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The United Nations Global Compact Business Essay

Paper Type: Free Essay Subject: Business
Wordcount: 3776 words Published: 1st Jan 2015

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This paper aims to analyze the challenges and opportunities presented by the United Nations Global Compact (UNGC) to corporate leaders. A renowned economist, Milton Friedman, once said that the main responsibility of a business to the society is to increase the profits. This was, however, almost four decades ago. In the passage of time, companies and corporations alike have started leaning towards a different perspective. They now show more focus in projecting images of being socially aware and responsible. The change from a financially motivated company to a more human company has affected the way companies perceive themselves, but also affects the way the society at large views them. Needless to say, this also affects the manpower a company is able to attract and hire. UNGC helps corporations enhance their images, as well as set guidelines which a member corporation can follow to improve their practices. However, this paper will also review whether the benefits will outweight the challenges a corporate leader will be taking on by participating in the UN Global Compact.

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Challenges and Opportunities Presented to Corporate Leader by the United Nations Global Compact


The United Nations Global Compact (UNGC) is a tactical strategy scheme for companies who commit to align their operational strategies to the principles outlined by the UNGC whose main purpose for existence is to assist businesses in managing risks and opportunities presented to them in certain areas such as the environment, society and authorities like government divisions and laws. This initiative also aims to integrate their ten principles as universal to businesses and societies for mutual benefits. It is independent of the government which entails that their rules and regulations is not government mandated law though it does support and is in-line with certain government policies that mainly focuses on the social responsibilities of a corporation. (UNGC, 2013)

Commerce, as the main factor influencing globalization, plays a major role in societies and economies anywhere in the world. UNGC requires participating businesses to submit a Communication in Progress (COP) report once a year, which is deemed by the initiative as essential to demonstrate the commitment of their participants to them and to their principles. The COP includes policies which entails being transparent and accountable. By participating to UNGC, companies are then required to follow the same policies of transparency and accountability which is very important in ensuring the success of the initiative. By failing to communicate with UNGC, companies might lose their current status as participants, or worse, the initiative can expel them. (UNGC, 2013)

The UNGC is the planet’s greatest corporate citizenship conglomeration. The corporate world can be viewed as the guiding hand of globalization and in this manner; it can accommodate the gigantic challenges which influence the incorporation of common wars, ruination and short states. The UNGC sets out a solitary worldwide standard that transcends national, sectorial and territorial norms. UNGC’s set of objectives is positive in and of itself as it begins the conveyance methodology. However, it was never indicated as a survey instrument and the UNGC does not have the ability to survey members’ numerous actions. Voluntary initiatives like UNGC do not get in the way of other initiatives and government institutions but attempts to unite businesses with the same goals. By affiliating their business to UNGC, a corporate leader will then have to abide by the rules and principles of the initiative which will be discussed further in later on in the paper. (Hale and Held, 2011)

Theoretical Framework

With the growth of UNGC as an initiative, the ever expanding comprehension of their principles as a standard are perceived. This is seen through the initiative’s fast development now with around ten thousand corporate members and diverse stakeholders from over 130 countries, it is the most stupendous voluntary affiliation in the planet.

As corporate leaders continue to embrace the standards set by UNGC, it becomes a convenient skeleton for the headway, execution, and disclosure of reasonable techniques while taking a shot at offering the market an extensive variety of work streams, government contraptions and possessions which are all created to oblige with the advances of sensible arrangements both for employment and for commerce.

While entrepreneurs and corporate leaders face social, political and monetary challenges, they make the distinctions between working independently and the requirement to work together and collaborate with legislatures, civil publicly accepted norms, labor and the United Nations. This accounts for the increasing popularity of UNGC in the business world. (Hale and Held, 2011)


When UNGC was first launched, it only started with nine principles. However, in the 24th of June, 2004, Kofi Annan published the expansion of the principles into a tenth rule against corruption as per the United Nations Convention opposite Corruption received in 2003.

