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October 11, 2006
Global Compact Puts 335 Companies in Deep Freezer Until They Communicate on Progress
    by Bill Baue

In part one of this two-part interview, SocialFunds.com speaks with Georg Kell about the de-listing of 335 companies from the Global Compact for failing to issue Communication on Progress reports.


Last week, the United Nations Global Compact turned heads by announcing that it de-listed 335 companies for failing to issue a Communication on Progress (COP) report. The Global Compact is a voluntary initiative whereby businesses pledge to uphold ten principles in the areas of human rights, labor, the environment, and anti-corruption. Companies failing to issue COPs are first listed as " non-communicating" upon missing the first annual deadline for releasing COPs, then as " inactive" when they miss the second consecutive annual deadline, resulting in the de-listing.

SocialFunds.com speaks with Georg Kell, executive director of Global Compact, about the de-listings.

SocialFunds.com: Is this the first time that companies are being de-listed from the Global Compact?

Georg Kell: Yes, this is absolutely the first time. It took us three years to work out what we call "Integrity Measures" that were widely discussed in our formal advisory council of business, labor, and civil society. The Integrity Measures have four components. I would argue--and most of my colleagues agree--that the most important of the Integrity Measures components is the one requiring Communication on Progress reporting, because it brings a new discipline to the field and pushes the envelope of what voluntary initiatives can do. It states quite clearly now that within two years of joining the Compact, participants are expected to communicate on progress and henceforth every year--failure to do so will lead to de-listing. We expect another 200 participants to be de-listed by the end of this year, and numbers will be high also next year. We do have an inflow of new participants. This is a record year--we will probably end up with 1,100 new participants at the end of this year.

SF: Your main criterion is that companies communicate through reporting, but there's also this component of performance and progress. How do you monitor, measure, and validate progress?

GK: We don't do this because we can't--we have neither the mandate nor the resources. Our model is one of public disclosure and public accountability. In our COP process, we actually ask our participants not to report to us, the United Nations, but to disclose this information in their annual financial reports if possible and also other reports to their shareholders and stakeholders on their performance. We ask companies to provide us at the UN only with a link so that we know that this disclosure is being taken seriously. The actual vetting of the validity of the communication is done through the broader social discourse both at the global levels, where financial markets are increasingly looking at these issues for example, and also increasingly at the local levels, where operations are more significant though it plays out differently for different companies in different geographies.

SF: Are there higher concentrations of de-listed companies in any particular regions?

GK: No, it's pretty systemic actually. We analyzed this in great detail and the first batch of de-listed participants is pretty evenly distributed across the world. It's quite amazing.

SF: Is there anything you do to either promote or facilitate the process of companies trying to get them back into the Global Compact?

GK: It's actually a major preoccupation with us right now. First, one has to recognize that, unfortunately, smaller companies are more likely to be de-listed. Their share relative of de-listed companies is twice as high as the bigger companies. The reason is capacity, language, familiarity with the concepts. To address these issues, we currently have a capacity-building project with local network chapters in 63 countries running training programs and facilitation. Once participants who have been de-listed communicate again, we welcome them back again--there's no need to re-join. You can think of them as being put in the deep freezer, so the doors are open.

SF: Was your analysis able to determine other reasons why companies became inactive and thus de-listed?

GK: I think there is a significant share of de-listed companies who joined too lightly. They thought, 'This is easy--I just have to sign a letter and then I'm a participant--no fees attached, no obligation.' This is now a wake-up call. In essence, you can argue the COP process helps us tackle the free-rider challenge. That is, I think, the main benefit of the COP process.


Part two of this two-part interview addresses new alliances facilitating the reporting process as well as broader issues of how the Global Compact helps fuel what Mr. Kell calls the "change agenda."

 

 
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