The un Global Compact : Fair Competition and Environmental and Labour Justice in International Markets 9781784412944, 9781784412951

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THE UN GLOBAL COMPACT: FAIR COMPETITION AND ENVIRONMENTAL AND LABOUR JUSTICE IN INTERNATIONAL MARKETS

ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE Previously ADVANCES IN ECOPOLITICS Series Editor: Liam Leonard PUBLISHED UNDER SERIES TITLE ‘ADVANCES IN ECOPOLITICS’ Sustainable Politics and the Crisis of the Peripheries: Ireland and Greece Volume 8 Edited by Liam Leonard and Iosif Botetzagias Enterprising Communities: Grassroots Sustainability Innovations Volume 9 Edited by Anna Davies Transnational Migration, Gender and Rights Volume 10 Volume Editor: Ragnhild Sollund Series Editor: Liam Leonard PUBLISHED UNDER SERIES TITLE ‘ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE’ International Business, Sustainability and Corporate Social Responsibility Volume 11 Edited by Maria Alejandra Gonzalez-Perez and Liam Leonard Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Volume 12 Edited by Liam Leonard and Maria Alejandra Gonzalez-Perez Environmental Philosophy: The Art of Life in a World of Limits Volume 13 Edited by Liam Leonard, John Barry, Marius de Geus, Peter Doran and Graham Parkes The Sustainability of Restorative Justice Volume 14 Edited by Paula Kenny and Liam Leonard Occupy the Earth: Global Environmental Movements Volume 15 Edited by Liam Leonard and Sya Buryn Kedzior

ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE VOLUME 16

THE UN GLOBAL COMPACT: FAIR COMPETITION AND ENVIRONMENTAL AND LABOUR JUSTICE IN INTERNATIONAL MARKETS EDITED BY

MARIA ALEJANDRA GONZALEZ-PEREZ Universidad EAFIT, Medellin, Colombia

LIAM LEONARD California State University, Fullerton, CA, USA and West Virginia University, Morgantown, WV, USA

United Kingdom
North America
Japan India
Malaysia
China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2015 Copyright r 2015 Emerald Group Publishing Limited Reprints and permissions service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78441-295-1 ISSN: 2051-5030 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

vii

LIST OF TABLES

ix

LIST OF FIGURES

xi

FOREWORD

xiii

UN-SUPPORTED PRINCIPLES FOR RESPONSIBLE MANAGEMENT EDUCATION (PRME): GLOBAL CONTEXT, REGIONAL IMPLEMENTATION, AND THE ROLE OF SIGNATORIES Anthony F. Buono, Jonas Haertle and Rudi Kurz

1

HOW UN GLOBAL COMPACT CAN CONTRIBUTE CORPORATE ACCOUNTABILITY AND SUSTAINABILITY? Arzu O¨zso¨zgu¨n C¸alis¸kan

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CREATING ALIGNMENT BETWEEN CORPORATE SUSTAINABILITY AND GLOBAL COMPACT INITIATIVES Harish C. Chandan

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DESIGNING CORPORATE GOVERNANCE TO ENHANCE RESPECT FOR UN GLOBAL COMPACT PRINCIPLES Alice de Jonge

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v

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CONTENTS

WRITING THE SOCIAL CONTRACT: INTEGRATING THE UN GLOBAL COMPACT AND MINING CSR W. Travis Selmier II

83

SOCIALLY RESPONSIBLE INVESTMENT: THE FINANCIAL PERFORMANCE OF SPANISH EQUITY PENSION PLANS Carmen-Pilar Martı´-Ballester

103

WHY DO SPANISH FIRMS ENGAGE IN THE GLOBAL COMPACT INITIATIVE? AN EXPLANATION FROM INSTITUTIONAL AND SOCIAL IDENTITY THEORIES Maria dels A`ngelsDası´ Coscollar, Consuelo Dolz Dolz and Esmeralda Linares-Navarro

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HOW INTERNATIONAL INVESTMENT AGREEMENTS CAN BETTER CONTRIBUTE TO SUSTAINABLE DEVELOPMENT BY REFLECTING THE U.N. GLOBAL COMPACT PRINCIPLES Rafael Tamayo-A´lvarez

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LEADERSHIP STYLES IN ORGANIZATIONS PARTICIPATING IN THE UN GLOBAL COMPACT Emel Esen

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THE ESPOUSED VALUES OF MNES OPERATING IN COLOMBIA: THEIR ETHICAL ORIENTATION AND STAKEHOLDER CONSIDERATION Sergio Castrillo´n-Orrego

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FIRST CONTACT PILOT PROGRAM: A CONTRIBUTION FOR THE DISSEMINATION OF THE GLOBAL COMPACT IN MEDELLIN, COLOMBIA Juan Carlos Diaz Vasquez, Jaime Alberto Ospina Gallo and Margarita Marı´a Montoya Pela´ez

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ABOUT THE EDITORS

217

ABOUT THE CONTRIBUTORS

219

LIST OF CONTRIBUTORS Anthony F. Buono

Bentley University, Waltham, MA, USA

Sergio Castrillo´nOrrego

Universidad EAFIT, Medellin, Colombia

Harish C. Chandan Maria dels A`ngelsDası´ Coscollar

Argosy University, Atlanta, GA, USA University of Valencia, Valencia, Spain

Alice de Jonge

Monash University, Caulfield East, Australia

Juan Carlos Diaz Vasquez

Universidad EAFIT, Medellin, Colombia

Consuelo Dolz Dolz

University of Valencia, Valencia, Spain

Emel Esen

Yildiz Technical University, Istanbul, Turkey

Maria Alejandra Gonzalez-Perez

Universidad EAFIT, Medellin, Colombia

Jonas Haertle

UN Global Compact, United Nations, New York, NY, USA

Georg Kell

UN Global Compact, New York, NY, USA

Rudi Kurz

Pforzheim University, Pforzheim, Germany

Liam Leonard

California State University, Fullerton, CA, USA and West Virginia University, Morgantown, WV, USA

Esmeralda LinaresNavarro

University of Valencia, Valencia, Spain

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LIST OF CONTRIBUTORS

Carmen-Pilar Martı´-Ballester

Universitat Auto`noma de Barcelona (UAB), Cerdanyola del Valle`s, Spain

Margarita Marı´a Montoya Pela´ez

ISAGEN, Medellin, Colombia

Jaime Alberto Ospina Gallo Arzu O¨zso¨zgu¨n C¸alis¸kan

ISAGEN, Medellin, Colombia Yildiz Technical University, Istanbul, Turkey

W. Travis Selmier II Indiana University, Bloomington, IN, USA Rafael Tamayo-A´lvarez Universidad de los Andes, Bogota´, Colombia

LIST OF TABLES Chapter 2

Table 1 The UN Global Compact Principles.. . . . . .

24

Chapter 3

Table 1 The 10 Principles of UN Global Compact in Four Core Areas of Human Rights, Labor, Environment, and Anticorruption. . . . . . . . Table 2 Cost-Benefit Analysis of CS (Kaspereit & Lopatta, 2011).. . . . . . . . . . . . . . . . .

40

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Table 1 Proportion of Listed Companies from 55 Countries with Active Global Compact COP Status. . . . . . . . . . . . . . . . . . . Table 2 List of Countries that Replied to the ILO Governing Body Eighth Survey on the Effect Given to the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, Covering the Period 2000
2003. . . . . . . . . . . . . . Table 1 United Nations Global Compact (UNGC) 10 Principles.. . . . . . . . . . . . . . . . . . Table 2 Links between Eight Factors of Mining CSR Challenges and UNGC Principles. . . . . . . . Table 3 ICMM’s “10 Principles” for a Sustainable Development Framework. . . . . . . . . . . . Table 1 The UNGC’s Principles. . . . . . . . . . . . Table 2 Descriptive Statistics for Variables of Equity Pension Plans. . . . . . . . . . . . . . . . . Table 3 Correlation Matrix for Regression Variables. Table 4 Regression Estimates. . . . . . . . . . . . .

49

72

73 85 88 90

. 106 . . .

113 114 115

Table 1 Governance Quality between Spain and the Rest of Top European Countries with Local Networks by Number of Business Participants. . . . . . . . . . . . . . . . . . . 135 ix

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LIST OF TABLES

Table 2 CPI in the Top European Countries with Local Networks by Number of Business Participants. . . . . . . . . . . . . . . . . . . 137 Table 3 Leading Participants of the GC Initiative and Followers in Spain. . . . . . . . . . . . . . . 139 Chapter 9

Table 1 The 10 GC Principles. . . . . . . . . . . . . . 163 Table 2 Differences among Two Leaderships. . . . . . 165

Chapter 11 Table 1 Pilot Program Stakeholders. . . . . . . . . . . 207 Table 2 ISAGEN Participant Suppliers. . . . . . . . . 210

LIST OF FIGURES Chapter 1

Fig. 1 Fig. 2 Fig. 3

Chapter 3

Fig. 1

Fig. 2 Fig. 3 Chapter 7

Fig. 1 Fig. 2 Fig. 3

The PRME Engagement Model. . . . . . . . . Business Ethics Infusion: Bentley’s Faculty Development Workshop. . . . . . . . . . . . The Sustainable Praxis Triad. . . . . . . . . . Four Areas of Global Compact
Human Rights, Labor Standards, Environment, and Anticorruption. . . . . . . . . . . . . . . . . The Hierarchical Relationship between CS and CSR. . . . . . . . . . . . . . . . . . . . . . . Corporate Approaches on Sustainability. . . .

5 8 12

39 43 44

GC Spanish Signatories Evolution. . . . . . . 128 GC Spanish Members Evolution. . . . . . . . 129 Top 20 Countries with Local Networks by Number of Business Participants (2012). . . . . 129

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FOREWORD A truly global movement is underway, with a vanguard of companies in all key markets taking action on corporate sustainability and driving innovation in areas as diverse as energy and climate change, water stewardship, women’s empowerment, children’s rights and anti-corruption. At the UN Global Compact launch in 2000, approximately 40 companies came together with a dozen labour and civil society leaders to commit to universal principles. Today, the Global Compact stands at 8,000 companies and 4,000 non-business signatories based in 150 countries, representing nearly every industry sector, size, and with equal representation from developed and developing countries. The idea and practice of responsible business has been rooted in all continents, and our 100 Local Networks are convening companies and acting on key issues at the ground level. The spread of this movement was unthinkable just 15 years ago when few companies were considering their impact on the environment and society. Yet, we are far from a tipping point in bringing corporate sustainability to scale and impact. As business remains our best hope to produce many of the solutions needed to drive positive and transformative change, a critical mass of companies must recognise that environmental and social issues are critical to long-term business success. The ten principles and the four issue areas they represent
human rights, labour, the environment and anti-corruption
serve as the bedrock of ‘performance aspiration’ for participating companies. And, to be sure, the business case for mainstreaming the principles into strategy, culture and operations has never been stronger. That is why it is with great pleasure that we welcome this book, The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets. In outlining the specific implications for business when embracing the Global Compact, it is our aim that this collection will provide assistance on your journey towards corporate sustainability, in the spirit of maximising the benefits that participation in the Global Compact offers. It is intended to generate maximum value by positioning your

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organisation well to manage the spectrum of emerging challenges and opportunities in the context of globalisation. We hope you find this book useful to help develop a strategic approach to drive your institution’s success and achieve your objectives. Georg Kell Executive Director UN Global Compact

UN-SUPPORTED PRINCIPLES FOR RESPONSIBLE MANAGEMENT EDUCATION (PRME): GLOBAL CONTEXT, REGIONAL IMPLEMENTATION, AND THE ROLE OF SIGNATORIES Anthony F. Buono, Jonas Haertle and Rudi Kurz ABSTRACT Purpose
The chapter examines the role of the UN Global Compact inspired Principles for Responsible Management Education (PRME) initiative, how it operates, and the role that signatory schools and regional chapters play in its continued development and evolution. Design/methodology/approach
The chapter conceptualizes the PRME engagement model (a learning network, reporting to stakeholders, commitment to continuous improvement), and uses three case vignettes to illustrate the type of programs and activities that signatory

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 1
15 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016001

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schools and regional chapters have developed and how these endeavors contribute to PRME’s evolution and development. Findings
As a way of thinking about the ability of PRME to achieve its intended goals, it is important to look at higher education (thought leadership) within the context of the world of practice in both business (practice leadership) and civil society (practice leadership). PRME signatories and regional chapters need to more fully engage in this “sustainable praxis triad,” extending the growing network of signatories and chapters within the academic community to include businesses and civil society organizations. Research limitations/implications
The chapter focuses on three vignettes to illustrate different activities and involvement in PRME signatory schools and regional chapters. More extensive comparative analysis across business schools and regional chapters throughout the world is needed to ensure broader dissemination of current practices and innovations. Practical implications
Beyond teaching and a focus on the current generation of students, PRME has the potential for more immediate impact through student-based consulting activities, the transfer of research results to the business community and larger society, and ensuring that university campuses and operations are exemplars of sustainable practice. PRME signatories and regional chapters can work to ensure that relevance and rigor in research are not polar extremes but rather as praxis
the integration of academic thought leadership with needed stewardship and practice leadership in the larger society. Social implications
Transparency and communication are important first steps for change. As business schools and universities openly share their research, curricula and pedagogical innovations, and best practices for their campus operations, they contribute to a vivid and stimulating intellectual climate, through which society and all stakeholders will benefit. PRME can facilitate the ability of higher education to serve as a nucleus and crystallization for innovative solutions for a more sustainable future. Originality/value
PRME is still a relatively young initiative. First evidence shows that the PRME initiative is successfully contributing to educating a new generation of managers who are better prepared for the global challenges of sustainable development. Keywords: UN Global Compact; PRME; PRME signatories; regional PRME chapters; sustainable development; stakeholder engagement

UN-Supported Principles for Responsible Management Education

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The Principles for Responsible Management Education have the capacity to take the case for universal values and business into classrooms on every continent. UN Secretary-General Ban Ki-moon

INTRODUCTION: THE GLOBAL CONTEXT OF PRME Based on an initiative of Secretary-General Kofi Annan in 1999, the UN Global Compact (UNGC) was established by companies that committed to engage for social justice and environmentally friendly globalization. Today more than 8,000 companies
as well as over 4,200 civil society organizations
from 145 countries have signed the UNGC. These organizations have agreed to follow 10 core principles on human rights, labor standards, environment, and anticorruption. The companies report annually on their activities (civil society organizations on a bi-annual basis) and the progress they have made. The UNGC has also served as the blueprint for the Principles for Responsible Management Education (PRME) introduced in 2007 by Secretary-General Ban Ki-moon. In essence, while the GC focuses on the present generation of managers and business professionals, PRME is intended to shape the mindsets of the next generation, preparing them for a truly transnational world. Today more than 540 business schools worldwide have signed PRME, including about 100 in the United States and about 50 in the German-speaking countries. With PRME, the UN emphasizes the significance of the science system for sustainable development,1 which includes universities (collegiate-level education) and research institutions like the Helmholtz Association in Germany. Management education, which includes curricula and pedagogy as well as the research agendas at our business schools, has a crucial impact on the development of future leaders of public and private enterprises, and ultimately, the future development of societies. The leading international accreditation institutions for management education
AACSB and EFMD
share this perception and have played an active role in establishing and supporting PRME. Both accrediting bodies expect that every business school will address issues of responsible management education
in the classroom, in their research, and in their community activities
providing responses to these challenges based on their individual mission and profile. Although there are many other activities and alliances between universities, business schools, and the corporate and not-for-profit worlds intended

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to improve the contribution of the science system to sustainable development, PRME is the only initiative directly linked to the United Nations and closely related to the business community via the UNGC. In essence, PRME provides the foundation for an ideal interinstitutional setting with significant potential for all participants.

IMPLEMENTATION AND DEVELOPMENT To a large extent, the success of PRME is due to and depends on three characteristics: (1) Making it as easy as possible for business schools to become signatories
all that is required is the commitment of the institution to continuous improvement in responsible management education (see the appendix for the PRME Principles). (2) Ensuring a strict policy that all participating business schools have to deliver reports on progress and sharing of information on a regular basis. (3) Enabling (outstanding) signatories to be the drivers of further development of PRME. The low barrier to entry (point 1 above) supports the diffusion of PRME. The obligation to work and report (point 2) on continuous improvement makes PRME more effective for each participant as well as the initiative itself. Reports have to be updated every two years and uploaded on the UN PRME homepage. This exposure not only documents the contributions of individual schools but also serves as a way to share best practices across an array of stakeholders. Nonreporting business schools are consequently eliminated (delisted) from the list of participants. Beginning the first quarter of 2013, the bi-annual delisting of PRME signatories is part of ongoing efforts by PRME to enhance the accountability and credibility of the initiative. This practice is based on a recommendation by the PRME Steering Committee as well as from the wider PRME community through the Rio Declaration. Considering the multifaceted roles that signatories can play in responsible management education in the context of sustainable development, UN PRME provides a guiding framework rather than a fixed set of rules. As illustrated in Fig. 1, this framework allows individual interpretation and contextual integration, aiming to drive continuous improvement and

UN-Supported Principles for Responsible Management Education

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A Learning Network By collecting and channeling good practices, the PRME initiative facilitates an exchange of existing and new practices in management education and helps to shape new expectations.

Reporting to Stakeholders Adopting the PRME implies that the signatory institution is willing to report regularly on progress to all stakeholders. Public reporting ensures accountability, is the best way to support the credibility of the initiative and provides recognition for good performance.

Continuous Improvement Implementation of the Principles should be understood as a long-term process of continuous performance improvement, and the PRME can provide a framework of principles through which to engage faculty, staff, and other stakeholders and build institutional support.

Fig. 1.

The PRME Engagement Model.

forming the foundation of the PRME Engagement Model. By capturing innovations and new approaches to management education and reporting to stakeholders, as well as actively engaging in global and local learning communities, signatories enjoy immediate benefits because of network-, knowledge- and image effects as partners in an international learning community. This framework also provides visible signals of progress through communication and engagement with internal and external stakeholder groups. The Steering Committee (with representatives from all founding institutions) fulfills the role of a supervisory board, stimulating and coordinating further development of PRME. Change, however, still depends on the commitment and initiatives from the participants. Therefore, a key feature of specifying and further developing the core of responsible management education (point 3 above) is designed as a bottom-up approach: signatories themselves are expected to develop, share, and implement innovative solutions. The main intent is that each participant as well as PRME as an institution should be a learning organization, permanently reflecting on its

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role of “thought leadership” in sustainable development. The Steering Committee has supported this strategic direction of decentralized governance with a heightened sense of co-ownership, whereas the PRME Secretariat (2013) continues to act as its facilitator by helping the workstreams manage their own activities. The institutional setting for organizing this global learning process is characterized by regional chapters, working groups, a champions group (a group of leading signatories committed to thought leadership within PRME), and an advisory group. This diverse institutional setting provides ample opportunity to contribute to and to learn from all participants. In addition, global events, which include forums and summits in cooperation with the UNGC, further add to the networking component that supports idea generation and implementation.