Certain examiners underestimate the relevance of using the UNGC principles to make spaces in the business world, wherein social, environmental and human rights issues can head off to the fore of the worldwide basis driven by power. This is totally huge in the contemporary time of neoliberalism and unrestricted-market endurance that has appointed social and biological issues to help their status. Additionally, UNGC restores the “preparatory standard” agreed upon at the Earth Summit in 1992. This discriminates the innately existing balance of structures in existence while the design attempts to aid in the updating, cultivating and impacting sustenance that can be upheld and used. (Knigh and Smith, 2008)

Below is the list of the 10 Principles and the categories fall into:




1st Principle

Businesses Should: Support and respect the protection of internationally proclaimed human rights; and

Human Rights

2nd Principle

Make sure that they are not complicit in human rights abuses.

Human Rights

3rd Principle

Businesses should uphold:

the freedom of association and the effective recognition of the right to collective bargaining;

Labour Standards

4th Principle

the elimination of all forms of forced and compulsory labour;

Labour Standards

5th Principle

the effective abolition of child labour; and

Labour Standards

6th Principle

elimination of discrimination in employment and occupation.

Labour Standards

7th Principle

Businesses should: support a precautionary approach to environmental challenges;


8th Principle

undertake initiatives to promote environmental responsibility;


9th Principle

encourage the development and diffusion of environmentally friendly technologies.


10th Principle

Businesses should work against corruption in all its forms, including extortion and bribery.


(UNGC, 2013)

UNGC aims for the two corresponding goals. The first goal is to propagate their ten principles in the business arenas all over the world and second is to catalyze activities in backing of broader UN objectives, incorporating the Millennium Development Goals also known as MDGs. (UNGC, 2013)

Because of the aforementioned goals, the UNGC has formed an initiative that furnishes shared results for the most major tests confronting both business and social orders. The initiative aims to consolidate the best domains of the UN, examples of which are ethical power and meeting power, integrated with the private sector’s result-finding qualities, and the smoothness and limits of an extent of nexus stakeholders. The UNGC is worldwide and neighborhood; private and open; voluntary yet responsible. (UNGC, 2013)

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It is an effortless system to seek affiliation with UNGC. A Corporation or other business entity must simply provide a Letter of Commitment marked by the Chief Executive Officer to UN’s Secretary-General. The letter should express the applying entity’s willingness to be accountable to UNGC and its ten standards by incorporating modifications in their current policies in such a way that the standards of the UNGC will be part of the corporation’s business practices. Moreover, the association must highlight their ability to take part in propagating UNGC objectives, advance its investment in the UNGC and consent to submit a twelve-month COP. In proclaiming obedience to the aforementioned human rights, environmental and anti-corruption ideologies, the corporation will then provide a set of principles that might be utilized by others to screen their actions. (Hale and Held, 2011)


One of the main concerns in UNGC is what a corporate leader will stand to gain by seeking affiliation. This question has become increasingly pertinent as more and more corporations join international Corporate Social Responsibilities (CSR) initiatives such as the UNGC, yet many of these corporations fail to live up to even basic reporting requirements and are subsequently delisted. UNGC, however, is primarily suitable for larger corporations that can use the Compact in order to fill a governance void as they operate in less developed countries. Many smaller corporations don’t have the resources to meet UNGC requirements and the corporations that produce and sell their goods and services in countries with efficient government regulation benefit little from UNGC membership. (Hale and Held, 2011)

In today’s shareholder publicly accepted norms, there is no clear evidence that a UNGC supporting corporation can gain more or less from participation as compared to a corporation that is not participating. Nonetheless, certain associations show that the profits may not be assessed basically by close the of the year figures. The business society, employment factors in the society as well as recruitments of manpower are all considerably impacted by the sort of social relevance prescribed by the UNGC. (Hale and Held, 2011)

A participating company or corporation stands to gain by embracing the created and comprehensively distinguished arrangement system for the advancement, execution, and revelation of natural and social factors, as well influence the corporation’s strategies and hone their existing policies. The corporation, through their UNGC affiliation, will also be a part of a network which offers and shares the most appropriate practices while developing practices which can lead to the most pragmatic results and procedures to normal challenges commonly faced by corporate entities. (Knigh and Smith, 2008)

Other benefits includes the propelling of livability results in their organizations with a broad reach to stakeholders which are incorporating UN corporations, administrations, civil social order, labor, and other non-business entities. UNGC join business units and subsidiaries together against the quality chain with the UNGC’s Local Networks, which constitutes a large number of advancing and developing businesses. By participating, corporate leaders will be opening themselves to a network of diverse contacts. (Petersmann, 2002)

Corporation leaders will also gain by using UNGC administration apparatuses and assets, and the chance to participate in specially designed work streams in the ecological, social and legislation domains. In addition, they will be entering into a group with access to the United Nations’ impressive learning tools in different advancement and development issues.

