The United Nations Global Compact is the world’s largest voluntary corporate responsibility initiative. Currently it has more than 8,000 business participants from more than 145 countries. Participants are required to support ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption.  In 1999, Kofi Annan, then secretary-general of the United Nations, introduced the concept of a Global Compact to multinational corporations gathered at the annual meeting of the World Economic Forum in Davos. He said: “Globalization is a fact of life. But I believe we have underestimated its fragility. The problem is this. The spread of markets outpaces the ability of societies and their political systems to adjust to them, let alone to guide the course they take. History teaches us that such an imbalance between the economic, social and political realms can never be sustained for very long”.[1]

Understanding Corporate “Moral Purpose”

Discussions about the UN Global Compact form part of a broader conversation about corporate responsibility and the moral purpose of business. There is a growing tendency to acknowledge that corporations have moral responsibilities and that their behavior can be subjected to moral scrutiny. The purpose of business is articulated by the concept of corporate responsibility – which is the idea that the corporation bears a moral responsibility towards society as a whole. The corporation is expected to make a positive contribution to society by extending its impact beyond its shareholders and the exclusive pursuit of short-term profit. But of course, corporations are also interested in a positive contribution to the bottom line.

The way in which people view the world (and the role of business in the world) is framed by a theoretical approach (how do we understand it?) and a practitioner’s approach (how do we change it?), as depicted below. The theoretical approach may be either normative, prescribing what ought to be done, or empirical, describing the way things are. Each of these views of the theoretical approach presents significant challenges and complexities. In brief, the normative view is often accused of being idealistic and not in touch with the business environment. The empirical approach is sometimes challenged because it does not grapple with the difficult ethical issues implicit in a business environment, and also because the large amounts of quantitative data associated with empirical investigation and the positive correlations between the data do not necessarily prove causation. From a practitioner’s perspective, there are many interventions and initiatives that can assist companies to make an impact, among them the Global Compact. These initiatives are often accused of using theoretical sleight of hand to sidestep the choice between the business case (we do things, including acting with integrity, because we will make more money) and the moral case (we do things because they are the right things to do, whether we will make more money or not). This sleight of hand is represented by the enlightened self-interest approach (we do things because they are the right things to do and fortunately for us they are also good for business).

Figure 9:  Understanding and changing the world

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Integrative Social Contracts Theory (ISCT) was developed by Tom Donaldson and Thomas Dunfee to provide guidance on ethical issues in international business.[2] One of the major strengths of the work of Donaldson and Dunfee is that they provide a practical framework for decision-making that is based on sound theory, without getting stuck in the meta-debate about whether there can be one, all-encompassing approach to ethics.

ISCT suggests that there is a universally binding moral threshold (comprising universal principles or hypernorms) that would apply anywhere in the world and that forms the basis of a hypothetical macro contract for economic ethics. At the same time, context matters from a practical as well as theoretical perspective when deciding between right and wrong. According to ISCT, corporations should have respect for local customs and conventions and can therefore negotiate micro contracts within moral free space as long as they do not transgress the universal moral threshold. Micro contracts are actual, non-hypothetical and often implicit agreements that exist within corporations, industries and national economic systems. Moral free space refers to the freedom of individuals, corporations and other social actors to form or join communities and to act jointly to establish moral rules applicable to the members of these communities.

Figure 10: Visual representation of ISCT

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The 10 principles of the Global Compact can be regarded as substantive hypernorms, and the principles, collectively, can be regarded as an example of a hypothetical macro contract. Within the context of the Global Compact, three different kinds of micro contracts can be identified: the local network structure of the UN Global Compact, collective action initiatives, and individual company behavior based on codes of conduct. However, empirical research indicates a limited focus on local conditions in many of these examples.

A New Conceptual Framework

The difficulties that corporations experience in negotiating between the global and the local, as well as between the moral case and the business case, inspired this author to develop a new conceptual framework based on ISCT. This framework can be applied by all corporations, regardless of whether they are participants in the Global Compact. The proposed framework aims to assist corporations to conceptualize, develop and implement effective corporate responsibility programs. It is underpinned by the need to have a thorough understanding of responsibility, with specific reference to the distinction between (but not separation of) the moral and business case. Such an understanding then enables the corporation to take responsibility, and informs a series of activities that relate to internal processes (governing responsibility, managing responsibility and reporting on responsibility) and respond to the external activities of regulating responsibility.

Figure 3: A practical framework for corporate responsibility
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The significance of the framework lies in a combination of scientific rigor and managerial relevance. It has a strong theoretical underpinning while also being readily accessible to practitioners. Accessibility is the key, because practitioners will make most of the decisions that will have an impact on human rights, labor issues, environmental performance and the fight against corruption.

Daniel Malan, PhD, is a Senior Lecturer in Ethics and Governance and Director of the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School in South Africa. His focus areas are corporate governance, business ethics and corporate responsibility.  He is a member of the World Economic Forum’s Global Agenda Council on Values, the International Corporate Governance Network’s Integrated Business Reporting Committee and the Anti-Corruption Working Group of the United Nations Principles for Responsible Management Education.  He is also a portfolio partner at the International Centre for Corporate Governance at the University of St Gallen. This article is a summary of his recently completed PhD in Business Administration, obtained from the University of Stellenbosch.

[1] United Nations. 1999. Secretary-General proposes global compact on human rights, labour, environment, in address to World Economic Forum in Davos. [Online] Available: http://www.un.org/press/en/1999/19990201.sgsm6881.html  Accessed: 14 June 2015.
[2] Donaldson, T. & Dunfee, T. 1999. Ties That Bind: A social contracts approach to business ethics. Boston: Harvard University Press.