HOW SIGNATORIES CONTRIBUTE: THE BENTLEY CASE As a business university, Bentley was an early signatory of PRME and has committed to the integration of ethics, responsibility, sustainability, and community engagement throughout its curriculum, research and campus operations. While this undertaking was built on a number of traditions within the institution
for example, Bentley’s Center for Business Ethics was founded in 1976 and the Service-Learning Center was created in 1990
PRME provided a clear, organizing direction that helped to capture the meaning of responsible management throughout the institution. The challenge at Bentley, as with many signatory schools embarking on such a cross-institutional initiative, was to: (1) seek out and build on the dedication and creativity of individual faculty members; (2) engage the campus community in a series of conversations about the significance of ethics and responsible management education; (3) draw on the capabilities and work of faculty leaders in this area; and (4) embed those practices into programs and initiatives across campus. A key initiative that contributed to this effort was the creation of Bentley’s Alliance for Ethics and Social Responsibility. The mission of the Alliance was to amplify and extend the work of the core centers and programs on campus that focused on these issues, supporting and encouraging greater awareness of, respect for, and commitment to ethics, service, sustainability, and social responsibility in faculty research, curricula, and

UN-Supported Principles for Responsible Management Education

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campus culture. A unique feature of the Alliance, which reflects the PRME initiative’s commitment to inspire responsible management and sustainable practice, is its integrative focus on these four core areas. The creation of the Alliance provides an illustration of how the PRME initiative can be institutionalized. The underlying process began by “preaching to the choir,” starting with those faculty across the institution who were already committed to PRME’s goals, leveraging institutional strengths, drawing on social capital, and creating “small wins” as a way of building communities of practice. Drawing on the institutional visibility of existing programs, emphasis was placed on ways to engage faculty members
through discussions of business ethics, sustainable practice, and civic engagement
to bring a sense of responsible management to life. The basic strategy can be characterized as “management by talking around,” beginning with one-on-one conversations with key players across campus, and gradually building to one-on-two, one-on-three, two-on-two (and so forth) interactions. These discussions focused on understanding and honoring the past, conceptualizing potential linkages across campus, and thinking about ways to engage key stakeholders both on and off campus. The underlying idea was to build on these smaller interactions to get to wider community conversations with the goal of, what organization development guru Marvin Weisbord referred to as, “getting the whole system in the room.” The next phase focused on ways to enhance individual learning as a foundation for organizational learning and envisioning new ways of thinking about responsible management. As an example, one of the specific ways that the Alliance has contributed to the diffusion of PRME is through faculty development and stakeholder engagement in its annual Global Business Ethics Symposium (GBES) sponsored by the State Street Foundation. Cosponsored by PRME and open to the public, the GBES brings together thought leaders from the academic, corporate, government, and NGO worlds for in-depth discussions of current practices and challenges in business ethics, corporate responsibility, and sustainability. The purpose of the symposium program is to both learn and inform by: (1) exploring current practices in other institutions, countries, and cultures; (2) identifying ways to enhance issues of ethics, corporate responsibility, and sustainability in business education and in outreach to the corporate community; and (3) disseminating this experience throughout the academic and practitioner worlds. The yearly symposium is followed by a faculty development workshop that grounds responsible management practice in business ethics. Through the support of the State Street Foundation, the workshop, which has been

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conducted each year since 1990 for Bentley faculty, went global, sponsoring faculty from around the world to work with Bentley faculty in exploring ways of integrating ethical issues into their disciplinary courses. The workshop is designed to accomplish this goal through: (1) facilitated discussions among faculty from several different disciplines, institutions, and geographic regions intended to provide them with a basic grounding in business ethics and corporate responsibility, and (2) presentations by the faculty participants on integrating responsible management into their courses, with the opportunity for feedback from the workshop facilitators and participants. The workshop was based on the premise that many faculty often fear that incorporating ethics and responsible management into their courses means lecturing about ethical theory, something that most business school faculty are very uncomfortable doing. As illustrated in the Fig. 2, the goal is to broaden the ways in which faculty think about drawing discussions of ethics and responsible management into their courses. By exploring how cases, videos, exercises and simulations, news events, and issues debates can be used in a broad range of courses, faculty gain additional insight into how they can enhance the awareness and moral imagination of our students. Discussion also focuses on how actively engaging students in the community through service-learning activities further enhances their ability to experience the world through the eyes of different stakeholders.

Ethics Theory/ Discussion

Planned Teachable Moment

Experiential Learning

Spontaneous Teachable Moment

Infusion Continuum Explicit Knowledge Identifiable Cases/Videos

Readings Ethics Models/ Frameworks

Exercises & Simulations

Current Events Issues Debates

Tacit Knowledge Experienced Reflection: Giving Voice to Values

Service-Learning/ Civic Engagement

Planned/ Relatively Safe

Emergent Discussion of Ethical Issues in the moment

Spontaneous/ Relatively Risky

Authenticity & Impact on Students

Fig. 2.

Business Ethics Infusion: Bentley’s Faculty Development Workshop.

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The workshop also stresses that no one course is sufficient and the focus on responsible management must be infused across the curriculum. By focusing on pedagogical tactics and approaches to incorporating ethics and responsible management issues in different courses and different disciplines, the teaching workshop enables faculty to become increasingly skilled at engaging students in in-depth discussions of ethical issues, going beyond planned activities (cases, exercises, videos) to drawing on student workrelated experiences (through what Henry Mintzberg has referred to as “experienced reflection” and Mary Gentile’s “Giving Voice to Values” program, going from work experience to reflection in the classroom, back to the job, classroom, and so forth) and challenges that emerge “in the moment.” An underlying objective is to enhance a faculty member’s ability to capture those spontaneous teaching moments, when students are personally engaged in the subject at hand, which can have the greatest impact on their learning. The ultimate goal of the faculty development workshop is to assist faculty to feel more comfortable with responsible management concepts, analysis, and application so that they will be better able to work with students in raising their awareness and ability to make rational, ethical choices. The program has enabled Bentley to influence the ways in which responsible management-related issues and topics are incorporated into courses across the curriculum, from accounting and finance to marketing, operations management, and human resource management, to organizational behavior and strategy. Finally, as a way of solidifying this effort, emphasis was also placed on “making it real,” linking PRME-related goals with other structures, systems, and processes on campus. As examples, this effort included integration with Bentley’s Academic Integrity System, institutional ethics policy and related ethics committee, Institutional Review Board (focusing on ethical issues in research with human subjects), students as colleagues initiative (engaging them in community projects, domestic and international service-learning, and research initiatives), and related institutional programs, initiatives, and experiences.

HOW SIGNATORIES CONTRIBUTE: THE PFORZHEIM CASE In her mission statement, Pforzheim University combines responsibility
of both the institution and individual graduates
with innovation

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ANTHONY F. BUONO ET AL.

(providing innovative impulses). This was the strategic fundament for the 2007 decision to sign PRME and become an active member of the PRME community. The university was also able to build on a long-standing tradition in sustainability issues: the first lecture on environmental economics started in 1986 (as an elective), research activities have included environmental management, social justice and poverty, and many company projects have addressed sustainability issues. After 2007 these activities were systematically documented and coordinated. A working group was established (headed by a professor) and a staff member was hired to compile the “Sharing Information on Progress” reports. Although the focus has always been on teaching and integrating RME into the curriculum, it also had consequences for many other dimensions of university management: faculty development, research, methods and didactic, outcome assessment. In 2011, Pforzheim Business School was accredited by AACSB, and the accreditation process has been very supportive for implementing and focusing on RME activities. The university also wanted to contribute to and to learn from the PRME community. In spring 2013 Pforzheim University hosted a workshop to prepare the foundation of a PRME regional chapter for the Germanspeaking countries: Germany (D), Austria (A), und Switzerland (CH). In February 2014 the PRME regional chapter DACH was successfully launched in Innsbruck (see http://www.prme.mci.edu) and is now one of three “Established Regional Chapters.” Pforzheim University is represented in the Steering Group of the DACH-Chapter as well as in the Champions Group and the Advisory Committee. In sum, Pforzheim University is convinced that PRME contributes to improve the students’ education by preparing graduates to cope with the challenges of sustainable development which companies are increasingly facing. By cooperating with inspiring international partners, faculty members individually and the institution receive a variety of innovative stimuli.

HOW REGIONAL CHAPTERS CONTRIBUTE: THE DACH CASE Universities and business schools that have signed PRME struggle in the everyday business of implementing and improving RME with the question of how to best “translate” the very general principles into concrete strategies and actions. In this context, regional chapters can provide a valuable

UN-Supported Principles for Responsible Management Education

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orientation as a platform of exchange with peers that share a similar cultural background. At the Innsbruck conference of DACH in spring 2014, for example, these core challenges have been systematically addressed and some priorities have been formulated. Why? (motivation/rationale/Begru¨ndung) • Improve graduates’ employability (job perspective). • Support companies which increasingly need SD/RME literate graduates. • Community service: support civil society in the great transformation toward sustainable development. • Change individual student’s values (highly controversial). What? (subjects and topics) • Macro level: Sustainable development and economic growth (conflicts?). Green growth, efficiency and sufficiency. Less consumption, change of lifestyle (post-growth economy in rich countries). • Micro/company level: How to measure and evaluate companies’ sustainability (greenwashing). Social entrepreneurship (not only focus on technological innovation). • Micro/individual level: Graduates’ individual decision making (ethical criteria) and their role as (potential) change agents. How? (pedagogy/didactics) • • • • •

Electives versus integration throughout curriculum. Knowledge and competences (handling dilemma). Can RME be taught in lectures? Role of experiential learning. ECTS versus extracurricular experience. Role of research/projects (with companies, with civil society).

Given this long list of challenges, it is necessary to set priorities. At the DACH meeting it was decided to start with the following aspects: • Analysis of mission statements: How do universities/school formulate their commitment to social responsibility? What has been the strategic role of the (debate on the) mission statement for implementing RME at each of the institutions? • Curriculum Management: What role for students? How could their potentials be more systematically integrated (Co-Creation)? • Faculty Development: What relevant courses are available (overview, recommendations) and how could faculty learning be supported?

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• Analysis of Sharing Information on Progress (SIP) reports: What is reported? Is there a perspective for identifying common standards? As such questions are also debated in other PRME groups and chapters, exchange is important, via Internet and in conferences. Transparency and communication could contribute to converging views on the core issues of RME. However, the subject will always remain very multidimensional and emphasis will have to respond when challenges of sustainable development change.

PERSPECTIVES: WHAT CAN PRME ACHIEVE? If PRME successfully contributes to educating a new generation of managers who are better prepared for the global challenges of sustainable development, it will still take time for these graduates to have an impact in the business world and the larger society. Are there activities and initiatives that academia
universities and business schools
could do in the meantime to confront issues of poverty, climate change, and loss of biodiversity? Beyond teaching and a focus on the current generation of students, PRME’s more immediate impact could be achieved through student-based consulting activities, the transfer of research results to the business community and society, and ensuring that university campuses and operations are exemplars of sustainable practice. Research should not be seen as only having a role in the profession and classroom, but rather as contributing to insights into a broader discussion about sustainable development. As suggested in Fig. 3, academia’s role goes beyond simply supplying knowledge Universities (thought leadership)

Companies, Management (practice leadership)

Fig. 3.

Stakeholder, Civil Society (practice leadership)

The Sustainable Praxis Triad.

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and preparing graduates for industry to providing “thought leadership” and participating in the wider sustainability discourse. PRME can provide a pathway through which academics can venture beyond the so-called ivory tower and publication in esoteric journals intended for small insider circles, to broader public disclosure in practitioner journals and newspapers that are more understandable for a much broader citizenry. Relevance and rigor should not be seen as polar extremes but rather as praxis
the integration of academic thought leadership with needed stewardship and practice leadership in the larger society. PRME and its signatories could clearly do better in this respect. Although there have been joint declarations at PRME summits and conferences (e.g., Copenhagen Declaration on Climate Change in 2009), such activities are not yet sufficiently oriented toward the outside world. PRME principles 5 and 6 (on partnership and dialogue) encourage such contributions and there is development to align PRME’s work with the UN Post2015 Development Agenda. However, the PRME initiative is relatively young and still in the process of establishing an effective network-based organizational structure. Considerable progress has been made since its inception, laying the ground work for a more active role in social discourse in the future. Academia’s role is enlightenment (Aufkla¨rung). We should be raising such important questions as “What is (ir)responsible management?” and “Responsibility for what?” in a critical way. Students
the next generation of business professionals and civil society leaders
need a clear understanding of such global challenges
as (extreme) poverty, climate change, and loss of biodiversity
combined with the perspective that while these problems are to a large extent man-made they can also be “man-changed.” While we may have insights into potential solutions, we often fail in their implementation. Is there a further role that academia can contribute in this regard
analyzing and reporting, telling inconvenient truths (which governments often will not do it)? Are we on track to fulfill our common goals, moving toward the future we want? If not, we need to provide further analysis and insight into alternative options for action.2 What is the adequate role of companies? There is no general answer to this question. Here is where the responsibility of each company and each individual begins. Academia can suggest potential solutions, exploring their application and implementation in different organizational contexts. It can also develop measurement methods and indicators that help to differentiate significant progress from mere greenwashing. Transparency and communication are important first steps for change. If universities and business

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schools do more in this respect their students can grow in a vivid and stimulating intellectual climate, and stakeholders and society will benefit. PRME and the leading accreditation institutions emphasize this aspect of higher education. Universities and business schools should serve as a nucleus and crystallization point for innovative solutions in the context of a sustainable future.

NOTES 1. The “classical” definition of sustainable development has been formulated in the World Commission on Environment and Development (referred to the Brundtland Report) (1987): Development which meets the needs of the present generation (especially those of the poor) without burdening future generations. 2. However, the science system clearly has its own logic and follows internal “laws” (carrier paths, remuneration, etc.) which make these requests sometimes look quite naı¨ ve.

REFERENCES PRME Secretariat. (2013). Overview. In PRME working groups and regional chapters. Retrieved from http://www.unprme.org/working-groups/ United Nations Global Compact. (2013). Architects of a better world: Building the post-2015 business engagement architecture. In Tools and resources. Retrieved from http://www. unglobalcompact.org/resources/441 World Commission on Environment and Development. (1987). Our common Future. Oxford, UK: Oxford University Press.

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APPENDIX UNGC Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; Principle 2: Make sure that they are not complicit in human rights abuses. Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: The elimination of all forms of forced and compulsory labor; Principle 5: The effective abolition of child labor; Principle 6: The elimination of discrimination in respect of employment and occupation. Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: Undertake initiatives to promote greater environmental responsibility; Principle 9: Encourage the development and diffusion of environmentally friendly technologies.

PRME Principle 1 | Purpose: We will develop the capabilities of students to be future generators of sustainable value for business and society at large and to work for an inclusive and sustainable global economy. Principle 2 | Values: We will incorporate into our academic activities and curricula the values of global social responsibility as portrayed in international initiatives such as the United Nations Global Compact. Principle 3 | Method: We will create educational frameworks, materials, processes, and environments that enable effective learning experiences for responsible leadership. Principle 4 | Research: We will engage in conceptual and empirical research that advances our understanding about the role, dynamics, and impact of corporations in the creation of sustainable social, environmental, and economic value. Principle 5 | Partnership: We will interact with managers of business corporations to extend our knowledge of their challenges in meeting social and environmental responsibilities and to explore jointly effective approaches to meeting these challenges.

Principle 10: Businesses should work against corruption in all its forms, including extortion Principle 6 | Dialogue: We will facilitate and and bribery. support dialog and debate among educators, students, business, government, consumers, media, civil society organizations, and other interested groups and stakeholders on critical issues related to global social responsibility and sustainability.

HOW UN GLOBAL COMPACT CAN CONTRIBUTE CORPORATE ACCOUNTABILITY AND SUSTAINABILITY? Arzu O¨zso¨zgu¨n C¸ali ¸skan ABSTRACT Purpose
The United Nations Global Compact initiative is presented for businesses and nonbusiness as a universally accepted set of principles. The aim of the 10 principles in the areas of Human Rights, Labor, Environment, and Anticorruption is to encourage businesses to align their operations and strategies with committed values. The Global Compact network involves not only companies but also governments, labor, and civil society organizations. Corporations, community, and environment are integral parts of a system that correlate to each other. In light of the assumption that business operations have increasingly observable effects on the environment, economy, and social life on a global scale, it is necessary to have accountable and sustainable firms. The Global Compact is a voluntary strategic policy initiative, and it has become more important in where interactions between organizations and stakeholders to be more dynamic. On the other hand, sustainability has

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 17
36 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016002

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economic, social, and environmental dimensions, and in accordance with these dimensions, it is necessary for firms to take into account the influence of their operations on their stakeholders. Thereby, from theoretical perspectives, the primary objective of this chapter is to illustrate the role of Global Compact in corporate accountability and sustainability. Design/methodology/approach
An extensive literature research is conducted in order to understand the relationship between Global Compact principles and corporate accountability and sustainability. Findings
From a theoretical point of view, there are some conditions for the advancement of the corporate accountability and sustainability. For instance, there is need for stakeholders’ insistence about incorporating social and environmental values into the business economic decisions. Thus firms could contribute to not only worlds’ economic but also social as well as environmental future. Research limitations/implications
The research is a theoretical study, but for further studies, empirical studies can be conducted to understand the interactions between Global Compact principles and corporate accountability and sustainability. Practical implications
This study may be useful for managers to realize the role of Global Compact principles on corporate accountability and its contribution to being a sustainable firm. Originality/value
There is a lack of studies that analyze the role of Global Compact principles on corporate accountability and sustainability. Examining the principles in light of corporate accountability and sustainability will add a value to the literature in this area. Keywords: Global Compact; sustainability; accountability; corporate social responsibility; corporate citizenship

INTRODUCTION Effects of business operations on the environment, society, and economy on a global scale bring into question, what the role of corporations in sustainability is (Jones, 2010). Customers’ and other stakeholders’ increasing interest in the environmental and social effects of the goods and services they consume, and the information about how these products contribute

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to the community (ACCA, 2008; Closs, Speier, & Meacham, 2011) necessitate businesses to consider their corporate responsibility in a broader sense. Behaving in a socially responsible manner is generally conceptualized as corporate social responsibility (CSR), but it also can be seen that a wide variety of terms, such as public responsibility, corporate social performance, sustainable business, corporate societal responsibility, corporate citizenship, sustainable company, and triple bottom-line approach, have been used in the literature (Kanji & Chopra, 2010; Keeler, 2002; Valor, 2005). Sustainability is a wide-ranging concept and it involves economics, social justice, environmental science and management, business management, policies, and regulations (Wilson, 2003). The experienced scandals of big companies such as Shell, Nike, and Nestle´ ranging from the environment and human rights to health and labor conditions indicate that the unpleasant behavior is accompanied by risk of losing firms’ license to operate (Gardiner, Rubbens, & Bonfiglioli, 2003). The stakeholders’ attentions to the nonfinancial performance of the corporations force companies to focus, besides financial performance, on the environment and the society (Setthasakko, 2009). Thus there is no possibility for firms that aimed to be competitive and successful over the long term to behave in a responsible and sustainable manner (Albareda, Lozano, & Ysa, 2007; Esen, 2013). Corporations are vital components of economics system and when it is considered that the biggest firms in the world control 25% of the world’s economic output, the role of corporations in sustainability attached greater importance (Gardiner et al., 2003). This chapter attempts to understand the role of Global Compact in corporate accountability and sustainability. For this purpose, corporate accountability and sustainability are examined based on definitions, and from the theoretical perspectives, the linkage between the concepts and Global Compact are presented.

Sustainable Development and Corporate Sustainability As a concept, sustainable development gained worldwide prominence after the release of Our Common Future, also known as the Brundtland Report and published by The World Commission on Environment and Development in 1987 (Roosa, 2010). In the report, sustainable development refers to meeting today’s needs without creating a threat for the needs of future generations (Bos-Brouwers, 2010; Cabezas, Pawlowski, Mayer, & Hoagland, 2004; Glavicˇ & Lukman, 2007; Isaksson & Steimle, 2009;

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Katrinli, Gunay, & Biresselioglu, 2011; Roosa, 2010; Sisaye, 2011). In essence, sustainable development is about equilibrium between meeting human needs and protecting the world and future generations. Human needs are satisfied through activities of the firms which are an essential part of the community and the environment in which they perform. In the circumstances it is expected from firms to offer more information for transparency and corporate accountability (Aras & Crowther, 2008; Porter & Kramer, 2003). In other words, it is necessary for business to consider sustainable development as an issue, similar to the governments (Jones, 2010). Corporate sustainability is essentially a pursuit for aligning the products and services with the stakeholders, and thus creates economic, social, and environmental value. And firms have an ethical responsibility to assist the community in realizing sustainable development objective (Wilson, 2003). However sustainability is so important issue that it is not possible to wait for corporations own tendency to act. In this respect, the UN Global Compact could be an alternative for firms to address to consider the result of their business manner through sustainability.

