KPMG Headquarters, London, UK
Good evening. I am indeed grateful, both to Lord Michael Hastings and to Sir Mark Moody-Stewart. Both have been deeply involved in the United Nations Global Compact over the years, and their guidance and support has meant much to me.
A special salute to Sir Mark who has played a key role in the Global Compact in his capacity as Vice Chair of the Board and as Chair of the Foundation for the Global Compact - as well as in his personal capacity traveling around the world on its behalf, he is always ready to guide and support.
Giving my retirement speech here in the City of London is very fitting - it is like a homecoming…and I am saying this not because I learned how to survive in the city as a 16-year old runaway many years ago.
It was here in London that the Global Compact learned how to talk and walk. Indeed, the Global Compact would not have come into existence had it not been for the support that came out of London in the late 90s - from the public as well as the private sector.
Sir Jeremy Greenstock, the Ambassador of the United Kingdom to the United Nations at the time, lent his full political support to the initiative. And it was the vibrant intellectual environment of London that shaped the Global Compact.
The very first dialogue between business and civil society for the Global Compact was hosted here in late 1999, where the decision was taken to launch an initiative. And it was many individuals who shaped the Global Compact in its infancy. The list of names is too long - they include the late Sir Geoffrey Chandler and the late Robert Davies, Jane Nelson, John Elkington, Simon Zadek, Malcolm McIntosh, and of course business leaders such as Sir Mark and Lord Hastings.
By now you know what I want to talk about - and what has been my obsession for the past seventeen years - the United Nations Global Compact.
I want to share with you the story of the Global Compact, how an idea has grown into a global movement. But I also want to share reflections on the changing business-society relationship, and, finally, I want to share some personal observations.
The Story of the United Nations Global Compact
Today, the United Nations Global Compact is a thriving organization with over 8,000 corporate participants from 150 countries. Over 90 country operations - we call them Local Networks - are up and running, undertaking hundreds of projects and initiatives.
Over the years we launched several “sister initiatives” which help make the business case for the Global Compact. They include the now London-based Principles for Responsible Investment which counts 6,400 asset owners among their members, Principles for Responsible Management Education, which is an alignment of 600 business schools around corporate sustainability, and the Sustainable Stock Exchanges initiative which counts over 20 committed exchanges. These sister initiatives - like the Global Compact itself - provide support for participants to integrate universal principles - environmental, social, and governance issues - into their core business.
Companies participate in the Global Compact through a CEO commitment to integrate ten universal principles in the areas of Human Rights, Labor, Environment, and Anti-Corruption, into their strategies and operations, and to take action in support of UN goals through partnerships. Participants have to disclose annual progress. Failure to do so leads to de-listing. As of today, 5,000 participants have had to be de-listed.
Today the Global Compact is a thriving global movement, supported by the UN’s first public-private, global-local, business-led, multi stakeholder, network-based infrastructure!
I know, this is a mouthful. But it is true.
Initially, the Global Compact was designed as a speech. It was exactly seventeen years ago when John Ruggie, who was then the Special Advisor to former UN Secretary-General Kofi Annan, challenged me saying: “The boss will only go to the next World Economic Forum if he has something really good. Can we produce something really good?”
What followed were six months of preparation – in close cooperation with John Ruggie –
for a policy speech called the “Global Compact” which Mr. Kofi Annan delivered in January 1999 at the World Economic Forum. The speech made the front pages of the international press. It injected the best the United Nations had to offer - universal principles long endorsed and legitimized by governments, into the contentious globalization debate, challenging business to give global markets a human face by embracing human rights, decent workplace policies, sound environmental stewardship, and, added three years later, anti-corruption measures.
As business went global in the late 90s, the fragility of global markets was visible in the streets of many cities - from Seattle to Rome. The Global Compact speech hit a raw nerve. Business leaders understood that the political will to sustain openness must be earned.
Following the delivery of the speech, we had no intention of building an initiative. But many CEOs and government representatives, especially from the United Kingdom, argued to do so. What followed was an 18-month period of consultations with business, labor, and NGOs that led to an event in 2000 at the United Nations Headquarters ECOSOC Chamber.