Another way of looking at UNGC is the help it can give to developing countries, in particular, wherein the Global Compact can have influence in raising the mindfulness to business pioneers on issues of corporate social hobby. In addition, such drives may have influence in reinvigorating certain parts of general “sensitive law”, especially to the International Labour Organization (ILO) Core Conventions and the Universal Declaration of Human Rights. (Knigh and Smith, 2008)

The UNGC is not a standard to measure enterprises’ consistence in opposition to some predefined indicators. It is a standards-based initiative, and participating entities are permitted awesome adaptability by the way they write about their advancement in their COP reports. They should be able to convey issues concerning this without any reservation, though standards have not yet been set in goal may be achieved. (Petersmann, 2002)


One of the main challenges presented to a corporate leader by joining UNGC is the concept of “Bluewash.” This concept pertains to any association between the United Nations and an enterprise that has consented to keep the UNGC affiliation which pertains to the reduced framework which is the ten standards the initiative advertises such as feasible practices, reasonable work and human rights. The term itself is regularly acknowledged disparaging, especially given the situations of the aforementioned sorts of associations; since there are no screening or authorization components to guarantee that the enterprise holds fast to the ten standards, commentators contend that such associations are simply advertising ploys planned to upgrade corporate pictures. (Hale and Held, 2011)

The test for various enterprises, a test actually to corporate leaders themselves, is that the UNGC offers a free-sized perception of the results of Corporate Social Responsibility (CSR) reporting. This is a scenario dependent upon the grounds that various enterprises undertake CSR scheme that fit the UNGC standards instead of watching the sorts of schemes that may be overwhelmingly beneficial to the partnership and business elements in which the benchmarks tend to be connected in their own business. (Knigh and Smith, 2008)

On the otherhand, CSR initiatives must most importantly take their beginning stage in the CSR prerequisites of the association and not in some predefined reporting plan or CSR initiative. Depending on whether a corporation or an entity begins tackling a CSR system before it has outlined its reason, the outcome could regularly be disillusionment and squandered assets. It is of great interest, however, that a thorough assessment of an association’s requirements and wants concerning CSR can bring about the corporation’s assessing of the sorts of initiatives it needs to be a part of discriminatingly and the sort of reporting it needs to take part in. It is even plausible that the association may choose not to be a part of certain initiatives and reporting plans, such as UNGC. (Petersmann, 2002)

Just like with most UN suggestions, opinions and perceptions of the people are highly diverse. While a large number of the corporate population solidly endorse and help the Ten Principles that UNGC is trying to propagate, there are faultfinders who propose that it will simply lead to eventual failure, and is a Public Relation’s chance to respond and try to counter terrible histories of corporate recklessness. Others keep up that the UNGC needs teeth as it is not actually administrative and binding, but merely engages organizations to embrace their standards. (Petersmann, 2002)

The weight placed on enormous organizations and corporate leaders by developments like UNGC might separate notion in certain ways. On the other hand it is apparent that, while the method is at the approach-level of conglomerations and organizations, the initiators are the corporate leaders and the prospective employees of the corporation themselves.

Numerous humble and medium-estimated endeavors (SMEs) don’t see leeway of UNGC participation. One excuse for why is that numerous SMEs don’t have the investment assets to guarantee fitting documentation and to catch up with every of their suppliers or permit holders.