Corporate Responsibility For firms, being competitive is the key to success and for survival. And when corporations intend to increase their capacity to compete, considering the impact of their operations on economic, environmental, and social structures is inevitable, especially in the case of behaving in a socially responsible manner is encouraged by their stakeholders (Dahlsrud, 2008; Saravanamuthu, 2004). However, which concept refers to act in a socially responsible manner and what are the acceptable social behaviors are still confusing (Dahlsrud, 2008; Keeler, 2002; Valor, 2005). There is an implicit agreement within the CSR that business and society are interwoven rather than distinct entities (Chaudhry & Krishnan, 2007). Although the importance of CSR for the stakeholders is accepted without question, but its meaning is not always the same thing to everybody (Votaw, 1972). In general, the meaning of CSR is a firm’s obligation that aims to maximize positive impact, while minimizing its negative impact on society (Esen, 2013). CSR refers to a firm’s interest for issues that go what is narrowly regarded as economic, technical, and legal requirements of the firm. In other words, both activities bounded by the firm’s core operations and also things reaching beyond business objectives and benefits are important

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for the firm in order to meet the expectations of a wide range of stakeholders (Blomba¨ck & Wigren, 2009). In line with stakeholder theory, CSR has multidimensional perspective, which may incorporate various issues such as environmental, social, and ethical. According to Carroll’s (1979, 1991) model which can be seen as one of the most widely accepted and operationalized models of CSR, it has four dimensions, namely economic, legal, ethical, and philanthropic (discretionary) responsibilities (Arli & Lasmono, 2010; Carroll, 1979; Carroll, 1991; Ramasamy & Yeung, 2009). Economic dimension is valid for all business and represents the fundamental responsibility of firms that are to be productive and profitable and meet consumer needs. Obeying the law and operating within the legal framework of society while fulfilling its economic responsibilities refers to legal responsibilities. Following the regal regulations such as workers safety, environmental standards, tax laws, and competition laws are included in this dimension. The third dimension, ethical responsibilities reflects socially established ethical standards that a firm has to follow. And the philanthropic responsibilities indicate that a firm has to serve to improve the quality of life by attempting to help other people and contribute to well-being of society (Lindgreen, Swaen, & Johnston, 2009; Maignan, 2001; Qu, 2007; Snider, Hill, & Martin, 2003). Since there is a reciprocal relationship among the dimensions, these responsibilities should be fulfilled together and in parallel rather than within a sequence (Cooke & He, 2010; Ramasamy & Yeung, 2009). Even if CSR approach is added to companies’ attitudes and practices, the attitudes and practices of the companies toward CSR could be different depending on their perception about what the CSR is. In this context, being philanthropic organization or answering company’s social responsibility by being “good citizenship” could be the response to the question of what the corporate responsibility means (Keeler, 2002). When the literature is analyzed, it can be seen that since the 1990s, corporate citizenship is started to be used in the management theory and practice as a competitive or replaceable concept. The effort of understanding the difference between corporate citizenship and the other concept necessitates to ask which one(s) is improving corporate accountability (Valor, 2005). Accountability is more comprehensive than the meaning of responsibility. Responsibility, being accountable, and responsiveness are the elements of accountability and, in other words, it is combination of responsibility and resources and an expression, explanation or justification of managerial actions is involved in it (Comite, 2013). Accountability and responsibility are different concepts from each other. Accountability refers to firm’s duty to explain, justify, or report on its

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actions, and responsibility is firm’s duty to act in a certain way (Fu¨lo¨p & Herna´di, 2013). Accountability involves not only behavior that allows a person to be accurate and reliable about the use of resources, but also produces an additional request such as to report and measure the level of performance achieved. As it is stated before, it is expected from corporations to behave in a socially responsible manner and corporate accountability emphasizes the need for those in positions of social responsibility to be accountable to both society at large as well as to interested stakeholders (Comite, 2013). The legal or ethical responsibility to provide an account or reckoning of the actions for which one is held responsible is related to accountability (Fu¨lo¨p & Herna´di, 2013). Accountability contributes to the reduction information asymmetry and deceptive behaviors (Comite, 2013). It could be accepted as a kind of control that is carried out by the society and also government to understand the certain behaviors and expectation are satisfied or not (Bruno & Karliner, 2002; Valor, 2005). Corporate accountability is not limited to its shareholder but also its stakeholders. Generally, it is accepted that shareholders focus on financial performance, although some of them concern about social and ethical performance. And also owing shares is not a necessity to be interested in firms’ activities. The idea behind the corporate accountability is that people could have inconspicuous and common interest. Not focusing on stakeholders’ nonfinancial consideration could cause decrease in profitability (McLaren, 2004). Since there is a reciprocal relationship between firms’ social, economic, and environmental areas, a firm aiming to maintain its existence would not avoid considering the value system of the community (Jones, 2010). The firms that desire to thrive in the future need to show explicit commitment of its responsibilities not only to shareholders, but also to wider society and explicit recognition of the firm as a sociopolitical actor, just like government refers to corporate citizenship (Sison, 2009). There is an interrelationship among corporations, community, and environment; and firms’ competitiveness is closely correlated with their skills of adaptation to new social, environmental, and economic conditions (Porter & Kramer, 2003). The higher the firms’ ability to adapt, the more successful the firm performance is. But all economic activities that aim to provide for human needs have also resulted in both devilish consumption and other adverse outcomes, such as global warming, air and water pollution, depletion of natural and environmental resources, and damages to human health, and quality of life (Cabezas et al., 2004; Setthasakko, 2009). On the contrary, the same worldwide activities are presupposed to resolve poverty (Common & Stagl, 2005). Economic growth is necessary to solve

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humankind’s current serious problems; it should not be an excuse for ignoring the right to life of the next generations (Isaksson & Steimle, 2009). Sustainability is a belief that people could care for the needs of others, and could change and improve their lives in order to protect the world and future generations (Sharp, 1992). In the Brundtland Report, sustainable development was defined as “the ability to meet the needs of present generations without compromising the ability of future generations to meet their own needs” (Davidson, 2011; Glavicˇ & Lukman, 2007; Isaksson & Steimle, 2009; Katrinli et al., 2011; Sisaye, 2011). In the definition, the forthcoming generations are acknowledged as stakeholders of the current generations (Isaksson & Steimle, 2009). In light of the assumption that business operations have increasingly observable effects on the environment, economy, and social life on a global scale, it is necessary to have accountable and sustainable firms. Sustainability has economic, social, and environmental dimensions, and in accordance with these dimensions, it is necessary for firms to take into account the influence of their operations on their stakeholders.

THE UNITED NATIONS GLOBAL COMPACT The United Nations Global Compact initiative is based on the foundation of the former UN Secretary-General Kofi Annan’s policy speech at the World Economic Forum in Davos, 1999. It is emphasized in the speech that unsustainable imbalances and inequities are the characteristics of rapid spread of globalizations, and universal human values and rights are not the internalized elements of the markets (Kell, 2003). Overcoming the common suspicions about the UN and business and benefiting from the potential ability of businesses to advance UN goals are the issues that are considered in the preparation process of the speech. The trade, role of business in society in an era of global integration, and the UN’s core competencies are the critical policy debates of the time (Kell, 2013). According to Annan, shared values are necessary for the generation of stable environment for a world market since they prevent businesses from the backlashes of protectionism, populism, fanaticism, and terrorism. After the 1999 World Economic Forum in Davos, nine principles were formulated by Annan and a group of business leaders, and the tenth principle against corruption was added in June 2004 (Williams, 2007). More than 10,000 participants spread across 145 countries are involved in the Global Compact (UNGC, 2014a).

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Compared to its peers such as WBCSD, Prince of Wales International Leaders Business Forum, Global Reporting Initiative, and SA8000, the Global Compact with this feature is the world’s largest voluntary network (Cetindamar & Husoy, 2007; Rasche, Waddock, & Mcintosh, 2013). The UN Global Compact is a principle-based initiative that reflects broadly defined norms for corporate behavior without any monitoring (Rasche et al., 2013). The UN Global Compact initiative is leadership platform that is aimed at encouraging business for the development, implementation, and disclosure of responsible and sustainable corporate policies and practices (UNGC, 2014b). The principles are classified into four cornerstones: human rights, labor, environment, and anticorruption. The Universal Declaration of Human Rights (1948), the Rio Declaration on Environment and Development (1992), the International Labour Organization’s Fundamental Principles and Rights at Work (1998), and the UN Convention against Corruption (2003) are the sources of these principles (Kell & Ruggie, 1999; Ruggie, 2001; Williams, 2007). The UN Global Compact includes 10 principles and these principles are grouped into four overarching areas: human rights, labor, environment, and anticorruption (Table 1). Table 1.

The UN Global Compact Principles.

Human Rights Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights; Principle 2 Make sure that they are not complicit in human rights abuses. Labor Principle 3 Principle 4 Principle 5 Principle 6 Environment Principle 7 Principle 8 Principle 9

Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; The elimination of all forms of forced and compulsory labor; The effective abolition of child labor; The elimination of discrimination in respect of employment and occupation. Businesses should support a precautionary approach to environmental challenges; Undertake initiatives to promote greater environmental responsibility; and Encourage the development and diffusion of environmentally friendly technologies.

Anticorruption Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery.

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The first group principles are related to human rights and originate from the 1984 Universal Declaration of Human Rights. The declaration aims to set basic minimum international standards for the protection of the rights and freedom of individual. Although it is not possible to directly apply some of the principles in the declaration to business, being consistent with the declaration is important. Equality, life and security, personal freedom, economic, social, and cultural freedoms are the main elements of Universal Declaration (UNGC, 2014c). The second group contains four principles about labor and they are taken from the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work. It is aimed by the ILO to harness the support of the business community for these principles through the Global Compact. Upholding freedom of association and effective recognition of the right to collective bargaining and eliminating all forms of forced and compulsory labor are the principles of the labor part. Additionally, not employing child and eliminate discrimination in respect of employment are the part of labor-related principles (UNGC, 2014d). The third group is concerned with environment and the principles are drawn from a Declaration of Principles and an International Action Plan, namely Agenda 21. The declaration also stems from the United Nations Conference on Environment and Development, the Earth Summit, held in Rio de Janeiro in 1992. The environmental principles are entry points for firms to consider the key environmental challenges. Especially, the principles encourage business to deal with significant environmental degradation issues by researching, innovating, cooperating, educating, and self-regulating (UNGC, 2014e). Finally, the last principle is about anticorruption that was added on June 24, 2004, during the UN Global Compact Leaders’ Summit. Corruption is not indulgently considered since it is inherently wrong and creates unpleasant results for the business and society. Legal and reputational risks, financial costs, knowing as no clean, exposing blackmail and security risks, and having a perception that the one who cheats will be cheated against are some of the undesired side effects of corruption (UNGC, 2014f). The Global Compact is a public and private, global and local, as well as voluntary initiative (Rasche et al., 2013), and aimed to encourage business to work with United Nations. Instead of enforcing participants’ behaviors and actions, it relies on public accountability, transparency, and the enlightened self-interest of companies, labor, and civil society in order to pursue its principles (Enquist, Johnson, & Ska˚le´n, 2006). Businesses are the primary driver of globalization and mainstreaming 10 principles in business activities around the world and facilitating actions in support of broader

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UN goals can contribute a more sustainable and inclusive global economy (UNGC, 2014b). There are two commitments for business participation, namely corporate commitment and financial commitment. The corporate commitment means, once a company embraces the Global Compact, the company’s Chief Executive Officer (or equivalent) commits the Compact, and supports by the highest-level governance body of the organization. In addition to that, making the Global Compact and its principles an integral part of business strategy, day to day operations, and organizational culture is expected from the company. To achieve the desired results one has to necessitate incorporating the Global Compact and its principles in the decision-making process of the firms and contributing to broad development objectives. It is also expected from the companies to communicate publicly and advance the Global Compact and the case for responsible business practices. Financial commitment refers to making a regular annual contribution to support the work of the UN Global Compact Office. The annual contribution amount differs from company to company depending on company size, namely annual sales or revenue (UNGC, 2014g). As it mentioned above, the Global Compact initiative is a universally accepted set of principles that are presented for businesses. The aim behind the principles is encouraging businesses to align their operations and strategies with committed values. Not only business but also governments, labor, and civil society organizations could be part of this initiative. The UN Global Compact uses two different approaches, the one is establishing a set of principles related to area of human rights, labor, environment, and anticorruption; the other is providing platforms for companies and NGOs to discuss issues related to specified principles and through this way to learn and benefit from the interaction. Aiming to actualize the values that have potential to protect Earth and improve life, involving broad scope, and being nonlegal mechanism make the Global Compact unequaled (Runhaar & Lafferty, 2009). On the contrary, some scholars admit that principles are hard to practice and they should be clear enough to implement (Rasche, 2009).

THE ROLE OF UN GLOBAL COMPACT IN CORPORATE ACCOUNTABILITY AND SUSTAINABILITY As explained in the previous section, the Global Compact is an initiative that aims to encourage business to align their operations and strategies

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with committed values in the area of human rights, labor, environment, and anticorruption. It is expected from participant firms to be responsible corporate citizens and take action in support of UN goals. The initiative stems from the outside of the business community itself and supervised by the UN (Clapp, 2005). Firms’ responsibility for their activities are beyond financial results and the conditions we are in at present necessitates firms to asses not only the current stakeholders but also the potential. The limits of economic, social, and environmental resources should be considered by the firms in order to contribute to the wealth of not only existing but also coming generations (Glavicˇ & Lukman, 2007). This is the notion of sustainable development, and in the widest sense, sustainability is a concept that highlights the protection of the abilities of future generations to meet their own needs, without comprising the satisfaction of the needs of today’s people. Sustainable development has three components, namely economic, social, and environment. If it is accepted, corporate sustainability is the equivalent of sustainability at the level of business. Corporate sustainability as a concept refers to an evolving model of corporate management. The model is an alternative to the traditional management model, which is based on growth and profit maximization, and short-term value maximization is its core principle (Signitzer & Prexl, 2007; Wilson, 2003). However, in the new model, growth and profitability are accepted as being just as important as social and environmental issues, such as environmental protection, social equity and justice, and economic development (Wilson, 2003). Therefore, ensuring long-term economic performance in accordance with sustainability is only possible by avoiding short-term actions that create negative social and environmental effects (Porter & Kramer, 2006). Under the sustainability priority, considering future generations constitutes a challenge for both companies and their stakeholders. Businesses are economic units which help people and other agents in the economy to meet their needs and making profit is a vital prerequisite of firms in real markets. In the circumstances, corporations may need motivation and supervision to consider future generations and to endure current financial losses and eventually exit the market. At this point, stakeholders’ role and pressures could be significant in changing firms’ attitudes toward sustainability and corporate accountability. The claim is valid under the current neoclassical paradigm, where corporate control by stakeholders, society can only occur through market. According to the paradigm, stakeholder should incorporate ethical values in their economics decisions if they really want to achieve companies that change their behavior to reflect society’s social values (Valor, 2005). From a different perspective, according to shareholder

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strategy that is based on neoclassic economics, activities that reflect society’s social values are a means that contribute to the long-term value for the owners of the business (Enquist et al., 2006). Given that companies are accountable for the creation of organizational wealth for its stakeholders, accountability should be understood as social corporate control (Valor, 2005). Companies that incorporate society’s social values into their mission statements translated them into concrete corporate management practices and disclosed the adopted values in their annual reports, and website is also perceived to have good corporate values, intangible assets that could be positively translated in many ways (Esen, 2013; Kell & Ruggie, 1999) such as having competitive advantage in industry, expressing corporate culture, and improving long-term profitability and corporate reputation (Chaudhry & Krishnan, 2007; Keeler, 2002; Wagner, Lutz, & Weitz, 2009). In response to its benefits to corporations and firms, more companies are making global social values an important strategic objective (Wagner et al., 2009). In this context, the UN Global Compact as a set of value helps corporations to engage global society’s social values. Besides, the UN Global Compact participants are permitted to use “We Support the Global Compact” logo as a way to promote their commitment to the initiative and raise awareness of the United Nations Global Compact. The logo also can be used on corporate websites and pertinent printed materials (UNGC, 2014h). In this way, firms not only promote their commitment to the initiative but also their stakeholders. Besides, by using these products, consumers are indirectly supporting a cause and rewarding firms that devote resources to global social values (McWilliams & Siegel, 2001). But, as it is stated before, the UN Global Compact is a voluntary organization, and because of it, it is considered as promoting media for corporate sustainability instead of strict accountability. For these reasons it has been widely criticized by NGOs as being inadequate to elicit sufficient change in business practices (Clapp, 2005). On the other hand, ever since the UN Global Compact was launched in 2000, some corporations perceived it as a threat which is a first step toward global business regulation, eventually creating adverse consequences of economic growth (Rasche et al., 2013). But the UN Global Compact is voluntary and does not involve legal sanction. It is driven by peer-pressure, social norms, and potential benefits to the product brand or company. In line with other scholars (Kell, 2005; Rasche et al., 2013), it is accepted in the study that the UN Global Compact is a new governance arrangement offering a platform for business and nonbusiness actors to engage in discussions around transnational policy issues such as global

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warming, human rights, and anticorruption. But it could be noted that the initiative could be a complementary source of governmental and intergovernmental regulations, not a substitute for more stringent transnational regulations (Rasche et al., 2013). The Global Compact, as a principle-based initiative, helps to establish legitimacy of the corporate responsibility agenda worldwide. Corporate responsibility is a voluntary concept rather than enforced through regulation, and its perceived legitimacy of its underlying rules has a critical role in having sustainability (Rasche et al., 2013). The Global Compact is also a voluntary initiative, and a lack of support for more authoritative regulations, negative experiences with previous attempts to regulate transnational companies through codes of conduct, and a lack of capacity at the UN to monitor and enforce compliance are the reasons of its voluntarily characteristic (Runhaar & Lafferty, 2009). Since the UN itself is perceived as a legitimate actor and provides institutionalized arenas for multistakeholder deliberation could have impact on the establishing legitimacy that needed for sustainability (Rasche et al., 2013). But it should be stated that, in order to achieve the corporate accountability and sustainability, the Global Compact principles should be embedded in the decision-making processes. Being an accountable organization necessitates improved corporate governance and measurements that include both operational and social measures of performance. In addition, reporting to a broad set of internal and external stakeholders of information relevant to decisions and improved management systems to drive these improvements through corporate culture and change the way managers make decisions to improve both corporate accountability and corporate performance are also important elements of an accountable organization (Epstein & Buhovac, 2014). According to a research that was carried out in 2013, based on the responses of 1,000 CEOs of companies participating in the Global Compact, both in developed and emerging markets, CEOs admit that sustainability will be critical to the future success of their business and brand; trust and reputation are the most important factors to take action on sustainability issues. Personal motivation, potential revenue growth and cost reduction, consumer demand, impact of development gaps on business, regulatory environment, and employee engagement and recruitment are the other factors of sustainability initiatives, respectively (Lacy & Hayward, 2011; UN, 2013). Trust, ethical values, corporate culture, employees’ motivation and behaviors, and leadership style are the dimensions of corporate reputation and they are related to CSR initiatives. When the corporations behave in a socially responsible manner, they meet

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the demands and expectations of key stakeholders. Therefore, corporations gain competitive advantage through the development of an internal and external organizational image and reputation. In addition to that, reputation that is based on effective management of the social expectations of stakeholders could contribute to the share value in financial and international environment (Esen, 2013). More than half of the CEOs who attended to the research do not believe that business is doing enough to address global sustainability challenges. The CEO’s believed that there is need for a global architecture that can enable business to scale sustainability efforts from individual, incremental achievement toward new structures and systems. In order to benefit from business as a force for sustainability, broad participation of companies, deep commitments on core issues, upgrading partnerships and collective action, and to strengthen capacity for implementation at the national and local levels are required. The new structure that meets the requirement can establish a connection with the evident commitment of business leaders around the world and release the full potential of business in contributing to the world’s most pressing challenges (UN, 2013).

CONCLUSION Firms are important for satisfying human needs and economic growth of nations but their operations could create negative effect on economic, environmental, and social structures. Because of many problems such as the differences in the level of development among countries, leading to differences in quality of life, global warming, air and water pollution, depletion of natural and environmental resources, and damages to human health and quality of life, sustainable development is becoming more important than ever. Sustainable development is defined in the Brundtland Report as “the ability to meet the needs of present generations without compromising the ability of future generations to meet their own needs.” There are different definitions for sustainability, but the Brundtland Report definition is the most widely accepted. The most important element of the definition is that the forthcoming generations are acknowledged as stakeholders of the current generations. According to the idea, economic growth is necessary to solve humankind’s current serious problems, but it should not be an excuse for ignoring the right to life of the next generations (Isaksson & Steimle, 2009).