In our planning, this event was supposed to be the last act: bringing forty CEOs and ten civil society leaders together to commit to the Global Compact. With that we would declare victory. But alas, the event on 26 June 2000 turned out to be the beginning and not the end. Participants agreed to work together through learning, dialogue and partnerships. And they called on the United Nations to make all of this happen. Secretary-General Kofi Annan made US$ 20,000 of his trust fund available and said: “Do something useful with it!”
What followed were fifteen years of sweat and labor, building step-by-step an organization based on an idea. This building effort went through many ups and downs - and on several occasions bureaucracy nearly derailed its growth.
The growth of the Global Compact unfolded in four phases:
- Learning how to talk and walk
- Building a network of governance and accountability
- Innovating issue platforms/creating sister initiatives
What has Changed
Ladies and Gentlemen,
Looking back, I have no doubt that the business-society relationship is transforming. Indeed, a silent revolution is changing markets from within.
Fifteen years ago, when business went global on a large scale, corporate responsibility was largely about philanthropy or reputational management in response to incidents - be it environmental accidents, alleged complicity in human rights abuses, corruption scandals, or abuses of labor rights in the supply chain.
Initially companies joined the Global Compact because embracing its principles was seen as morally the right way to go. The moral imperatives of “doing right” and “doing good” are today as relevant as they were then. After all, power and responsibility should not be separated.
Today, the moral imperative has been complemented by a material imperative. Reputation management and philanthropy are no longer good enough. A growing number of companies integrate universal sustainability principles into their strategies and operations because they know that long term financial success goes hand in hand with environmental stewardship, social responsibility and good governance.
The Global Compact’s annual implementation survey clearly documents how companies have moved from reacting to incidents to taking a pro-active strategic approach. Increasingly, sustainability is part of board deliberations, corporate strategies are influenced by sustainability issues, and corporate practices, even deep down in the supply chain, are changing.
Corporate Sustainability today is necessary for business to navigate and mitigate risks, and to spot new opportunities.
What is Driving this Transformation?
Regulatory changes, shifting consumer and stakeholder preferences, and natural resource constraints are driving the agenda.
Let me briefly outline what I believe to be the most important factors.
First, the rise of transparency, like technological change itself, is irreversible and putting a premium on disclosure and on a pro-active approach. It simply doesn’t make sense anymore to hide something, not even deep down in the supply chain.
Second, as economic growth has migrated to the global east and south, the nature of foreign investment has fundamentally changed - from being a resource taker to a market builder. Companies today make a long-term bet and can only thrive if the markets they invest in do not fail. It makes sense to pro-actively tackle growth barriers, be it reducing corruption, investing in vocational training to overcome shortages in skilled labour, or collaborating with others to give better stewardship to scarce water supplies.
Third, what used to be considered public goods, such as the air and water, now need to be priced. The private sector has a huge stake in this. Natural resource constraints will increasingly drive business engagement - and increasingly so through innovation and problem solving.
Fourth, global digital empowerment has become a pillar to link with citizens and consumers. “Stakeholder engagement” today is key to safeguard “shareholder value”. The debate of shareholder versus stakeholder is a thing of the past. Today the question is how to engage stakeholders as shareholders.
Prospects for the Future
The Global Compact’s mission is to support openness and a sustainable, inclusive global market. Whether the Global Compact and related efforts will succeed is an open question. Provided markets remain open and the world by and large is at peace, it is very likely that corporate sustainability will continue to grow and transfer markets from within.
Several pathways toward this end can be identified.
- Critical Mass
Already, the Global Compact is global because it is local everywhere, embedded in many cultures and languages. In some countries this “bottom-up” movement is gaining so much strength that it is conceivable that major advancements will occur - Argentina, Nigeria, Spain, India, are just some of these countries.
But the movement has not yet reached critical mass. The Global Compact’s 8,300 corporate participants may sound like a large number. But considering that there are over 50,000 publicly listed companies and tens of thousands of medium and large companies not listed, we still have a long way to go. The recent move by the International Chamber of Commerce and other global industry associations to embrace sustainability is a promising sign that fence sitters will, hopefully soon, come down and join.
