless it is the law. So the business advisory unit has to be savvy and expert in demonstrating the win-win logic. This will have to go beyond the platitude of “what is good for society is good for business.” The recommendations have to rest on innovative business models that are sustainable and profitable. This UNGC unit will have to “put its money where its mouth is!” There is really no choice but to create a consulting / advisory unit, or encourage the creation of many such private units in the SME ecosystem. And when win-win solutions are articulated, demonstrated, and implemented, not only will the SMEs see value in making the shift, but several might even join the regional or industry clusters discussed earlier. This will make the UNGC movement stronger.

If we see the goal as increasing UNGC participation, then that is one thing. But in 10 years, my hope is that we will see plenty of demonstrated successes, so many in fact that managing businesses in a balanced way becomes the norm rather than the exception. The goal is to change the world of business – the UNGC should not shoot for anything less.

About the Author
Rangan, V. Kasturi

 V. Kasturi Rangan is Professor of Marketing at the Harvard Business School and the co-chairman of the school’s Social Enterprise Initiative.

 
The views expressed in this article are the author's own and do not necessarily reflect CSR Manager's editorial policy.
 
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