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The publishing of the Brundtland Report enhanced the international consciousness about sustainable development (Quental, Lourenc¸o, & Da Silva, 2011). Although sustainable development is an economic issue, applying the concept in the corporations necessitates to minimize these effects of firms to secure life on earth. Human rights, benefit to workers, contribution to society, and behaving in a socially responsible manner are some of the issues that stakeholders are curious about. The issues are generally conceptualized as CSR. Additionally, public responsibility, corporate social performance, sustainable business, corporate societal responsibility, corporate citizenship, sustainable company, and triple bottom-line approach have been used in the literature with regard to the issues. Corporate responsibility can be accepted as a balance between competing interest of firms and their stakeholders. Accountability comprises responsibility, being accountable and responsiveness and it enables reduction information asymmetry and deceptive behaviors. By this way, stakeholders could evaluate corporations’ behaviors and its operating results and use these assessments in their decision-making system to direct the corporations’ behaviors toward sustainable development. In this study, it is tried to illustrate the role of Global Compact in corporate accountability and sustainability. In a global world, it is becoming increasingly important to engage in practices which contribute to sustainability. Corporations are essential elements of the social, economic, and ecologic community and they have responsibility in the creation of various problems, and therefore, they are required to take part in their solution. The United Nations Global Compact initiative is presented for businesses as a universally accepted set of principles that aim to encourage businesses to align their operations and strategies with committed values. The Global Compact is a principle-based initiative and involves 10 principles in the areas of Human Rights, Labor, Environmental, and Anticorruption. The principles are a kind of norms for corporate behavior without any monitoring and stem from The Universal Declaration of Human Rights, the Rio Declaration on Environment and Development, the International Labour Organization’s Fundamental Principles and Rights at Work, and the UN Convention against Corruption. Sustainability is a comprehensive concept and it is really hard to form a framework for considering how corporations can apply it. Besides this, not only corporations but also other actors of the social, economic, and ecologic community are needed to have more sustainable impact on the lives of all creatures on the earth. The Global Compact could be a platform for this development since business, governments, labor, and civil society organizations could be part of this initiative. On the

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contrary, some scholars and NGOs believe that the UN Global Compact is considered as promoting media for corporate sustainability instead of strict accountability and it is inadequate to elicit sufficient change in business practices. It is accepted in the study that the UN Global Compact is a new governance arrangement offering a platform for business and nonbusiness actors. The platform is important for discussing and sharing experiences, and it could be noted that the initiative could be a complementary source of governmental and intergovernmental regulations. Firms could have positive outcomes by behaving in a globally accepted manner involving values such as enhancing employees’ motivation, potential revenue growth, and cost reduction. The results create positive impact on firms’ value. Therefore, shareholders could want their firms to behave in line with the globally accepted values, namely the Global Compact. In addition to that the firms also are valuable for their stakeholders. As a result, behaving in a socially responsible manner meets the demands and expectations of key stakeholders and by this way corporations may gain competitive advantage. It should be stated that the Global Compact is a principle-based initiative and in order to achieve the corporate accountability and sustainability, its principles should be embedded in firms’ decision-making processes. Not only companies but also their stakeholders have responsibility, and in the area of sustainability stakeholders can serve a strong impetus for changing firms’ behaviors. Based on these result and discussion, having a platform that includes both corporations and their stakeholders may allow finding problems and help to overcome the challenges.

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CREATING ALIGNMENT BETWEEN CORPORATE SUSTAINABILITY AND GLOBAL COMPACT INITIATIVES Harish C. Chandan ABSTRACT Purpose
This chapter discusses how businesses can create alignment between their corporate sustainability (CS) efforts that focus on the triple bottom line of the financial, environmental, and social, and the 10 principles of the UN Global Compact in the four core areas of environment, human rights, labor standards, and anticorruption. Design/methodology/approach
Based on the literature review, the relationship between CS and corporate responsibility is presented. Creating alignment between CS management and Global Compact initiatives requires knowledge of the Global Reporting Initiative (G4-GRI), third-party CS rankings, green supply chain management, and anticorruption strategies. Findings
UN Global Compact is an international forum to promote and self-report CS and corporate social responsibility [Bitanga & Bridwell,

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 37
59 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016003

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2010. CS is achieved through a triple bottom line
financial, environmental, and social (Hutchins & Sutherland, 2008). For CS management, businesses use four strategies including defensive, cost-benefit, strategic, and innovation/learning [Buchholtz & Carroll, 2008; Egbeleke, Journal of Management and Sustainability, 4(2), 92
105 (2014); Epstein, 2008; Epstein, Buhovac, & Yuthas, 2010]. The UN G4-GRI is the most widely used comprehensive sustainability reporting standard in the world (G4-GRI, 2013). Third-party, industry sector-specific CS ratings reinforce the self-reported sustainability reports. Each firm has to conduct their own CS cost-benefit analysis to determine how CS practices can lead to value creation for sustained competitive advantage. Creating alignment with Global Compact initiatives offers firms a marketing advantage. Conducting business in accordance with the Global Compact is a value-increasing business strategy [Kaspereit & Lopatta, 2011; Lopatta & Kaspereit, 2014; Michelon, Corporate Reputation Review, 14(2), 79
96 (2011)]. Green supply chain management is essential for CS (Penfield, 2014). Four prevailing anticorruption frameworks or intervention policy approaches include law enforcement, economics, moralism, and cultural relativism (Bellows, 2013). There is little sustainability reporting in the government and public-sector organizations (Adams, Muir, & Hoque, 2014). Research limitations/implications
It is difficult to quantify the financial and social benefits of aligning the CS efforts with the 10 principles of UN Global Compact [Parisi, Journal of Management and Governance, 17(1), 71
97 (2013); Nilipour & Nilipour, Interdisciplinary Journal of Contemporary Research in Business, 3(9), 1084
1092 (2012)]. The environmental impact can be easily quantified. Practical implications
As the primary driver of globalization, businesses and other organizations can help ensure that markets, commerce, technology, and finance advance in ways that benefit environment, economies, and societies in both developed and developing countries leading to sustained development. Originality/value of the chapter
The role of green supply chain management and anticorruption strategies in CS management is explored. Keywords: Corporate sustainability; Corporate social responsibility; Global Compact; Corporate sustainability management

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INTRODUCTION Launched in 2000, Global Compact is the largest international corporate sustainability (CS) public
private, voluntary initiative, with over 12,000 signatories based in 145 countries. “Endorsed by chief executives, the Global Compact is a practical framework for the development, implementation, and disclosure of sustainability policies and practices …” (Global Corporate Sustainability Report, 2013). The UN Global Compact is a voluntary, international, strategic policy initiative for business and nonbusiness organizations (Adams, Muir, & Hoque, 2014) to align their strategy and operations with 10 universally accepted principles in the areas of human rights, labor, environment, and anticorruption (Fig. 1). It guides organizations toward the vision of a sustainable and inclusive global economy, which delivers lasting benefits to people, communities, and markets (Global Compact, 2014). The 10 principles in the four core areas of human rights, labor, environment, and anticorruption are listed in Table 1. The companies that adopt the Global Compact publish communication on progress (COP) through their annual report, a sustainability report or a corporate social responsibility (CSR) report. These companies report on how they advance the Global Compact initiatives and the case for responsible business practices through advocacy and active outreach to peers, partners, clients, consumers, and the public at large.

Human rights

Labor standards

Environment

Anti-corruption Un global compact

Fig. 1.

Four Areas of Global Compact
Human Rights, Labor Standards, Environment, and Anticorruption.

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Table 1.

HARISH C. CHANDAN

The 10 Principles of UN Global Compact in Four Core Areas of Human Rights, Labor, Environment, and Anticorruption.

Core Area

#

Principle

Human rights

1

Businesses should support and respect the protection of internationally proclaimed human rights Business should ensure that they are not complicit in human rights abuses Businesses should uphold the freedom of association and the effective recognition of the right to collective labor standards The elimination of all forms of forced and compulsory labor The effective abolition of child labor The elimination of discrimination in respect of employment and occupation Businesses should support a precautionary approach to environmental challenges Undertake initiatives to promote greater environmental responsibility Encourage the development and diffusion of environmentally friendly technologies Businesses should work against corruption in all its forms, including extortion and bribery

2 Labor standards

3 4 5 6

Environment

7 8 9

Anticorruption

10

For businesses, the United Nations Global Compact presents a unique strategic platform to advance their commitments to sustainability and corporate citizenship. The three pillars of sustainability are economics, environment, and society representing the triple bottom line of financial gain for the shareholders, environmental protection, and contributions toward public interest for the welfare of the society. Companies are moving from good intentions to significant action with the large companies leading the way. The individual industry-sector leaders set the sustainability reporting standards for smaller companies to follow. The COP from these sector leaders also generates a peer and public pressure on the smaller companies to get involved in CS. Global Compact COP can be misused as a marketing device that companies employ to enhance their reputations without any verifiable proof of action. Some corporations emphasize positive results only and do not mention their weaknesses in their annual COP. The Global Policy Forum (GPF), which is an independent policy watchdog that monitors the work of the United Nations, has argued that the Global Compact has led to small positive changes, but not far-reaching organizational impact. GPF has

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highlighted six problems of the Global Compact between business and the UN including false assessment of globalization, commitment by companies and the UN, presentation as an alternative to binding global rules for transnational corporations (TNCs), voluntary approach, presentation as multistakeholder initiative, and presentation as a partnership between UN and business. Efforts to create an international legally binding instrument to hold TNCs accountable for human rights abuses have recently gained new momentum (Martens, 2014). This chapter presents a discussion of managing CS in the context of UN Global Compact. Creating alignment between CS management and Global Compact initiatives requires knowledge of the Global Reporting Initiative (G4-GRI), green supply chain management (GSCM), and anticorruption strategies. Each firm has to conduct their own CS cost-benefit analysis to determine how CS practices can lead to value creation for sustained competitive advantage.

UN GLOBAL COMPACT, CSR, AND CS The UN Global Compact focuses on four specific areas of environment, human rights, labor standards, and anticorruption for the purpose of sustainable development. Before the launch of UN Global Compact in 2000, large corporations have been working toward CSR in terms of triple bottom line of financial, social, and environmental concerns in their local context. With increased globalization and social awareness due to the evolution of web 2.0 (social media networks, user-generated content, and open-source approaches), the notion of CSR has evolved into the present CS in the context of “global commons,” “stakeholder involvement,” and “innovative global partnerships” (Pirnea, Olaru, & Moisa, 2011). CS represents the implementation of the vision of sustainable development at the corporate level through CSR approaches. The integrative sustainability triangle of economy, ecology, and society can be viewed as a multipurpose portfolio method for CSR (Bitanga & Bridwell, 2010; Kleine & von Hauff, 2009). CSR is defined by the European Commission as “the responsibility of enterprises for their impacts on society.” The Commission encourages that enterprises “should have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders”

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(EU-COM, 2011). According to the stakeholder theory, a company is successful if it is capable of managing its relationships with all the stakeholders including shareholders, customers, employees, and communities (Freeman, Harrison, Wicks, Parmar, & de Colle, 2010). The CS includes economic, environmental, and social issues together with intra- and intergenerational equity. The economic growth and its impact on environment and society have to be balanced through a triple bottom line
financial, environmental, and social (Hutchins & Sutherland, 2008). There is a great deal of debate about the terms CSR and CS. However, both CSR and CS concepts can serve as the basis for an effective business case for sustainable development which focuses on improving the quality of life and well-being, meeting the needs of both present and future generations (intra- and intergenerational equity), on justice and fairness, and on the need for us to live within the ecosystem limits on one planet earth (Agyeman, 2005; Agyeman & Warner, 2002; Gadenne, Lokman, Sands, Winata, & Hooi, 2012). All organizations including multinational corporations, smallto-medium enterprises, governments, nongovernment organizations, nonprofit organizations, social organizations, and environmental organizations can contribute to sustainable development (Adams et al., 2014). CS can also be defined as a business and investment strategy that aims to use the best business practices to meet and balance the needs of current stakeholders (Artiach, Lee, Nelson, & Walker, 2010). Social and environmental aspects have become central parts of value creation for the shareholders. The challenge of implementing CS lies in how to integrate CS into operational and capital investment decision making. Firms have to integrate CS into their day-to-day management decisions (Epstein, 2008). This can result in a long-term value creation that can simultaneously benefit the private sector and societies at large. CS is a broader concept than CSR or corporate citizenship. There is a hierarchical relationship between CSR and CS. The CS is the ultimate goal to “meet the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Report, 1987). The CSR is the intermediate stage where corporations try to balance the triple bottom line of profit, people, and planet (Wempe & Kaptein, 2002) (Fig. 2). CS is rooted in the wider concept of “sustainable development,” which can be characterized as a normative term like freedom, democracy, or social justice (Kraus & Britzelmaier, 2012). Sustainability is a dynamic perspective where it is a process of change and constant improvement with intermediate achievable targets (Delai & Takahashi, 2011; Glavicˇ & Lukman, 2007; Faber, Jorna, & van Engelen, 2005).

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Corporate Sustainability and Global Compact Initiatives

Corporate sustainability Corporate social responsibility

Profit

Fig. 2.

People

Planet

The Hierarchical Relationship between CS and CSR. Source: Adapted from Wempe and Kaptein (2002).

MANAGING CS IN THE CONTEXT OF UN GLOBAL COMPACT The top executives in an organization have to build their concern for the environment and society into their company’s strategy, resources, operations, and processes. In developing CS in the context of UN Global Compact, financial viability, community involvement, human rights, labor standards, environment, and corruption have to be considered. CS efforts are determined by the corporate commitment, corporate resources, stakeholders pressure, regulatory requirements, and internal and external institutional environment in the given industry sector. Compliance with regulatory requirements is the minimum effort required to avoid penalties. However, developing CS as a competency leads to additional benefits like brand image, customer good will, employee loyalty, and competitive advantage. To be effective, CS activities have to be integrated in a company’s overall strategy (Porter & Kramer, 2006; Werther & Chandler, 2011). Integrating CS efforts into day-to-day management decisions is a challenge (Epstein, 2008). Four different CS approaches have been proposed including reactive, defensive, accommodative, and proactive approach (Kraus & Britzelmaier, 2012). Another perspective includes slightly different four strategies including defensive, cost-benefit, strategic, and innovation/ learning (Buchholtz & Carroll, 2008) (Fig. 3). A comprehensive CS management system requires one to integrate and measure environmental and social aspects into the existing performance management systems (Raghubir, Roberts, Lemon, & Winer, 2010; Stubbs & Cocklin, 2008). The integration of the management systems and CS

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Strategic

Costbenefit

Corporate sustainability

Innovation/ learning

Defensive

Fig. 3.

Corporate Approaches on Sustainability. Source: Adapted from Buchholtz and Carroll (2008).

decisions are driven by stakeholder pressure and regulatory requirements. An Integrated Management System provides the necessary governance mechanism and infrastructure for sustainable processes and their continuous improvement. The CS efforts can be integrated with the business processes. An example is the adoption of the Balanced Score Card (BSC) developed by Kaplan and Norton to the Sustainability Balanced Score Card (SBSC), which links strategic goals to finance, customers, processes, and learning. The SBSC considers both financial and “soft” factors to allow integration of the environmental and social aspects (Gates & Germain, 2010; LeonSoriano, Munoz-Torres, & Chalmenta-Rosalen, 2010; Maon, Lindgreen, & Swaen, 2009). In addition to SBSC, one could use the international environmental (ISO 14001 or EMAS) and social management systems (SA8000 or AA1000). Tools like activity-based costing and life cycle costing can be used to enhance the social and environmental costs. Measurement of the impact of CS activities is critical toward better management of the impact of CS on financial performance (Epstein, 2008; Epstein, Buhovac, & Yuthas, 2010). The integrative framework for designing and implementing CS in an organization has to be aligned with corporate strategy (Bhattacharyaa, 2010; Bhattacharyya, Sahay, Arora, & Chaturvedi, 2008; Hanke & Stark, 2009; Maon et al., 2009). Specific case studies have been reported to illustrate the best practices for implementation of CS at various stages (Haugh & Talwar, 2010). The “Plan-Do-Check-Act” cycle of continuous improvement has to be developed for a specific organizational context

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(Asif, Searcy, Zutshi, & Ahmad, 2011). Managing CS is a process of continuous improvements in all of the four core areas of the Global Compact
environment, human rights, labor standards, and anticorruption.

G4-GRI GUIDELINES FOR REPORTING CS There is still a lack of consensus on sustainability reporting in terms of what should be measured and how it should be reported. Key challenges identified in preparing CS reports include timelines, data collection, selecting content, and striking an appropriate balance in reporting (Searcy & Buslivich, 2014). For self-reporting on CS efforts, the UN Global Compact offers guidelines in terms of GRI-G4. The G4-GRI, Global Compact sustainability reporting guidelines are the most widely used comprehensive sustainability reporting standard in the world (G4-GRI, 2013). These guidelines help organizations to disclose their impact on environment, society, and economy in a reliable, relevant, and standardized way to assess opportunities and risks, which enables more informed decision making. This helps companies to enhance their value, measure and manage change, and drive improvement and innovation. G4-GRI is universally applicable to all organizations of all types and sizes in different sectors. G4-GRI is in harmony with Organisation for Economic Co-operation and Development (OECD) guidelines for multinational enterprises, the UN Global Compact Principles, and the UN Guiding Principles on Business and Human Rights. To make the sustainable reports strategic and focused, G4-GRI places materiality at the heart of sustainability reporting. The CS reports based on G4-GRI should cover aspects that reflect the organization’s significant economic, environmental, and social impacts; or substantively influence the assessment and decisions of stakeholders. The structure and format of G4-GRI is presented in two separate documents
Reporting Principles and Standard Disclosures; and Implementation manual. Six essential elements are included in G4-GRI report
choosing the “in accordance” option that is right for the organization, define organization’s material aspects, clear indication of the impact, organization’s approach to managing each of the material aspects, indicators for each material aspect, and provide GRI content index for the stakeholders. These guidelines help organizations to disclose their impact on environment, society, and economy in a reliable, relevant, and standardized way to assess opportunities

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and risks, which enables more informed decision making. A study on the corporate perspectives on the development and use of sustainability reports revealed that the contents of CS reports were determined by following the current standards and conducting an internal evaluation. There has been surprisingly little research into the sustainability reporting processes and the extent to which the collected data is used for decision making (Ameer & Othman, 2012). Searcy and Buslovich (2014) attempted to answer the questions about how corporations develop sustainability reports and how corporations use these reports internally. CS reporting can be a self-disclosed, voluntary reporting or a third-party measured CS. The third-party assurance of sustainability reports can increase their reliability. In order to manage CS efforts effectively, corporations have to measure and prepare sustainability reports. The ideal sustainability measurement paradigm can create standardization within and comparability among the various organization reports. Based on a literature review at the Individual Corporation and Sector level, procedural and contextual issues were identified for the design and implementation of a corporate sustainability performance measurement system (SPMS) (Searcy, 2012). Increasing the level of an organization’s focus on its individual SPMS is positively associated with its better performance under one or more Sustainability Performance Indices (SPIs) (Gadenne et al., 2012; Gates & Germain, 2010; Zhou, Tokos, Krajnc, & Yang, 2012). Organizations apply SPMS to improve SPIs. A high level of engagement with multiple stakeholders through the use of a polyvocal citizenship perspective provides multiple social accounts and may be a path towards optimal sustainability performance measurement paradigms leading to a collaborative organizational sustainability cycle. This polyvocal citizenship perspective is built around stakeholder dialogue and providing stakeholders a voice in the organization (Lynch, 2011). Third-party sustainability reporting includes Dow Jones sustainability index, Indicators of Sustainable Development of the commission on sustainable development (1995), the Dashboard of Sustainability (1998), Barometer of Sustainability (2001), Sustainability Metrics of the Institution of Chemical Engineers (2005), Triple Bottom line (2005), and the ETHOS Corporate Social Responsibility Indicators (2005). Other examples are eco-efficiency operator representing the ratio of economic to ecological life cycle burden, environmental value added that transforms the eco-efficiency operator into monetary value and environmental shareholder value (Figge, Han, Schaltegger, & Wagner, 2002; Searcy & Elkhawas, 2012; WBCSD (World Business Council for Sustainable Development)).