Numerous extensive purchasers and retailers now mandate that western SME suppliers report that they enough control the social and ecological exhibition of their particular suppliers in less advanced nations. Nonetheless, SMEs frequently need political clout concerning their suppliers. They may be just one of numerous purchasers, and the motivating force for the supplier to enhance the social and ecological exhibition can accordingly be restricted. Positively expansive corporations moreover whimper about not having enough power to change supplier practices, specifically when they have just a modest allotment for processing. (Petersmann. 2002)

In 2011 the UNGC recommended another approach to reporting. The UNGC Differentiation Program arranges business members dependent upon their level of divulgence on advancement made in incorporating the UNGC standards and donating to broader UN objectives. The Differentiation Program incorporates a less mandating process for SMEs. While this is an upgrade, SMEs are still abandoned to their particular apparatuses as far as reporting. What is required is that extensive purchasers consent to work with their more diminutive suppliers and to support them in gathering necessities. (Petersmann. 2002)

For associations that principally work locally, a UNGC enrollment may be discerned as less profitable. Case in point in 2008 the UNGC delisted 98 associations or more than 85 % of the parts of the UNGC in the Philippines. Most Philippine associations are locally arranged which indicates that Philippine organizations are not exceptionally prone to face necessities from imposing clients to follow universal CSR necessities for example the UNGC. Philippine organizations are, in any case, extremely occupied with CSR initiatives with a provincial center. Organizations normally build establishments that keep tabs on philanthropy or training projects. Cases of CSR initiatives incorporate the Phinmar Corporation, which sold off its concrete business and with the returns has acquired private schools so as to commit to enhancing the nature of administration abilities in the Philippines. The Phinmar Corporation has moreover put resources into exceptional value lodging at moderate costs.

On the other hand, locally based corporations are not heading off to profit from less mandating reporting necessities. The UNGC standards are essentially not appropriate to the aforementioned corporations. In any case, the UNGC is a magnificent initiative for universal corporations that wish to work with CSR customizes as a substitute for missing regulation. The UNGC may as well keep tabs on the aforementioned sorts of associations as opposed to look to enlist numerous sorts of associations large portions of whom wind up baffled. At long last, while numerous western administrations suggest that local corporation reports are consistent with UNGC standards, this result may not be of quality to all associations and administrations.


The development of multi-stakeholder initiatives and voluntary corporate responsibility modification for corporations has ended up being a percentage of the most enticing parts of the CSR verbal confrontation over the past few years. The greatest of the aforementioned is the affiliation to UNGC with thousands of members in more than a hundred countries. By any record, that is an immense number.

The UNGC is a good example of a CSR initiative that is not suitable for all corporations and businesses. Despite the apparent success of UNGC perceived in the number of members worldwide, there is also a towering number of delisting members which underlines a crux issue with CSR reporting plans for certain affiliations: which entails that considering the benefits of a corporation with their own sufficient government laws ensuring human rights, laws against corruption, and appropriate labor code does not necessarily need to consider affiliation with cooperatives or initiatives such as UNGC.

However, CSR reporting in different forms is on the rise fuelled by solicitations from institutional gurus and considerable business customers which brings about the necessity for CSR reporting. A good example of which are certain governments like Denmark and Spain which are now requiring that large corporations must submit an annual report detailing their CSR drives. While reporting is becoming essential in certain parts of the world, these are still not being ruled by the UNGC whose capacity to vouch for an enterprise may still be questioned due to the lack of actual applications and monitoring they can perform. (Bruno and Karliner, 2000)

Corporate honesty in the home twang is in an ever expanding degree when they approach amplification of their worldwide store networks and preparations to nations like India, Bangladesh or Vietnam. Clients in the home business sector will regularly mandate that the organization should follow suit and act in a socially mindful way in their host nations. One representation of this is Nike, which was confronted by solid reactions in the media all over the world for its labour issues in Indonesia. (Bruno and Karliner, 2000)

Corporations that can truly derive profit from UNGC participation are basically corporations that have business engagements in nations which are lacking in certain regulations. Beginning with the exhibits in Seattle in 1999 opposite the World Trade Organization arrangements, open opposition of globalization and free market systems have developed. The aforementioned well known dissents are perceived by numerous as the initiator of the CSR development. (Bruno and Karliner, 2000)

In summary, there are certain advantages a corporate leader may be able to get from an affiliation with UN Global Compact. This, however, must include factors such as the purpose of their intent to join. These purposes includes boosting of public image, current standards and laws in existence in their countries, the size of their corporation, the market with which they are dealing their products to, may it be international or local, and lastly, their commitment to abide by the principles set by UNGC.


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