- Investors Are Catching Up
With the launch of the Principles For Responsible Investment (PRI) in 2005, the idea that environmental, social, and governance (ESG) issues matter has gained ground. The world of finance is still lagging behind the real economy. But the gap is closing as investors are starting to realize that long-term value creation and good ESG performance go hand in hand. Indeed, evidence is mounting that companies that focus on material sustainability issues have better financial performance over time. As major asset owners are now starting to focus on this, and as new asset managers are emerging, such as the London-based ARABESQUE – that makes material sustainability their core strategy – it is conceivable that corporate sustainability will be propelled.
- Breakthroughs By Issues?
It is also possible that transformation can be accomplished through specific sustainability issues – climate change and anti-corruption are two possible candidates for this.
Regarding climate change, for the first time some business leaders support - instead of hinder - governments, not only through innovation and resource efficiency, but also by way of making the case for creating carbon markets. As every classic liberal will have to admit, the case for doing so is overwhelming. According to a recent IMF working paper, total post-tax energy subsidies are in excess of US $5 million, which is more than 15 times the total amount available for climate finance. In other words, fiscal policy changes and freeing markets from distortions and subsidies could accomplish a fundamental re-orientation toward low carbon investment
Within the Global Compact’s Caring for Climate platform, we are now mobilizing CEOs to take a stand on this, to no longer lobby to derail climate policies but rather to make the case for carbon pricing. And as investors are seriously tracking carbon exposure as a likely future liability, progress on this front is possible.
A similar trend has started to play out in the area of anti-corruption. Not too long ago, bribery was tax-deductible, as a “useful expenditure” in some countries. Today corruption is a criminal offence everywhere and regulation has tightened. The business case has evolved in tandem. Corporations from India to Nigeria are engaged in “collective action”, working with governments to improve public procurement and anti-corruption policies. The Global Compact is proud to support several of these efforts and in a recent campaign, over 300 CEOs signed on to call on governments to step up anti-corruption measures.
Making progress on this front is paramount – over one trillion US dollars are lost every year to corruption!
There is also hope that the next generation of business leaders will act with greater foresight and will be more attuned to sustainability issues. Currently over 600 business schools are making progress integrating CS into curricula and research. And finally, the consumer, the sleeping giant, may awaken.
The UN itself is committed to work with the private sector in bringing about transformation.
The Future - Political Power
Power and wealth move together. Fifteens years ago, multi-lateralism was going strong. China was joining the World Trade Organization, and the former President of the International Chamber of Commerce, Helmut Maucher would write op-eds in the Financial Times arguing that global markets need global rules.
Today we live in a new era of power fragmentation, which brings with it uncertainty, but also new opportunities to shape the conditions. Power is fragmenting between countries as economic growth has migrated. The multilateral system created after World War II - the idea that peace and prosperity can only be built on the foundations of interdependence and commerce - is giving way to a new order that is more regional, bilateral, or even sub-national. With it comes the risk of protectionism and populism that could easily bend the political will necessary to sustain openness.
But also within countries one can see a rapid erosion of legitimacy of established institutions, partly driven by digital empowerment. And in too many instances populism, extremism, and violence are on the rise.
In a world where power is fragmenting, the role of business is ever more important in shaping opinion and contributing to good governance. What we need today is not CEOs who trash governments while capturing narrow regulatory or tax advantages. What we need today is business statesmanship - business leaders who support the public good and governments in their efforts to deliver what is key to the health of societies and markets.
Finally, I want to share with you some lessons learned. Lord Hastings asked me to do so. This is not easy. Most learning is tacit and talking about it one can only capture selected aspects. One would need to write a book, as Sir Mark did on Responsible Leadership and whose book I highly recommend.
Let me give it a try. I have seven points, altogether.