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In January 2011, the United Nations Global Compact launched a new platform for CS leadership
Global Compact LEAD. Approximately 50 companies that participate in Global Compact LEAD are challenged to implement the Blueprint for CS Leadership.

GLOBAL COMPACT INITIATIVES, CS AND VALUE CREATION Large corporations self-report their CS efforts in their annual sustainability report. However, many global sustainability third-party indices linked to financial markets have emerged to highlight corporations with leading sustainability performance the third-party CS indices bring some legitimacy to corporation’s self-reporting. They create peer pressure and public pressure for corporations to invest in CS efforts. These include Dow Jones Sustainability Indices (DJSIs), RobecoSAM, Global Initiative for Sustainability Ratings (GISR), the FTSE4Good Index, MSCI Environmental, Social and Governance Index (Sadowski, Whitaker, & Buckingham, 2010). Even though, the UN Global Compact initiatives and CS efforts are voluntary efforts for corporations, the social and environmental aspects have become essential parts of the overall value-creation strategy. A company’s social and environmental behavior can be critical to a firm’s performance and sometimes even survival (Chatterji, Levine, & Toffel, 2009). Increased incidences of bad corporate behavior like BP in the year 2010 and Shell, Nike, Exxon, Enron, and WorldCom in the 1990s led to an increase in societal pressure to take responsibility for the environmental and social harm (Bhattacharyya, 2010; Bhattacharyya et al., 2008). There is no single rationalization for how CS improves the bottom line for a company (Carroll & Shabana, 2010). The benefits of CS vary by the company, the CS practices, and socioinstitutional context in which the company is embedded. The benefits of CS can be monetary and nonmonetary. Monetary benefits include revenue increase, cost decrease, or an increase in brand value. An example of a nonmonetary benefit is the positive influence of CS on the firm’s license to operate in a given region. This can influence a company’s competitiveness and financial success in an indirect way. The nonmonetary benefits can be assessed qualitatively (license to operate) or quantitatively (customer attraction, repurchase and retention rates) (Drews, 2010; Weber, 2008). CS leads to four types of business

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benefits including competitive advantage, cost/risk reduction, reputation/ legitimacy, and synergistic value creation (Kurucz, Colbert, & Wheeler, 2008). Five potential business benefits have been identified including company image and reputation; employee motivation, retention, and recruitment; cost savings; revenue increases from higher sales and market share; and CSR-related risk reduction (Weber, 2008). CS improvements is seen as a potential source of competitive advantage as it can lead to more efficient processes leading to higher productivity, lower costs of compliance with the government regulations, and new market opportunities (Schaltegger & Wagner, 2006). CS initiatives can lead to a self-reinforcing, virtuous cycle of positive benefits. The social and environmental initiatives can lead to positive reputation, loyal employees, green products, loyal customers, and high profits. The empirical data to study the relationship between CSR and corporate financial performance is difficult to gather (Demacarty, 2009). However, the relationship between financial performance and CS can be qualitatively illustrated by an inverse U-shaped curve (Schaltegger & Synnestvedt, 2002; Schaltegger & Wagner, 2006). Voluntarily undertaken CS actions beyond the compliance level provide net present value gains but with decreasing marginal utility till an optimal level of economic performance are reached. A further investment in CS is predicted to lead to a decreasing economic performance (Steger, 2006). However, the relationship between company’s CS activities and the financial performance depends strongly on the individual circumstances of every single company or industry sector (Salzmann, Ionescu-Somers, & Steger, 2005). There is some empirical evidence that a higher level of environmental disclosure is related to poor environmental performance (Patten, 2002a, 2002b). However, a positive relationship exists between the quality of environmental disclosure, company size, and industry exposure to environmental risks (Brammer & Pavelin, 2008). Overall, the capital markets perceive the CS reporting positively. The cost of equity capital decreased with sustainability reporting (Dhaliwal, Li, Tsang, & Yang, 2011). Using RobecoSAM’s sustainability rankings it was reported that the membership of the DJSI is associated with a higher market valuation. The perceived influence from the stakeholders has no association with an organization’s use of external audits (Darnall, Seol, & Sarkis, 2009). Using GRI sustainability reporting, the empirical evidence is less conclusive (Kaspereit & Lopatta, 2011). Each company has to conduct their own cost-benefit analysis to determine the value creation through CS (Table 2).

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Cost-Benefit Analysis of CS (Kaspereit & Lopatta, 2011).

Benefits Consumers pay a price premium, increased profit Employees experience a “warm glow,” more productive, willing to work for lower wages Lower cost of capital, perceived less risky by banks and portfolio managers Costs Cost of investing in sustainability projects Cost of promoting sustainability Cost of crowding-out effects, opportunity costs that result from investment projects that could not be realized due to sustainability constraints

CS AND GSCM One of the most difficult aspects of practicing CS is to maintain a sustainable supply chain. The supply chain management (SCM) integrates the dependent activities, actors, and resources between different levels of the points of origin and consumption in channels (Svensson, 2007). SCM involves a management philosophy, the implementation of this management philosophy through a set of management processes. A broader definition of SCM incorporates other business functions and is defined as a systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purpose of improving the long-term performance of the individual companies and the supply chain as a whole (Mentzer et al., 2001). A sustainable supply chain management (SSCM) requires a broadened approach of SCM that emphasizes economic, environmental, and social aspects. Since the generic components (actors, activities, and resources) and interfaces (interaction, coordination, cooperation, and competition) in the supply chain are interconnected, SSCM involves interconnection between components and interfaces across supply chains. It takes into account the degree of renewable/nonrenewable and recycled/nonrecycled resources. SSCM gives consideration to the connection between the various orders of supply chains, whereas SCM evolved toward a strong vertical emphasis on the different levels within the supply chains. In other words, SSCM considers both the vertical and horizontal levels in supply chains (Svensson, 2007). Sustainable or green supply chains can help a corporation move further into black. Risk reduction, product and service innovation, premium pricing

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opportunity, and enhanced corporate reputation are some of advantages for a green supply chain (Pearson, 2013). Using resource dependency theory and a dataset of 1,621 organizations, it was found that stakeholder pressure and SSCM both contribute to CS performance (Wolf, 2014). SSCM can avoid the reputation damage due to external stakeholder activism. Although government regulations and public pressure are powerful drivers for supply chain environmental management, corporations are being proactive for financial reasons also. In 2008, HP voluntarily diverted 92% of its nonhazardous waste from landfill, saving nearly $7.7 million from reusing items and avoiding landfill costs. HP also generated $2 million in revenue by selling material to recyclers (Seifert & Comas, 2010). For auto industry, “the current supply chain strategy of outsourcing to low cost countries is irresponsible and unsustainable. Triple C (Cease, Control, and Combine) strategy will save the auto industry money in R&D investment, reduce quality cost and inventory waste” (Xia & Tang, 2011). Transformative steps for supply chain sustainability include leadership, education, change agents, sustainability measures, goals and actions, monitoring sustainability actions, corrective action, and continuous improvement (Penfield, 2014).

CS, GLOBAL COMPACT, AND ANTICORRUPTION MANAGEMENT Global compact promotes anticorruption efforts, which requires an understanding of the causes of corruption in a given context. Corruption is pervasive globally. Corruption is defined as abuse of entrusted power for private gain (Transparency International, 2013). Corruption represents a set of economic, social, cultural, and political practices that are secretive, and rooted in greed, ambition, or quest for power. These practices take place in government institutions, nonprofit organizations, corporations, and private businesses (Kaufmann & Vicente, 2011). Corruption creates a skewed playing field for economic interactions where the consenting parties involved in the corruption have an unfair advantage and economic gain. Corporations view corruption as “speed money,” “facilitation money,” or “corruption tax” which could promote firm’s growth by overcoming the burdensome and less-efficient regulations (Ayaydin & Hayaloglu, 2014). At the macro-level, corruption is influenced by economics, national culture, and political system. At the micro-level, organizational culture

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plays a significant role. The organizations shape, mediate, and channel social choices (Dion, 2010; Powell & DiMaggio, 1991). Individual’s values alone are not sufficient to explain a person’s deviant behavior. The unethical actions by the supervisors and the unfair treatment experienced by employees also contribute to their illegal behavior (Biron, 2010; Sauser, 2007). The corrupt individuals in an organization represent a network that is embedded in an organization whose culture tolerates corruption. Corruption becomes normalized in organizations through the process of institutionalization, rationalization, and socialization. Normative systems in an organization play an important role in generating corrupt activities. They may even cause deviant behavior in some who would act in a responsible manner in other settings (Apel & Paternoster, 2009). Management in an organization is directed toward processes and the leadership toward people (Davenport & Harding, 2010). Role modeling, openness, and strictness of leaders have a direct impact on the frequency of integrity violations by employees (Huberts, Kaptein, & Lasthuizen, 2007). Leaders do not have to actively engage in corruption but they can reinforce the culture of corruption by ignoring corruption or facilitating unethical behavior (Ashforth & Anand, 2003). Written ethical norms in organizations need to be converted into everyday practices so that the management and employees behave morally (Pucetaite, Lamsa, & Novelskaite, 2010). Organizations have written code of conduct for the employees to follow. This requires a clear understanding of what is considered corruption. For employees, there may be “gray areas” and their interpretation may depend upon the social class they belong to (Collier, 2002; Heidenheimer, 2002). The management has to be a role model in this regard. Organizations often tend to manage the corruption issues through legal action alone. A twopronged approach is necessary where one combines the legal action with an effective communication of organizational expectations of noncorrupt conduct. Weak legal system can be a source of corruption and a consequence of corruption also. Complex and ambiguous regulations that allow multiple interpretations may encourage the use of position of authority for personal gain (Jain, 2001). Laws that are not consistent with prevailing norms may create pressure on employees and management to enforce them selectively (Carvajal, 1999). Employees and management may interpret that since their actions are not harming anyone, they are not corrupt. Clear communication of what is corruption, converting written code of conduct into everyday practices, role modeling by management, sanctions against corrupt actions, and ethical training is effective ways for an organization to be corruption-free.

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Good managerial ethics is essential to curbing corporate crime in organizations (Paternoster & Simpson, 1996). Both managers and leaders act as role models for the employees. They strongly influence the organizational culture and set the ethical tone of an organization. Ethical training makes people behave in noncorrupt ways not because of sanctions but because people believe that corruption is not good for the individual and the organization (Mulder, Verboon, & de Cramer, 2009). Increased teaching of business ethics can have a positive effect on the fight against corruption (Niekerk, 2003). The shared social perception about corruption in a given country determines the incidence of corruption (Hoge, 2005). Corruption can be measured subjectively based on perceptions or objectively based on convictions. Some of the indicators for business climate and corruption include “Corruption Perceptions Index (CPI),” “Economic Freedom Index (EFI),” “Doing Business Indicator (DBI),” “Business Performance and Enterprise Performance Survey (BEEPS),” “Investment Climate survey (ICS),” and “World Bank Institute Governance Index (WBI-GI).” Corruption can be viewed as a proxy for the quality of legal institution of property rights and business regulatory institutions. Four prevailing frameworks or intervention policy approaches include law enforcement, economics, moralism, and cultural relativism. A contextspecific integrated approach using all four frameworks is proposed for diagnosing corruption and taking corrective action (Bellows, 2013). What is seen as a corrupt practice in one country can be perceived as a legitimate action in another country (Dion, 2010). In some cultures, corruption is so pervasive that people believe that nothing can be done about it. It is considered as necessary evil. They believe that corruption may be ugly but it is unavoidable and here to stay. Corruption circumvents the fairness and impartiality of the rule of law and benefits the private actors who practice it. The most effective strategy for these actors to behave ethically needs to be a combination of the carrot and the stick. To combat corruption, Singapore instituted the reversal of burden of proof, increased punishment, and extraordinary investigation rights. These measures may be in conflict with the democratic virtues of human rights and respect for the individual. The reverse burden of proof assumes that the individual is guilty until proven otherwise. Granting extraordinary investigation rights to special anticorruption units can create corruption in these units if the judiciary lacks independence and transparency. Based on more than 1,500 interviews in Estonia, Latvia, and Lithuania, civil servants’ perception found that of increased detection and punishment for

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corrupt officials was effective. Conducting campaigns and ethical training was also helpful in reducing corruption. Women believed more in the effectiveness of sanctions, control, and awareness instruments. The connection between corruption and the suppression of human rights has been recognized. Scrutiny of governmental and/or regime corruption has been a primary focus, in relation to violations of human rights. Additionally, multinational companies’ involvement in corrupt practices has raised concerns, in the arms and natural resources and financial sector. As a result of structural adjustment policies, the policies of international financial institutions facilitate rather than constrain corruptive practices by regimes, militias, paramilitaries, and TNCs. Criminological analysis of crimes of globalization reveals that cooperative endeavors between international financial institutions, TNCs, and states often result in harmful activities. “Donor governments and multilateral agencies such as the World Bank and International Monetary Fund frequently put forward antipoverty and ‘good governance’ agendas, but their other actions send a different signal about where their priorities lie” (Rothe, 2010).

SUMMARY In summary, CS is rooted in the wider concept of “sustainable development.” CS is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social concerns. CS performance is an investable concept. The quality of a company’s strategy and management and its performance in dealing with opportunities and risks deriving from economic, environmental, and social developments can be quantified and used to identify and select leading companies for investment purposes. The UN Global Compact is a voluntary initiative dealing with four core areas of human rights, labor, environment, and anticorruption with an aim to promote inclusive and global sustainable development. Compliance with the Global Compact initiatives is voluntary and CS performance is self-reported. The participation in the Global Compact begins with a commitment by a company’s Chief Executive Officer and supported by the highest-level governance body of the organization. The annual posting of a sustainability report is an important demonstration of a participant’s commitment to the UN Global Compact and its principles. Failure to communicate CS results in a change in participant status and possible expulsion. Anticorruption

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efforts represent one of the four core areas of the Global Compact. Four prevailing frameworks or intervention policy approaches include law enforcement, economics, moralism, and cultural relativism. A contextspecific integrated approach is helpful for diagnosing corruption and taking corrective action. Conducting business in accordance with the Global Compact is a value-increasing business strategy (Lopatta & Kaspereit, 2014; Kaspereit & Lopatta, 2011). More and more corporations are practicing CS by taking care of the three P’s
profits, people, and planet. By 2013, over 12,000 businesses and other stakeholders from more than 145 countries voluntarily participate in the Global Compact initiative (Global Corporate Sustainability Report, UN, 2013). By participating in CS efforts, the industry-sector leaders create a kind of peer pressure for the smaller companies to conform.

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DESIGNING CORPORATE GOVERNANCE TO ENHANCE RESPECT FOR UN GLOBAL COMPACT PRINCIPLES Alice de Jonge ABSTRACT Purpose
The chapter aims to clarify the relationship between corporate governance structure and corporate subscription to Global Compact standards. Part one of the chapter looks at the relationship between different models of board governance and active Global Compact participation by publicly listed companies. Part two of the chapter examines a number of external mechanisms aimed at bringing corporate behavior in line with Global Compact principles, and argues that there is a mutually reinforcing relationship between internal governance structures and external provisions aimed at influencing corporate behavior. Design/methodology/approach
Part one of the chapter uses an independent T-test to compare the average (mean) proportion of publicly listed companies from unitary board countries with an active Global Compact Communication on Progress status with the average proportion

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 61
82 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016018

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of publicly listed companies from two-tier/hybrid corporate governance systems listed as active Global Compact participants. Part two of the chapter uses primary and secondary sources to examine external mechanisms operating across national borders aimed at influencing corporate behavior. Findings
The chapter finds that a higher proportion of public companies from countries with two-tier/hybrid corporate governance structures have become active Global Compact participants compared to public companies from legal systems with unitary board corporate governance structures. Part two of the chapter examines the potentially mutually reinforcing relationship between internal governance structures and external mechanisms for modifying corporate behavior. Research limitations/implications
While external codes and standards such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises appear to be influencing corporate behavior worldwide, quantitative data confirming and recording the extent and nature of this influence (if any) remains limited. Practical implications
The chapter provides useful insights for policy makers and corporate leaders into the relationship between internal corporate governance structures and external codes, standards and guidelines aimed at influencing corporate behavior. Originality/value of the chapter
This chapter provides original insights into whether and how internal governance structures can complement and reinforce social standards regarding global corporate citizenship, and the legal guidelines reflecting those standards. Keywords: Corporate governance; stakeholders; two-tier boards; Global Compact participation; business and human rights

INTRODUCTION A long-standing debate over the relative merits of a shareholder stakeholder approach to corporate governance can be traced back writings of Professors Berle (1931, 1932) and Dodd (1932) in the The shareholder approach essentially sees maximizing financial

versus to the 1930s. return

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to individual shareholders as the primary function of a corporation (Easterbrook & Fischel, 1991). In contrast, the stakeholder approach, advocated by Professor Dodd, postulates that corporate managers should be allowed, even required to take into account the interests of a wider set of stakeholders, including employees, local communities where the company operates, and broader society. More recent research has examined the increasing need, in the face of new global challenges, for law to assist in the process of incorporating social responsibility into the corporate paradigm. In particular, there is a need to release corporate decision makers from the shackles of profit maximization and shareholder self-interest so that they may more properly focus upon the fulfillment of a broader set of longerterm goals (Choudhury, 2009). The Global Compact (http://www.unglobalcompact.org/) essentially implies a stakeholder-focused approach to corporate governance and corporate responsibility. It asks signatories to commit to a set of 10 universally accepted principles in the areas of human rights, labor standards, environment, and, since early 2005, anticorruption. The 10 principles are drawn from four of the most important (because most universally accepted) international instruments: • The Universal Declaration on Human Rights (http://www.un.org/en/ documents/udhr/) (United Nations, 1948); • The ILO’s Declaration on Fundamental Principles and Rights at Work (http://www.ilo.org/public/english/standards/relm/ilc/ilc86/com-dtxt. htm); • The Rio Declaration on Environment and Development (http://www.un. org/documents/ga/conf151/aconf15126-1annex1.htm) (United Nations, 1992); and • The UN Convention against Corruption (http://www.unodc.org/unodc/ en/treaties/CAC/index.html) (United Nations, 2003). Committing to the principles contained in these instruments requires Compact signatory companies to actively consider the impact of their operations on a wide range of stakeholders, including local communities, employees, and broader society. This chapter asks whether or not some models of corporate governance are more conducive to facilitating compliance with Global Compact principles than others. In particular, a comparison is drawn between those legal systems within which the corporate governance model is designed primarily to protect the interests of shareholders (shareholder primacy) and those systems where the interests of employees and other stakeholders are

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specifically represented within the corporate structure (stakeholder primacy). An examination of 55 of the most well-represented jurisdictions in Global Compact participation reveals that public companies from stakeholder-based corporate governance systems are more likely to be active Global Compact participants than are public companies from shareholder primacy corporate governance systems. Part two of this chapter then explains that external mechanisms, such as international standards, industry best practice codes and national corporate social responsibility (CSR) reporting requirements are equally as important as internal governance structures in ensuring that companies are held to account for the human rights and environmental impacts of their operations.

PART ONE: THE GLOBAL COMPACT AND CORPORATE GOVERNANCE STRUCTURES Shareholder and Stakeholder Models of Corporate Governance The shareholder model of corporate governance is mostly found in common law countries, and is based on the principal-agent model of the corporation. This model assumes that corporations are run well when directors (agents) make decisions “in the best interests” of shareholders (principals). When directors fail to do this, inefficient “agency costs” result. In order to overcome these agency costs, Anglo-American legal systems give primacy to the interests of shareholders, and impose obligations on company management to exercise their decision-making powers in “good faith” and in a manner which furthers the best interests of the company and its shareholders (shareholder primacy) (Dine & Koutsias, 2013; Mallin, 2011). In contrast to common-law systems, company law in Germany and other civil-law countries ensure that stakeholder interests are expressly built into corporate governance requirements. In Germany, this is achieved essentially through two mechanisms: structural transparency of the corporate form and participation by stakeholder interests in corporate decisionmaking. In Germany, two main features facilitate structural transparency and cooperative decision-making: the two-tiered board structure and a system of codetermination (Spisto, 2005). The two-tiered board system comprises the management or executive board and the supervisory board. The members of the executive board manage the company and the supervisory

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board members monitor the management board. The supervisory board may, inter alia, examine the business decisions made by the management board and may examine all financial statements and accounts. The supervisory board also provides the vehicle through which cooperative decisionmaking (codetermination) operates. By requiring that a certain proportion of supervisory board members must be employees, the system ensure that employee interests are represented during the process of supervising company decision makers. The German system also promotes a working relationship between management and labor by requiring that decisions regarding a “codetermination matter” be subject to consultation and agreement between employer and works council at establishment level. To take action in relation to any “codetermination matter” as defined by the Works Constitution Act 1972, employers must first obtain consent from the works council. Any unilateral action on the part of the employer becomes void and unenforceable in the absence of work council consent. When the employer and the works council cannot reach agreement on a codetermination matter, the matter is referred to an arbitration committee (Einigunsstelle). Any decision made by the arbitration committee is binding on both sides (Spisto, 2005). The principles on which the German model of corporate governance is based appear at first sight to be more in line with Global Compact principles of respect for labor rights, human rights, and the environment (stakeholder primacy). But is it really true that companies in Anglo-American legal systems are less likely to be compliant with Global Compact principles than those in systems where the law mandates a two-tiered board structure? The answer can never be clear for a number of important reasons. First, corporate governance principles, both mandatory and nonbinding, in common law countries have evolved to become more like two-tier governance systems through the creation of specialist subcommittees, such as audit, nomination, and remuneration committees. These committees typically must include independent directors and are thus more able to supervise the decisions made by the whole board of directors in the broader interests of good governance and corporate responsibility. In other words, common law systems are evolving to include recognition of broader stakeholder interests (Australian Senate JCCFS, 2006; Dine & Koutsias, 2013; Mallin, 2011). At the same time, some civil-law legal systems where previously a dual-tier board was mandatory have now evolved to adopt elements of unitary board, common-law corporate governance systems. In Georgia, for

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example, substantial amendments were made to the law in 2008 that shifted corporate law from the two-tier system to a mixed form with elements of two-tier and one-tier corporate governance (Tsertsvadze, 2011). In Japan, since 2003, listed companies may choose between two different types of corporate governance systems: one, the most common, with a board of corporate auditors; and the other, following amendment of the Commercial Code, consisting of a board of directors with specialized subcommittees (IOSCO Technical Committee, 2007, p. 8). Other jurisdictions have long adopted a hybrid version of the two-tier board oversight structure. Brazil, for example, uses the two-tier model with the added requirement of a fiscal board (ASIC, 2006, p. 3). Portugal allows for two different types of board structures: one comprising a supervisory board and an executive board in which executive directors can be appointed by the supervisory board or by the shareholders, and the other involving an executive board and a board of auditors (IOSCO Technical Committee, 2007, p. 8). In Italy, companies may choose among three different models: (a) the single-tier model, (b) the two-tier model, and (c) the socalled traditional model, which is currently the most common, where the board of directors coexists with a board of statutory auditors elected by shareholders, who is required to supervise compliance with the law and adequacy of the organizational, administrative, and accounting structures (ASIC, 2006, p. 3). Other systems are even more difficult to classify as being either “onetier” (unitary) or dual-tier in their corporate governance structure. Romania, for example, appears to have adopted the “unitary” structure of the board in terms of its company law legislation. But in many large companies, the existence of a Directors’ Committee made up of administrators who assume an executive role suggests a hybrid structure. The hybrid structure does not explicitly include a surveillance council or supervisory committee
all members of the board are subject to the same legal responsibilities and are equally accountable
but in practice the nonexecutive members of the board tend to assume more of a surveillance role. Companies listed on the Bucharest Stock Exchange are mostly organized under a hybrid model. Moreover, for certain types of companies, such as investment funds, an organizational structure that specifically provides for a “surveillance board” completely separate from the executive tasks is required (OECD, 2001). In Finland, the law specifically provides that companies may establish a separate and independent supervisory board, but very few listed companies have done so. Finnish companies may also include provision in their articles of association for less than half of the

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directors to be appointed by a different procedure to election by the shareholders’ general meeting. The special appointment procedure may implement the employees’ right to appoint directors to the board, for instance. The hybrid nature of corporate governance implied by such provisions, however, is not always realized in practice (Securities Market Association, Finnish Corporate Governance Code, 2010). Within the European Union, corporate governance codes recommend a unitary board system in eight countries and a dual-board system in ten countries, though there may be some exceptions. In the remaining nine countries a hybrid system applies and companies can choose between a one- or two-tier approach (European Commission, 2013). Board structures and procedures also vary within and among OECD countries, with some systems using two-tier boards that separate the supervisory and management (executive) functions into different bodies, while other countries have unitary boards that bring together both executive and nonexecutive board members around a single table. In some countries there is also an additional statutory body for audit purposes. Expressly recognizing this diversity, the OECD Principles on Corporate Governance were designed to be sufficiently general to apply to whatever model of board structure is used to govern the enterprise and monitor management. Where the legal system offers a choice between a unitary board and a two-tier board structure, the OECD principles recommend that in deciding which model to use, “the board should consider what is best for that particular company” (OECD, 2008). In Anglo-American unitary board systems, the duty of directors to make decisions in the best interests of the company is generally defined as equivalent to the interests of the company’s shareholders. Where the company is insolvent, this definition is typically extended to include the interests of the company’s creditors. In most such systems, however, it remains unclear whether, and to what extent directors are permitted to take into account the interests of other stakeholders such as employees of the company, its customers, suppliers, and/or those in the community affected by the company’s activities. A narrow reading of “the best interests of the company” rule could well make it illegal for business leaders to take such broader stakeholder interests into account
at least where those interests conflict with the maximization of shareholder returns (Dine & Koutsias, 2013; Mallin, 2011; Spisto, 2005). The question of whether or company directors should be permitted, or even required, to take into account the interests of specific stakeholders was examined during a series of UK government-initiated investigations

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into company law matters between 1992 and 2005. In 2006 the United Kingdom Companies Act was revised to provide, in Section 172, that: A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to
(a) the likely consequences of any decision in the long term, (b) the interests of the company employees, (c) the need to foster the companies business relationships with suppliers, customers and others, (d) the impact of the company’s operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, … . (http://www.legislation.gov.uk/ukpga/2006/46/section/172)

In contrast to the UK approach, the Australian government, following a report issued by the Parliamentary Joint Committee on Corporations and Financial Services (JCCFS) in June 2006, decided that no specific reference to stakeholder interests was needed in Australia’s company law legislation. This decision was in accordance with the finding made by the JCCFS that “the Corporations Act 2001 [already] permits directors to have regard for the interests of stakeholders other than shareholders,” and its consequent recommendation that “amendment to the directors” duties provisions within the Corporations Act is not required (Australian Senate JCCFS, 2006).

Are Two-Tier Board Governance Systems More Conducive to Compliance with Global Compact Principles? Given the primacy of shareholder interests over those of other stakeholders in Anglo-American unitary board systems, this chapter examines the hypothesis that companies from systems where the dual-tier model of governance prevails are more likely to sign up to Global Compact Principles and otherwise demonstrate a willingness to consider the broader interests of stakeholders. Two measures are used to test this hypothesis. First, whether or not companies from two-tier board governance systems are more likely to be Global Compact signatories. Second, whether or not respondents to the ILO’s 2008 regular survey on the effective given to the Tripartite Declaration of Principles concerning Multinational Enterprises were more likely to come from two-tier board legal systems.

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Global Compact Participation The Global Compact now has over 12,000 corporate participants and other stakeholders from over 145 countries. While it claims to be the largest voluntary corporate responsibility initiative in the world, it still only covers around 14% of the global community of transnational corporations. It seems to lack the popular appeal of, say, an Arms Trade Treaty (http:// www.un.org/disarmament/ATT/) such that media coverage and public awareness remains minimal. This is a shame, because the Global Compact is potentially a very important instrument. It is the first international instrument that welcomes active participation by global corporations as international citizens. In so doing, it contemplates a world where corporate governance is less about protecting the financial interests of investors, and more about engaging with the broader interests of stakeholders. One reason for this is that the Global Compact has mechanisms built into it aimed at ensuring both transparency and broad accountability. It requires participations to submit annual Communications on Progress (COPs) using reporting indicators such as the Global Reporting Initiative. Businesses failing to submit annual COPs are listed as “noncommunicating” and then delisted altogether if the failure continues. There is also a complaints mechanism built into the Global Compact to deal with cases of “egregious abuse of the Global Compact’s overall aims and principles.” The rest of this chapter examines the idea that companies with internal corporate governance mechanisms designed to facilitate consideration of broader stakeholder interests are more likely to become active Global Compact participants than are companies designed primarily to protect the interests of shareholder/owners. This idea is examined firstly by comparing Global Compact participation rates from countries favoring a shareholderfocused single-board company structure with countries where a dual-tier, more stakeholder receptive corporate governance model prevails. Hypothesis 1. Companies from within dual-tier corporate governance systems are more likely to become communicating Global Compact participants. a) Sample Selection In order to test this hypothesis a sample of 55 countries was chosen. The 55 countries were those countries with at least 50 listed domestic companies (Portugal: 46 listed domestic companies) as listed in the World Bank Development Indicators for 2012 (http://data.worldbank.org/ indicator/CM.MKT.LDOM.NO). The countries chosen included the

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10 largest economies in the world (USA, China, Japan, Germany, France, United Kingdom, Brazil, Italy, Russia, and India) and thus represent over 75% of global GDP, as well as over 90% of the world’s population. b) Categorization Once the sample had been chosen, each country’s corporate governance system was then placed into one of two categories: (i) the country’s legal system provides for a universal unitary board governance structure or (ii) the system allows for a hybrid/dual-board governance structure and most or all companies have such a structure. A total of 34 countries were categorized as having unitary board governance systems, while the remaining 21 countries were categorized as having a hybrid/two-tier board structure. c) Global Compact Participation For each of the 55 countries, a search was then conducted on the Global Compact website to identify the number of publicly listed companies with an active COP status at the end of 2012 (December 31, 2012). Private companies and business participants with a nonactive COP status were not included. State-owned companies with an active COP status were included but only if they were from countries where state-owned companies follow the same governance model and are subject to the same or higher corporate governance standards as publicly listed companies. The inclusion of state-owned companies with an active Global Compact COP status only made a significant difference for those few countries that have a sizeable state-owned sector. For example, the inclusion of state-controlled firms from China boosted the number of active COP business participants from China from 17 to 42. In the case of Spain, the number went from 29 to 44, and in the case of Sweden from 46 to 63. Once the number of publicly listed/state-owned business participants with an active Global Compact COP status was identified, this was calculated as a proportion of total domestic listed companies as recorded in the World Bank’s Development Indicator for 2012. For example, the United States had 4,102 domestic listed companies in 2012 and 63 publicly listed active COP Global Compact participants on December 31, 2012. So it was calculated that 1.54% of American publicly listed companies were active (communicating) Global Compact participants on that

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date. Data were entered into an SPSS (Version 20) database for all 55 countries. Details of data collected for all 55 countries can be found in Table 1. d) Comparison of Means The final step in this analysis was to run an independent T-test to compare the average (mean) percentage of publicly listed companies from unitary board countries having active Global Compact COP status with the average percentage of publicly listed companies from twotier/hybrid corporate governance systems listed as actively communicating Global Compact participants. It was revealed that the average (mean) percentage of companies from countries based on a unitary board corporate governance structure participating actively in the Global Compact was 5.14%. The average (mean) percentage of companies from nations with a corporate governance preference for a twotier/hybrid structure participating actively in the Global Compact on December 31, 2012, was 6.46%. In other words, on average, countries with two-tier systems have a 1.31% higher participation rate in the Global Compact among the publicly listed companies. Participation in the ILO Eighth Survey The International Labour Organization’s (ILO) Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (MNE Declaration) (http://www.ilo.org/empent/Publications/WCMS_0943 86/lang–en/index.htm). The Declaration sets out principles in the fields of employment, training, conditions of work and life, and industrial relations which governments, employers’ and workers’ organizations, and multinational enterprises are recommended to observe on a voluntary basis. While the principles in the MNE Declaration are nonbinding, a degree of transparency is provided by periodic surveys, conducted to monitor the effect given to the MNE Declaration by MNEs, governments, and employers’ and workers’ organizations. A summary and an analysis of the replies received are submitted to the ILO Governing Body for discussion, and the results are made public via the ILO website (http://www.ilo.org). Participation rates, however, have not been great
responses to the Eight Survey on the effect given to the MNE Declaration (2000
2003) (the Eighth Survey) were received from only 62 countries (http://www.ilo.org/ public/english/standards/relm/gb/docs/gb294/pdf/mne-1-2.pdf), approximately one third of ILO Member States (total = 185). The 62 countries from which replies were received are listed in Table 2.

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Proportion of Listed Companies from 55 Countries with Active Global Compact COP Status.

Country

Portugal Hungary Kenya Tunisia Paraguay Austria Morocco Colombia Argentina UAE The Netherlands Finland Mexico New Zealand Belgium Denmark Norway Croatia Kuwait Nigeria Ukraine Peru Chile Bangladesh Egypt Switzerland Greece Russia Italy Sri Lanka Vietnam Sweden South Africa Brazil Bulgaria Turkey Indonesia Singapore Thailand

Listed CG-Active Publicly GC-Active Public Unitary Board or Domestic Listed and State Companies as Two-Tier/Hybrid Proportion of Total Corporate Companies, Corporations, Total Total Listed Domestic Governance Companies 46 51 57 59 62 70 76 76 101 102 105 119 131 142 154 174 184 184 189 192 198 213 225 229 234 238 267 276 279 287 311 332 348 353 387 405 459 472 502

6 2 4 3 2 9 1 20 21 3 26 17 28 0 6 24 25 6 1 2 5 7 6 3 5 27 4 8 16 10 0 63 25 40 3 11 8 9 11

13.00 4.00 7.00 5.00 3.20 12.86 1.30 26.30 20.80 2.90 24.76 14.29 21.37 0.00 3.90 13.79 13.59 3.30 0.53 1.00 2.53 3.29 2.67 1.31 2.14 11.34 1.50 2.90 5.73 3.48 0.00 18.98 7.18 11.33 0.78 2.72 1.74 1.90 2.19

Unitary Two-tier Unitary Unitary Unitary Two-tier Two-tier Unitary Unitary Unitary Two-tier Two-tier Unitary Unitary Unitary Two-tier Two-tier Two-tier Unitary Unitary Two-tier Unitary Unitary Unitary Two-tier Unitary Unitary Two-tier Two-tier Unitary Unitary Unitary Unitary Two-tier Two-tier Unitary Two-tier Unitary Unitary

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Table 1. Country

Israel Pakistan Germany Poland France Malaysia Serbia Korea Australia UK China Spain Japan Canada USA India

(Continued )

Listed CG-Active Publicly GC-Active Public Unitary Board or Domestic Listed and State Companies as Two-Tier/Hybrid Proportion of Total Corporate Companies, Corporations, Total Total Listed Domestic Governance Companies 532 573 665 844 862 921 1,086 1,767 1,959 2,179 2,494 3,167 3,470 3,876 4,102 5,191

8 10 43 13 64 5 3 45 16 45 42 44 113 17 63 44

1.50 1.75 6.47 1.54 7.42 0.54 0.28 2.55 0.82 2.07 1.68 1.39 3.26 0.44 1.54 0.85

Unitary Unitary Two-tier Two-tier Two-tier Unitary Two-tier Unitary Unitary Unitary Two-tier Unitary Two-tier Unitary Unitary Unitary

World Bank Data: Listed domestic companies, total, 2012. Available at http://data.worldbank. org/indicator/CM.MKT.LDOM.NO? S&P Dow Jones Indices Global Stock Markets Factbook 2013. Available at http://www. spindices.com/documents/additional-material/2013-sp-global-stock-markets-factbook.pdf

Table 2. List of Countries that Replied to the ILO Governing Body Eighth Survey on the Effect Given to the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, Covering the Period 2000
2003. Austria, Belarus, Belgium, Bolivia, Brazil, Bulgaria, Burkina Faso, Burundi, Cameroon, Canada, Chad, Chile, China, Colombia, Costa Rica, Croatia, Cuba, Democratic Republic of the Congo, Eritrea, Fiji, Finland, Gabon, Germany, Greece, Guinea, Hungary, Indonesia, Italy, Jamaica, Japan, Kenya, Republic of Korea, Latvia, Lebanon, Lithuania, Madagascar, Malaysia, Mali, Mauritius, Mexico, Republic of Moldova, Morocco, the Netherlands, New Zealand, Nicaragua, Norway, Panama, Peru, Philippines, Poland, Portugal, Senegal, Spain, Sweden, Switzerland, Thailand, Trinidad and Tobago, Turkey, Ukraine, United Kingdom, Zambia, Zimbabwe Source: Summary of reports submitted by governments and by employers’ and workers’ organizations for the Eighth Survey on the effect given to the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, ILO Doc. GB.294/MNE/1/2.

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At the same time, however, the MNE Declaration serves to underpin and support a framework of ILO Conventions, giving greater meaning to the standards enshrined in those conventions. And the MNE Declaration is taken seriously by participants, as demonstrated by the inclusion, in 1986, of a procedure for the examination of disputes over the application of the Declaration, whereby the parties may submit a request to the ILO for an interpretation of the meaning of its provisions. By recognizing the existence of valid disputes over accurate legal interpretation of the principles contained in the MNE Declaration, the participants recognized the legal status of the Declaration. Hypothesis 2. Countries with two-tier corporate governance systems were more likely to be among those from which replies to the Eighth Survey were received. Of the 62 countries from which responses were received to the Eighth Survey, approximately one third were countries with two-tier systems of corporate governance provided for in laws, regulations, or guidelines. Given the dominance of the Anglo-American unitary board model in most legal systems, however, this is not surprising, and does not really indicate much about the general propensity of governments, employers, or employee organizations in different corporate governance systems to participate in the Eighth Survey. A better indicator would be to examine the relative proportion of unitary and two-tier countries among the 55 countries surveyed, as given above, which responded to the Eighth Survey. Of the 55 countries surveyed in Part one above, 34 were countries from which replies to the Eighth Survey on the effect given to the MNE Declaration were received by the ILO office. 21 of the 55 countries surveyed were countries from which no response to the Eighth Survey was received by the ILO office. Of the 34 countries categorized as having a unitary board corporate governance system, 18 states or 52.94% did generate replies to the Eighth Survey. Of the 21 countries categorized as preferring a dual-tier/hybrid model of governance for corporations, replies to the ILO Eighth Survey were received from 16 countries (76.19%). In other words, among a sample of 55 largest public-company trading jurisdictions, the overall response rate from among the two-tier board countries was around 24% higher than from unitary board corporate governance countries.