- The Enemy is us
Most human suffering is man-made. Fear, hate, corruption, and violence are products of our own doing. We have all the solutions needed to end poverty and to tackle disadvantage. Yet, Rationality in the broadest sense has yet to find an epic of sufficient impact, simplicity, and fascination to compete with the ancient stories that gave meaning to people’s lives, as the writer Ian McEwan put it. Ethics and an understanding of what is “right” and what is “wrong” is at the core of all sustainability issues. Restoring ethical leadership and working towards a culture of fairness and inclusion is the foundation on which we can bring about impact.
- One cannot Predict the Future, but we can Learn from the Past
In many parts of the world, whether in North East Asia or South Asia, in parts of Europe or in Africa or the Middle East, grievances of the past cast a shadow over the present and derail prospects for peace and prosperity for the future. Through trade and investment we can diffuse much needed know-how and increasing good practices. It is also an “avenue for peaceful competition and mechanisms for resolving grievances that might otherwise escalate. Over time, the habit of cooperation reduces mis-perceptions and builds trust, creating an atmosphere congenial to the preservation of peace,” as Harry Truman said in 1947 .
Yet, the myths of the past live on and time and time and again they can be awakened and the dark forces of hate can lead to violence and destruction. Coming to grips with the past and understanding and acknowledging the mistakes that were made, even if painful, is essential to see the possibilities the future holds.
- What Connects us is Stronger than what Divides us
People everywhere have the same aspirations. Core values and principles are truly universal. For example, scholars have long shown that all major religions have the same basic building blocks:
First, the golden rule of reciprocity,
Second, a commitment to nonviolence, fairness, and justice,
Third, respect for life, people, and nature.
For business, this means that having an ethical framework in place that builds on what connects us - rather than what divides us - is key to unlock the prosperity found in the diversity of cultures and people. And this is also what it takes to go global, while being local everywhere.
- Homo Ludens is Alive- and He/She is Everywhere
Not only are values and basic conceptions of “right” and “wrong” universal. So is entrepreneurship. Whether in research labs at MIT or in the suburbs of Delhi, people have a deep desire to explore, to experiment, and to build. As small children can be totally absorbed when discovering how a toy works, so can grown-ups find pleasure and meaning in experimenting with ideas and building organizations around them. Entrepreneurship - the willingness to experiment and take risks and to compete and succeed in a market place - is a wonderful way of channeling humanity’s animalistic spirits, creating jobs and income while offering a creative outlet… provided of course these spirits are complying with the law and consistent with the UN Global Compact! We need to do much more to celebrate it and to create a culture that supports and not hinders the adventurous spirit.
- Change from within is Possible
Many people work in large private or public organizations. And many feel it is not possible to bring about change in the face of overwhelming established structures and procedures. Well, I argue that the opposite is true. At times major changes happen because individuals within organizations had the persistence and dedication to make the case. I know of many corporations who changed their culture because individuals had the stamina to make the case. In many cases the CEOs are the last to finally get it.
And I can also testify that it is possible to innovate even when working out of a big bureaucracy such as the UN. What does it take? A good idea, persistence to win over the boss, nerves of steel to fend off the reactionary forces, and an absolute dedication to want to succeed whatever may come. This in my mind is what entrepreneurship is all about.
- The World Needs Ethical Leadership
I have seen many politicians and business leaders fall or fail because they were lacking strength of character and a vision that their own employees shared. As trust in political institutions and business has eroded, the call for ethical leadership is today of great urgency. At the core of such leadership must be a strong ethical foundation that is driven by purpose and not by greed. And in today’s interconnected world this requires the ability to connect dots between power, wealth, technology, and people. What we need today is business statesmanship. I may be dreaming, but I believe that I am not alone. Many CEOs in the Global Compact have started the journey already.
- Idea Power is the Greatest Force
Idea power, like technology, can inflame fear and cause destruction, or it can be used to create peace and prosperity.
The UN Global Compact is firmly grounded in the foundational spirit of the United Nations: peace and prosperity can only be built on the foundations of interdependence, openness and respect for human rights.
Idea power can only flourish and spread if individual people make it their own and use it to change organizations and lives.
I hope that my lecture today will make some of you curious to have a second look at the UN Global Compact.