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PART TWO: THE MULTIFACETED NATURE OF GOOD CORPORATE GOVERNANCE AND RESPONSIBLE CORPORATE BEHAVIOR Good corporate governance and corporate responsiveness to stakeholder interests is not dependent upon company structure alone. While two-tier board structures can be useful for ensuring stakeholder representation in company decision-making, they do not always successfully achieve this aim. In China, for example, employee representation on company supervisory boards has not been effective in protecting the interests of employees for a number of reasons. First, companies are only asked to ensure that “no less than one third” of the supervisory committee is comprised of worker representatives. Second, the functions of the supervisory board are weakened by the fact that the law does not impose positive qualification requirements for supervisors, nor are there specific regulations designed to ensure effective delivery of company financial and business information to supervisors and the supervisory committee (Tian, 2009). Third, even armed with timely and accurate information, employee supervisors typically lack a power base of sufficient strength to enable them to act vigorously. This is because enterprise-level trade unions are subordinate and affiliated to the enterprise-level Party organization, which in turn has increasingly become identified with management goals in most large companies, particularly those where the state still retains ownership stakes (Xi, 2006). The postmortem nature of supervision is then combined with the lack of powers available to the supervisory committee to ensure the failure of timely supervision. The supervisory committee can only act in the event of illegality on the part of the board or a director, and even then it must operate through the annual general meeting or by initiating action on behalf of the company in the courts at the request of a shareholder (PRC revised Company Law 2005, articles 119, 54, and 152). In unitary board systems, on the other hand, there are a number of mechanisms available to ensure that the interests of workers and other stakeholders are represented in company decision-making without needing to require a dual-tier governance structure. Works councils are one way that workers can have consultation rights in the company. In Europe, EU Member States must provide for the right to establish European Works Councils in companies or groups of companies with at least 1,000 employees in the EU and the other countries of the European Economic Area

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(Norway, Iceland, and Liechtenstein), when there are at least 150 employees in each of two Member States (EU Directive 94/45/EC, extended to the UK by Directive 97/74/EC and adapted by a third Directive
2006/109/EC
to the accession of Bulgaria and Romania). European Works Councils represent the European employees of a company, so that workers are informed and consulted by management on the progress of the business and any significant decision at European level that could affect their employment or working conditions (http://ec.europa.eu/social/). In Romania, even before works councils existed, company boards were legally required to consult union representatives on issues affecting workers (OECD, 2003, para. 240). Worker consultation mechanisms not only give voice to worker concerns, but can also be an important source of information for the board. A number of Indian firms which had established employee consultation or suggestions schemes, for example, found that they were able to introduce a number of cost-cutting improvements to shop-floor work practices as a result of worker input (Sen, 2012). In India also, every large company is now required to establish a CSR Committee to establish and monitor the CSR policy of the company, and to oversee the spending of at least 2% of average net profits each year on CSR activities (Schedule VII). The implementation of new CSR policy rules under India’s recently enacted Companies Law 2013 means that companies are now actively required to consider the interests of broader society in their regular budgeting and reporting activities. Similar schemes are also emerging in other countries, with some remaining voluntary (Australia) and others being implemented on a “comply or explain” basis (South Africa). In nearly all cases, CSR recommendations and reporting standards are helping companies to actively consider broader stakeholder interests (Gonzalez-Perez, 2013).

A Global Network of Standards and Guidelines The Global Compact is not the only international instrument for shaping the behavior of transnational corporations. The OECD Guidelines for Multinational Enterprises (http://www.oecd.org/corporate/mne/), last updated in May 2011, provide a set of “recommendations by governments covering all major areas of business ethics, including corporate steps to obey the law, observe internationally-recognized standards and respond to other societal expectations” (http://www.oecd.org/corporate/mne/2011update.htm). The OECD Guidelines provide for the establishment of a network of National

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Contact Points (NCPs) in OECD member nations. The Guidelines incorporate a grievance mechanism
specific instances
under which NCPs are obliged to provide a platform for discussion and assistance to stakeholder to help find a resolution for issues arising from alleged nonobservance of the Guidelines. The Guidelines remain, as yet, the only governmentbacked international instrument on responsible business conduct with such an in-built grievance mechanism (http://mneguidelines.oecd.org/specific instances.htm). The influence of the Guidelines continues to expand under the 2011 update, through an expanding network of partners and stakeholders (http://mneguidelines.oecd.org/partners-stakeholders.htm) and through the incorporation of a proactive agenda that seeks to help enterprises identify and respond to risks of adverse impacts associated with particular products, regions, sectors, or industries (http://mneguidelines.oecd.org/proactive agenda.htm). The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High Risk Areas (http:// mneguidelines.oecd.org/mining.htm) is one example of the proactive agenda in operation. Such guidelines can have an equal or greater impact on corporate behavior than structural differences within corporations. The ISO 26000 Guidance on Social Responsibility (2010) (http://www. iso.org/iso/home/standards/iso26000.htm) provides a framework for businesses and organizations to refer to for ensuring that management practices are designed to facilitate socially responsible operations. Like the Global Compact, the scope of the ISO 26000 Guidance is not confined to corporations, but applies to all commercial entities. As with the OECD Guidelines, the ISO 26000 Guidance, when taken seriously by companies, can generate changes within the corporation that, in turn, generate reforms in company practices, both internally and externally. Within the United Nations, achieving agreement on standards for business behavior has not been easy. After a long and arduous journey, however, the UN Human Rights Council, in 2008, approved the “Protect, Respect and Remedy” Framework for Business and Human Rights developed by Professor John Ruggie (2008, 2009, 2010) (http://www.businesshumanrights.org/SpecialRepPortal/Home/Protect-Respect-Remedy-Frame work). The Protect, Respect, and Remedy framework for business and human rights codifies a set of obligations for both governments and business without needing to be confined within the narrow parameters of a formal “treaty.” The framework explains that businesses have a duty to respect human rights, and also provides a set of Guiding Principles to help business fulfill that duty (http://www.business-humanrights.org/SpecialRepPortal/ Home/Protect-Respect-Remedy-Framework/GuidingPrinciples).

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Voluntary Standards for Nongovernment Entities A growing number of industry groups linking companies based in diverse legal jurisdictions are also drafting standard setting codes for industry behavior. While such standards remain technically voluntary, the best of them do establish various devices for ensuring transparency and accountability, including reporting commitments, verification bodies, and complaints mechanisms. Some are supported and signed up to by both state and nonstate entities, while others have been designed solely by and for operators within a specific industry. When widely supported within an industry, breaches of such codes can ensure that delinquent companies are ostracized and their reputation damaged, and this, in turn, acts as an effective enforcement mechanism. Similarly, when individual companies adopt new codes of conduct that then set an example for the rest of an industry they can reap the rewards of enhanced reputation among employees, consumers, and other stakeholders (Esen, 2013). Established in 2000, the Voluntary Principles on Security and Human Rights (http://www.voluntaryprinciples.org/) apply exclusively to extractive industry companies, and are designed to guide them in how to maintain the safety and security of their operations within an operating framework that encourages respect for human rights. Participants in the Voluntary Principles initiative, including governments, companies, and NGOs, agree to actively implement or assist in the implementation of the Voluntary Principles. The Voluntary Principles are complemented by the Extractive Industries Transparency Initiative (http://eiti.org/eiti), which recognizes that transparency is an important component of accountability. The idea that transparency is an essential prerequisite for accountability also lies behind the Global Reporting Initiative, which provides a set of guidelines for standardized reporting by corporations on sustainability and social and environmental impacts. The finance industry’s Equator Principles (http://www.equator-principles. com) are possibly one of the most effective attempts to date in bringing transnational business enterprises within the terms of a contractually binding code of conduct. Modeled on the policies and guidelines of the World Bank group, the Equator Principles proclaim themselves to be “a financial industry benchmark for determining, assessing, and managing social and environmental risk in project financing.” As at December 2014, there are 80 Equator Principles Financial Corporations (EPFIs), including some of the world’s largest financial institutions (http://www.equatorprinciples.com/index.php/members-reporting). The revised 2013 version of

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the Equator Principles (Equator Principles III) applies to all project finance with total project capital costs of US$10 million or more as well as to some project-related corporate loans, bridge loans, and project finance advisory services. While the principles themselves are nonbinding, they provide for the incorporation into project financing documentation of a number of covenants designed to ensure compliance with the principles. Where a client is not in compliance with its social and environmental covenants, EPFIs will work with the client to bring it back into compliance to the extent feasible, and if the borrower fails to reestablish compliance within an agreed grace period, EPFIs reserve the right to exercise remedies as they consider appropriate. The Equator Principles also seek to ensure ongoing monitoring and reporting of borrower activities over the life of project loans. Under Principle 9, EPFIs agree that for all riskier projects, they will “require appointment of an Independent Environmental and Social Consultant, or require that the client retain qualified and experienced external experts to verify its monitoring information which would be shared with the EPFI.” In addition, each EPFI commits to “report publicly, at least annually, … on its Equator Principles implementation processes and experience …” (Principle 10).

CONCLUSION: THE MUTUALLY REINFORCING NATURE OF INTERNAL GOVERNANCE STRUCTURES AND EXTERNAL STANDARDS Decades of debate have not been able to resolve the tension between the profit-making, shareholder-directed purposes of the corporation on the one hand and the longer-term social goals of economic enterprise on the other (Choudhury, 2009). As society moves closer toward consensus on the meaning of social obligations for corporations, the law is also finding its cautious way forward toward releasing corporate management from the shackles of profit maximization and shareholder self-interest. This is being done from both the inside and the outside of the corporate form. From the inside, different forms of corporate governance able to incorporate a greater range of interest considerations are having an effect on decisionmaking. Externally, new standards for responsible corporate behavior are laying the ground for releasing company management from fears that investing in responsible behavior might lead to shareholder retaliation (Choudhury, 2009).

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Evolving external standards for responsible behavior can themselves generate internal change. When a board of directors decides to take seriously the standards set out in voluntary codes, it can often decide that the best way to implement such a decision is to establish a new committee to oversee compliance, or to set up a new mechanism for consulting with employees and/or the local community. Similarly, a company with an internal structure that has stakeholder responsiveness built into it, whether through employee representation on supervisory boards or through consultation mechanisms, is more likely to consider subscribing to external codes and standards such as the Global Compact. In other words, internal governance structures potentially support compliance with external standards on CSR, and vice versa. It is this relationship between external standard setting (such as the Global Compact) and internal governance structures that this chapter has sought to examine. Policy makers and corporate decision makers need to make use of an optimal combination of both.

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1372. Choudhury, B. (2009). Serving two masters: Incorporating social responsibility into the corporate paradigm. University of Pennsylvania Journal of Business Law, 11(3), 631
674. Dine, J., & Koutsias, M. (2013). The nature of corporate governance: The significance of national cultural identity. Cheltenham: Edward Elgar. Dodd, E. M. (1932). For whom are corporate managers trustees? Harvard Law Review, 45, 1145. Easterbrook, F., & Fischel, D. (1991). The economic structure of corporate law. Cambridge, MA: Harvard University Press. Esen, E. (2013). The influence of corporate social responsibility (CSR) activities on building corporate reputation. In M. A. Gonzalez-Perez & L. Leonard (Eds.), International business, sustainability and corporate social responsibility (Vol. 11, pp. 133
150). Advances in Sustainability and Environmental Justice. Bingley, UK: Emerald Group Publishing Limited. European Commission. (2013, January). National factsheet. Germany: Gender Balance in Boards. Retrieved from http://ec.europa.eu/justice/gender-equality/files/womenon boards/womenonboards-factsheet-de_en.pdf Gonzalez-Perez, M. A. (2013). Corporate social responsibility and international business: A conceptual overview. In M. A. Gonzalez-Perez & L. Leonard (Eds.), International

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business, sustainability and corporate social responsibility (Vol. 11, pp. 1
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Tian, X. (2009). Analysis of the functions of supervisory board system in modern Chinese companies. International Journal of Law and Management, 51(3), 153
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46.

WRITING THE SOCIAL CONTRACT: INTEGRATING THE UN GLOBAL COMPACT AND MINING CSR W. Travis Selmier II ABSTRACT Purpose
This chapter discusses the influence of the United Nations Global Compact (UNGC) 10 Principles on multinational mining companies’ (mining multinational enterprise (MNE)) corporate social responsibility (CSR) activities and strategies. Design/methodology/approach
Business ethics, mining management, CSR, stakeholder, and social contracting literatures are integrated with case vignettes to examine the UNGC’s role in motivating efficacious, benevolent CSR in mining. Findings
Mining industry groups and some mining MNEs have adopted and fully implemented UNGC principles while other mining MNEs have not. The variation manifests as a gap between CSR form and CSR substance. Mining industry bodies such as International Council for Mining and Minerals, stakeholders, and private monitors have increased pressure to narrow this gap. The UNGC acts as a catalyst

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 83
101 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016017

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to create and codify valid hypernorms and to build trust and managerial buy-in in mining MNEs’ CSR. Research limitations/implications
Reliance on selected cases and extant literature indicates, but does not fully support, conclusions. Practical implications
Mining MNEs are advised to pursue CSR activities which integrate social contracting and precepts of the UNGC. The results would be happier, less antagonistic to stakeholder communities, and less questioning of mining MNEs’ legitimacy. Originality/value of the chapter
This chapter integrates abovementioned literature and cases to advise academics, governance officials and private monitors, and mining MNE managers on effective integration of the UNGC into mining through social contracting. Keywords: Corporate social responsibility; United Nations Global Compact; mining industry; business ethics; social contracting; communities as stakeholders

WRITING THE SOCIAL CONTRACT: INTEGRATING THE UN GLOBAL COMPACT AND MINING CORPORATE SOCIAL RESPONSIBILITY (CSR) Mining is sometimes named as the poster child for bad corporate behavior, sometimes named as an exemplary industry for forward-looking corporate social responsibility (CSR). Mining multinational enterprises (MNEs) display significant variance in terms of social responsibility in their corporate behavior, and we are compelled to ask why this is so and whether it may continue (Berliner & Prakash, 2014; Dashwood, 2014). One might argue that the complexity and difficulty involved in mining present an acid test in terms of CSR. Selmier, Newenham-Kahindi, and Oh (2015) suggest “unpacking this term” CSR by noting “‘corporate’ refers to the actor charged with the task of being ‘responsible’ for the impacts of its actions upon ‘society’.” Outbreaks of recent strife involving mining CSR have been seen in many places in the world, including South Africa and Panama (Basu, Karimi, & Mabuse, 2012; PBS, 2012). Significant health risks for miners have been evidenced by recent mining disasters in Turkey and China which left hundreds dead (Saul, 2014; Yap, 2014). Mine owners and operators,

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contending with high capital costs, highly uncertain outcomes, logistical complexity, and significant political risk have made efforts to engage in CSR activities. Yet the validity and outcomes of CSR have been questioned as to when and whether they benefit the communities to which those CSR activities are addressed (Muthuri, Moon, & Idemudia, 2012; Newell & Frynas, 2007; Visser, 2007). Mining industry governance bodies like the International Council for Mining and Minerals (ICMM, 2011, 2013) and some mining MNEs have made extensive progress toward integrating the UN Global Compact’s (UNGC) 10 Principles into corporate governance models (Table 1). These more advanced mining MNEs have woven the Principles, which include provisions in the areas of human rights, labor standards, environment, and anticorruption, into the fabric of their corporate governance models through CSR programs (ICMM, 2011; Kapelus, 2002; Visser, 2007). Their success stories exemplify good corporate citizenship through honoring their social contracts (Donaldson & Dunfee, 1994; Matten & Crane, 2005). Others have not upheld these social contracts, misunderstanding the importance of community relations. Some have fallen into the mistake of viewing community relations as “core to business but not ‘core business’ ” as Kemp Table 1. United Nations Global Compact (UNGC) 10 Principles. Human rights Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: Make sure that they are not complicit in human rights abuses. Labor Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: The elimination of all forms of forced and compulsory labor; Principle 5: The effective abolition of child labor; and Principle 6: The elimination of discrimination in respect of employment and occupation. Environment Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: Undertake initiatives to promote greater environmental responsibility; and Principle 9: Encourage the development and diffusion of environmentally friendly technologies. Anticorruption Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. Note: Downloaded from http://www.unglobalcompact.org/abouttheGc/TheTenprinciples/ index.html

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and Owen put it (2013). These mining MNEs have not embraced the principles embedded within the UNGC (contrary to their publically pronounced corporate adherence). Embrace of the UNGC empowers some mining MNEs through making them into moral managers (Carroll, 1991), thereby providing examples of firms which conduct business with Elkington’s three P’s in mind: Profits, People, and Planet (Elkington, 1997; also see Dashwood, 2012). “[B]ecause the Compact has the visibility, global reach and the convening power that accrue to it as an instrument of the UN, it is likely to be more effective than other global credos with similar missions” Williams (2004, p. 770). Logsdon and Wood (2002, p. 177) describe such a credo as a “concise code of ethics that represents the hypernorms in operation across the world.” CSR requires MNEs to balance local needs with a global CSR strategy in order to deliver what local stakeholders require but also to adopt best practices and satisfy globally accepted standards (Clarkson, 1995; Garriga & Me´le, 2004; Newell & Frynas, 2007). We may view the ethical foundations of these globally accepted standards as consisting of “hypernorms” (Donaldson & Dunfee, 1994; Jones, 1995). Hypernorms are conceptualized as universally accepted ethical standards. While theoretically extant, controversy rages over what exactly constitutes hypernorms (Doh, Husted, Matten, & Santoro, 2010; Husted & Allen, 2008; Michaelson, 2010). When integrating what are perceived as hypernorms into its business ethics generally and CSR specifically, an MNE cannot rigidly apply what may be home office standards, as some of these standards may be culturespecific rather than hypernorms (Brint, 2001; Michaelson, 2010; Oshionebo, 2007, pp. 21
22). Rather, MNEs must consider what the globally accepted set of hypernorms may be, then integrate this set of hypernorms with what is considered appropriate and just in the communities where they operate; MNEs should respect the wishes of local stakeholders (Farrell, 2014; Logsdon & Wood, 2002; Muthuri et al., 2012). Crafting successful CSR strategy requires resolution of contextual issues such as trust-building and managerial buy-in which are critical to a healthy, functional MNE
stakeholder relationship (Hillman & Keim, 2001; Kaptein & Van Tulder, 2003). I argue herein that the UNGC serves to create and codify valid hypernorms and to catalyze trust-building and managerial buy-in. MNEs exercise considerable political authority and, in so doing, bring their own ethical standards (Alvesson & Lindkvist, 1993; Ciepley, 2013). If they exercise their own political authority, it is natural to expect them to uphold and even reinforce hypernorms (Kobrin, 2009; Oshionebo, 2007,

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pp. 21
22, 33
36). But they must also respect the ethical standards of local communities (Brint, 2001; Marquis & Battilana, 2009; Muthuri et al., 2012). It is reasonable to insist that MNEs act as ethical members of communities when engaging with those communities (Dashwood, 2012, p. 119) and to uphold local norms. A fundamental part of MNE engagement involves their CSR activities and stance in the community. When MNEs engage with local communities, they must be able to answer the questions “CSR according to what (or whose) definition? And is it a definition that is relevant to the African [or other local] context?” (Visser, 2007, p. 31, “or other local” added). In this chapter I first examine the complexities of mining CSR and the development of a social contract, or “social license to operate” within communities. The next section considers the UNGC’s influence on mining CSR by examining its effect on the supply of CSR goods. The last section discusses the demand for effective CSR and how UNGC
mining MNE interactions work in this regard. The chapter integrates CSR literature, corporate governance at domestic and international business (IB) levels, mining ethics, and pertinent examples of success and failure from Africa, Asia, and South America. The chapter suggests that mining MNEs embracing the UNGC represents more than ethical behavior; embracing the UNGC is good business as well.

COMPLEXITIES OF MINING CSR Many are the challenges faced by mining MNEs attempting to create robust CSR strategy and activities which integrate the UNGC principles. Factors behind those challenges include (collected from Coulson, 2012; Hilson & Murck, 2000; Kapelus, 2002; Kemp & Owen, 2013; Lynch, 2004, and others): (1) mining has always been very labor-intensive; (2) mining involves very dangerous work; (3) mining projects usually require enormous capital investment; (4) part of this investment may be infrastructural as modern mining often occurs in remote environments; (5) sometimes investments are made in conflict-prone zones where rule-of-law is sketchy and mining MNEs may engage in corrupt practices; (6) complex production and logistics chains entail greater risks; (7) all this leads to very long investment payback horizons in mining; and (8) mining is both environmentally and socially intrusive and extensive. These factors require mining companies to obtain, then to honor, their social contracts with affected

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communities and stakeholders. As noted in Table 2, these factors also give us significant leverage to consider how mining MNEs are influenced by the UNGC in their CSR programs. Over the last 150 years the depletion of easily accessed resources combined with rapid growth in demand for those resources pushed mining efforts into larger, more expensive, and more remote operations (Coulson, 2012; Lynch, 2004; Owen & Kemp, 2013). Larger firms
the “majors”
have attained global breadth and reach while even medium and smaller firms
the “juniors”
require enormous capital resources to mine economically (Coulson, 2012; Lynch, 2004). Mining has simultaneously become a global business while retaining tight, intimate ties to local communities where the mining occurs and from which many miners come. Remoteness requires mining MNEs to engage more with the local, more remote communities affected by these mining operations. Geological complexity and longer logistic chains have created greater environmental and social impact and contention, leading to codes of conduct and Table 2.

Links between Eight Factors of Mining CSR Challenges and UNGC Principles.

Factor

Link to UNGC Principle(s)

1 Labor-intensive 2 Very dangerous work

1, 2, 3, 4, 5, 6 1, 2, 3, 4, 5, 6

3 Enormous capital investment 4 Remote environments

7, 8, 9, 10

5 Weak rule of law with corrupt mining ethical practices 6 Complex production and logistics chains 7 Long payback horizons 8 Environmentally and socially intrusive and extensive

All, especially 1, 2, 6, 8, 10 All, especially 10

2, 4, 7, 8, 9, 10 All, directly or indirectly All

Notes Labor conditions require special consideration of miners and their communities. Combination of large investment in remote, often less-institutionally developed areas encourages cutting costs; some mining MNEs choose to do this through corrupt practices.

Combination of complexity, investment risk, and the social and environmental effect on all stakeholder communities necessitates open, honest communication, and extensive, ongoing social and environmental impact studies before, during, and after a mining project.

Note: Author’s conception based on Dashwood (2014), Hilson and Murck (2000), ICMM (2011, 2013), Jenkins and Yakovleva (2006), Kapelus (2002), Kemp and Owen (2013), Lynch (2004), Owen and Kemp (2013), Prno and Slocombe (2012), Selmier et al. (2015), UNDP (2008), and Visser (2007).

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CSR best practices in mining based on the idea of a social contract with affected communities (Hilson & Murck, 2000; Kapelus, 2002; Kemp & Owen, 2013). When developing and implementing CSR strategy and activities, mining MNEs must strike a balance between a global normative approach and the demands, needs, and communication channels of local communities (Gifford & Kestler, 2008; Logsdon & Wood, 2002; Muthuri et al., 2012). When a mining MNE tailors CSR strategy and activities, local constraints and preferences must be considered (Harrison & St. John, 1996; Marquis & Battilana, 2009). CSR should be tailored to fit “issues considered as ethical [which] vary from culture to culture. Although activities that harm others physically and psychologically are condemned almost universally, there is a large group of harmless or victimless practices that may be accepted in some cultures and rejected in others” (Husted & Allen, 2008, p. 297). Understanding and accepting the local culture and norms embedded within that culture enables mining MNEs to form relationships based on trust and respect (Hillman & Keim, 2001; Kaptein & Van Tulder, 2003; Selmier et al., 2015). CSR activities achieve greater success when they are relationship-specific rather than transactional; transactional interactions are easily duplicated and so MNEs cannot obtain the competitive advantages which relationship-intensive interactions may achieve (Dashwood, 2014; Hillman & Keim, 2001). MNEs which “contract with their stakeholders on the basis of mutual trust and cooperation will have a competitive advantage over firms that do not” Jones (1995, p. 422). In short, mining MNEs must think and act, globally and locally, by taking into consideration hypernorms as well as local expectations and norms (Gifford & Kestler, 2008; Logsdon & Wood, 2002; Marquis & Battilana, 2009). The International Council for Mining and Minerals1 (ICMM, 2011) has promoted an “environmentally and socially responsible mining” approach across the mining industry, including admonitions to follow rule-of-law and eschew corrupt behavior. Ethical Corporation’s Oliver Balch noted that this approach included mea culpa stories analyzing mistakes, missteps, and bad practice by mining MNEs (2012, pp. 12
13). The approach, codified into 10 Principles as shown in Table 3, explicitly internalizes universal standardized ethical codes of conduct as stipulated by the United Nations Global Compact 2000 as well as local expectations and norms (Besada & Martin, 2013; ICMM, 2013). Since the late 1990s the ICMM has created what might be described as an industrial standard of mining CSR (Dashwood, 2014; Owen & Kemp, 2013). Embedded in this standard is the idea that mining companies engage

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Table 3.

ICMM’s “10 Principles” for a Sustainable Development Framework.

1 Implement and maintain ethical business practices and sound systems of corporate governance. 2 Integrate sustainable development considerations within the corporate decision-making process. 3 Uphold fundamental human rights and respect cultures, customs, and values in dealings with employees and others who are affected by our activities. 4 Implement risk-management strategies based on valid data and sound science. 5 Seek continual improvement of our health and safety performance. 6 Seek continual improvement of our environmental performance. 7 Contribute to conservation of biodiversity and integrated approaches to land-use planning. 8 Facilitate and encourage responsible product design, use, reuse, recycling, and disposal of our products. 9 Contribute to the social, economic, and institutional development of the communities in which we operate. 10 Implement effective and transparent engagement, communication, and independently verified reporting arrangements with our stakeholders. Note: Additional details at http://www.icmm.com/our-work/sustainable-development-framework/10-principles

in implicit and explicit social contracts with local communities. The implicit contract terms include efforts to do minimal environmental and social harm and to work closely with affected communities (ICMM, 2011, 2013; Owen & Kemp, 2013; Prno & Slocombe, 2012). Through these efforts, Elkington’s three P’s approach (1997) and Carroll’s concept of a moral manager (1991) have become embedded within the ICMM’s vision of CSR. This CSR standard has led to discernable isomorphism across three areas of CSR: the move to engage in highly visible philanthropic activities, a somewhat common approach to CSR-linked public relations, and similarities in reporting standards regarding sustainability and CSR. Such isomorphism often occurs through socialization processes. But isomorphic actions do not necessarily translate to isomorphic outcomes. One might say that while mining CSR form is similar, the substance of mining CSR varies across mining MNEs (Jenkins & Yakovleva, 2006; Kapelus, 2002; Kemp & Owen, 2013). Substance rather than form leads to outcomes obtained. To understand why outcomes may improve through the UNGC’s influence it helps to look at each of these areas in turn. Responding to industry guidelines, NGOs’ advice, governmental policies, and ease of execution, mining MNEs have come to invest in an array of similar philanthropic projects. These projects include building schools,

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hospitals and dispensaries, planting trees and land development to improve environmental problems, philanthropic donations given to affected communities, and targeted outreach programs (Dashwood, 2012, 2014; Hilson & Murck, 2000; ICMM, 2011; Kapelus, 2002; Newell & Frynas, 2007; Prno & Slocombe, 2012; Selmier et al., 2015). Visser notes in his study of African CSR that (2007, p. 40) “philanthropy is an expected norm
it is considered the right thing to do by business.” However, the outcomes of these philanthropic activities vary based on the perception of the recipient communities, as some of the above-cited studies note. A Panamanian community leader involved in local resistance to local expansion of a mining project, in response to a development assistance offered by the mining MNEs involved, provides an example of the distrust expressed toward some mining MNEs: They say that they’re going to give us a health center and a school. But I don’t want that from them. As a leader, I can see through that. How much destruction and pollution is there going to be? Schools and health centers, that’s the government’s responsibility. (PBS Newshour, 2012)

Linked to philanthropic programs is a move toward isomorphism in reporting standards. This is perhaps most evident in mining MNEs’ disclosure through the Global Reporting Initiative (GRI). Advice from both the ICMM and the UN to standardize on GRI reporting (Dashwood, 2014; Ruggie, 2008; Williams, 2014, p. 244) has now grown into a requirement by the ICMM (Dashwood, 2014, pp. 571
573). The GRI has a series of certification levels based on an extensive set of questions and reporting requirements (GRI-a). Dashwood (2014, p. 573, also see GRI-b) informs us it is not a surprise that mining MNEs, required to report under GRI guidelines, have in fact reverse-engineered CSR activities which meet these guidelines. Coalescence around isomorphic forms of public relations is also evident, especially regarding environmental issues. Tightening regulation by many advanced industrial countries starting in the 1990s pushed MNEs to respond to environmental pressure (Dashwood, 2014; Jenkins & Yakovleva, 2006; Williams, 2014). This regulatory response was in reaction to “a number of widely publicized environmental disasters [which] cemented the bad reputation of mining companies” (Dashwood, 2012, p. 119). Mining companies and the industry responded by developing, then disclosing, more environmental impact studies and discussing the need for sustainable mining (Besada & Martin, 2013; Hilson & Murck, 2000; Jenkins & Yakovleva, 2006, pp. 273
276). The ICMM led many of these efforts. Yet

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the gap between form and substance of mining CSR has proved wide in some cases. Given the linkage between environmental degradation, tightening regulation and increasing demand for public disclosure, an important aspect of the disciplinary mechanism is the risk to reputation which mining MNEs may suffer. But Oshionebo (2007, p. 18) warns us that: No doubt, public disclosure of misbehavior could bring shame on the corporation, shame which, in some cases, has led to positive change in corporate behavior. However, it is not at all certain that all or most corporations can be publicly shamed.

Yet the cost of shirking responsibility has steadily increased since the mid-1990s due to increasing environmental pressure. Hilson and Murck argued that (2000, p. 229): “Mine management must not use environmental legislation as guidance since sustainability calls for proactive environmental management, hence a requirement to perform beyond regulatory demands.” This pushes mining MNEs to see beyond projects and philanthropy to broader issues of social contracting and what it means to be a member of a community. Behind this pressure to perform above a perfunctory level lies the hypernorms embodied in the UNGC. But how does the UNGC actually influence mining CSR?

INTEGRATING SOCIAL CONTRACTING AND THE UNGC INTO MINING CSR The UNGC was originally conceived as a forum for dialogue rather than to set up governance standards or to establish rules of law (Ruggie, 2008; Williams, 2004). Kell and Ruggie (1999, p. 104) explicitly wrote that Secretary-General Kofi Annan’s proposed UNGC was “not designed as a code of conduct … [but] a framework of reference and dialogue to stimulate best practices and to bring about convergence in corporate practices around universally shared values.” As with any dialogic process, a period of time is needed for ideas to gel and the reputational risks of nonconformance to manifest. Designating and assigning accountability was not a goal of the UNGC. Rather, “institutional learning, cultivation and dissemination of best governance practices” was the target (Oshionebo, 2007, p. 16, also see pp. 22
25). The institutions involved included not only mining MNEs and other business institutions, but governments, multilateral institutions, NGOs and affected communities
all the stakeholder

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groups of mining MNEs. The “framework” involved not only discussion of business practices but also monitoring networks to watch over business practices. Commenting early in this process of developing a UNGC framework, Williams (2004, p. 758) worried about the dissatisfaction of “NGOs and others critical of the globalization of the economy” who feared the UNGC would provide “a cover story giving legitimacy to an idea which has yet to prove itself.” This worry proved to be well-founded, at least initially. Shirking (Kemp & Owen, 2013; Oshionebo, 2007), misplaced initiatives (Farrell, 2014; Gifford & Kestler, 2008), and “bluewashing”2 (Berliner & Prakash, 2015; Besada & Martin, 2013) were indeed uncovered. Monitoring of those MNEs which sought to comply with UNGC guidelines was expected to be accomplished through local networks of NGOs, communities, governments, and the MNEs themselves. But the extensive local networks required to effectively name, blame, and shame were not yet in place in the early years of the UNGC. In fact, Berliner and Prakash (2015) find evidence that bluewashing continued through 2010. That they extensively analyzed MNEs’ corporate responsibility to detect bluewashing brings up an important point about development of the monitoring process. Since the announcement of the UNGC in 1999, the GRI has grown in reach and importance; new monitor groups, including academics such as Berliner and Prakash, have gained voice over the same period in which local monitoring networks have developed. Now supporters and, especially, critics of the UNGC’s effectiveness are alerting us to the possibility of bluewashing and pointing out instances of such behavior. The increasing level of monitoring by critics makes the monitoring process more robust. For instance, Selmier et al. (2015) demonstrate a recent academic-linked example of why “bluewashing” may become less efficacious for MNEs. A manager of a mining MNE operating in East Africa stated to them in an interview that “we … implement best CSR practices that are acceptable to the company, local communities and the UN Global Compact.” But interviews with local community members and other observers showed that this is not the case. The result is that legitimacy which the mining MNE might have been gained through true acceptance of the UNGC was not only weakened; in their paper, this case becomes a study in how not to implement CSR which is truly UNGC-compliant. As this vignette spreads, reputational risks also may be experienced by the mining MNE in question. Berliner and Prakash (2014, 2015), Oshionebo (2007), and Meyer and Stefanova (2001) uncover evidence of that gap between form and substance of mining CSR. What we must ascertain is whether and how the gap may

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decrease through the process of mining MNEs honoring the UNGC principles in spirit and in deed. The UNGC provides hypernorms by which mining MNEs’ actions can be judged, “offer[ing] a new version of embedded liberalism in which free markets are sought to be embedded in a new social contract in which firms pledge to undertake CSR” (Berliner & Prakash, 2014, p. 173). Early adopters of this idea believed that mining MNEs must proactively create CSR activities which move those MNEs toward being moral managers (Logsdon & Wood, 2002; Muthuri et al., 2012). Dashwood quotes one such early-adopting mining executive in August, 2002 (2014, p. 570): Mining companies are now expected to justify their activities, not just on economic grounds, but on social and environmental grounds … [S]ince most governments had adopted sustainable development as a key part of their national agenda, the mining industry must talk the language of the audiences it must convince.

This mining company not only progressed in talking the talk, but became known as an example of walking the walk. Here we should recall that MNEs are transnational political units as well as business units (Ciepley, 2013; Kobrin, 2009). This organizational isomorphism is one factor by which similar forms of mining CSR recur. So the isomorphic nature of mining CSR is due not only to outside pressure from MNE stakeholders (Hillman & Keim, 2001; Kaptein & Van Tulder, 2003), but also due in part to industry nature as noted above (Alvesson & Lindkvist, 1993; ICMM, 2013; Lynch, 2004). Those mining MNEs which reduce the gap between form and substance become leaders. Carroll noted (1991, p. 45): “When ethical dilemmas arise, moral managers assume a leadership position for their companies and industries.” There is another important factor embedded in the nature of MNEs’ unique organizational structures as transnational political and business units. Mining MNEs, like other MNEs, self-organize into industrial groups to discuss issues, share information, and create common, panindustry policy (Alvesson & Lindkvist, 1993; Lynch, 2004). This means that social membership includes not only membership in those communities wherein the mining MNE operates, but also within the mining industry itself. Hence these mining industry organizations provide industry governance. Berliner and Prakash (2014, 2015) note that firms belonging to a broader CSR club delineated by stated adherence to the UNGC do not receive the level of club discipline required to adequately govern and enforce (Also see Meyer & Stefanova, 2001). But when industries like mining develop their own governance structures, or clubs such as the

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ICMM, an additional, narrower, more focused layer of moral suasion is added. This leads to exemplary CSR activities such as in India, where “the Goa Mineral Foundation has set up a fund into which a certain amount per tonne is deposited by each member mining company, which is then used for building social infrastructure in the area” (Sarkar, 2013, p. 230). But when a mining MNE misbehaves, the reputational losses which arise through its actions affect both the mining MNE in question and the entire industry (Dashwood, 2014; Garriga & Me´le, 2004; ICMM, 2013). So not only does pressure mount on mining MNEs from outside the industry. Mining MNEs which marry form and substance in their CSR strategies and activities apply pressure in two ways: firstly, by example; secondly, through industry group pressure to improve CSR so that they are not embarrassed through association. Within the industry itself the UNGC is a vehicle by which hypernorms are validated and managerial buy-in is catalyzed.

FUTURE PATHS OF THE UNGC AND MINING CSR The previous section focused mostly on the supply side of UNGCcompliant CSR: industry-leading mining MNEs marry form and substance in their CSR activities and practice moral management. Through this process CSR goods are supplied to stakeholder groups. But much of the change in mining MNE has been catalyzed through the demand side. Here stakeholders demand CSR which meets their needs rather than mere bluewashing. On the demand side, monitors watch and insist on CSR relationships which are built upon trust-building and managerial buy-in. Stakeholders insist that the gap between form and substance be narrowed, if not eliminated. And it is from the demand side that greater influence on mining CSR will come in the future. We may examine the demand side through looking at four broad groups of stakeholders: governments, other businesses, miners, and the communities where mining takes place. Viewing NGOs as intermediaries who negotiate and engage in policy discussions with all stakeholder groups, I explicitly assume they are involved with each group and do not address them as a separate group. Governments demand UNGC-compliant CSR through many channels. As noted above, governments where mining MNEs are headquartered or engage in mining operations have insisted on more environmentally

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sustainable mining practices (Hilson & Murck, 2000; Jenkins & Yakovleva, 2006; Prakash & Potoski, 2007). Many governments have literally changed the rules of mining through promulgating mining codes which explicitly include CSR provisions. Emblematic of mining code development throughout developing countries, Africa is experiencing the emergence of a fourth generation of mining codes (Besada & Martin, 2013). The first generation was produced in the 1980s through liberalization of mining investment to reinvigorate underperforming mines. This generation might be characterized as liberalization in and of itself without environmental or social clauses. The second generation, beginning in the mid-1990s, recognized but did not seek enforcement of social and environmental concerns linked to mining. Toward the end of the 1990s the third generation of mining codes began to emerge. These mining codes sought to encourage investment while retaining more benefits for the home country and insisting on consideration of social and environmental impacts (culled from Besada & Martin, 2013; Campbell, 2009; Dashwood, 2014; Hilson & Murck, 2000. For a view of mining code development from an Indian perspective, see Sarkar, 2013, pp. 235
238). The fourth generation explicitly codifies social, environmental, and other sustainability issues. To gain greater leverage with mining MNEs and to harmonize codes and monitoring, African governments have moved toward a pan-African unified approach characterized as “ ‘strength in numbers’ … [in which] legal harmonization efforts have been noted throughout the continent, including increased monitoring mechanisms, frameworks for improved administrative systems, and single points of contact for licensing and regulatory approvals” (Besada & Martin, 2013, p. 21). Harmonization efforts extend to sharing information on mining MNEs’ overall performance and efficacy of CSR activity. Based on such information-sharing, some mining MNEs have been informed they need not bid on new mining contracts based on their past misbehavior. That is to say, permitting and access to new mining sites are increasingly tied to CSR activity and environmental sustainability in many African countries (Besada & Martin, 2013; Dashwood, 2012) and elsewhere (Hilson & Murck, 2000; Prno & Slocombe, 2012; Sarkar, 2013). Business pressures linked to reputation and CSR activities are increasing not only through industry organizations like ICMM (2014) and from industry-leading mining MNEs. Given high capital requirements, banks and financiers involved in financing mining projects must be especially alert to risks emerging from strife and conflict (Dashwood, 2014; Jenkins & Yakovleva, 2006). Environmental and social issues may lessen a mining

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project’s viability at any stage in the value chain from exploration to impact study to extraction to transportation and processing. Mining CSR is becoming a real business investment in terms of a mining MNE’s legitimacy and business survival. Investors are no less aware of the risks involved and no less willing to countenance a gap between form and substance in CSR activities. Strife and conflict have an immediate negative impact on a mining MNE’s share and bond prices. On August 16, 2012, as 34 striking mine workers were shot dead by South African police near a Lonmin platinum mine (Basu et al., 2012), Lonmin’s stock price dropped 7%, continued to drop, and has not recovered to its prestrike, previolence level. Lonmin’s labor strife is a tragic example of the influence which labor relations has on mining MNEs. Relationships with miners and the local communities from which many miners come are essential to mining success (Prno & Slocombe, 2012). Local communities are affected by mining through supplying labor and through proximity to mining operations. Mining operations include not just the site itself but also all logistics involved in transporting out the mined resources as well as the environmental impact of the entire project. Kemp and Owen (2013, p. 530) uncovered an enormous gap between some mining MNEs’ core operations and their community relations and development operations (CRD): “During periods of relative normality, engagement levels between CRD and the operation diminished. Influence and status drifted, according to the immediate needs of the company.” Contrast this with a Tanzanian miner living in local community as quoted in Selmier et al. (2015): “working in a Chinese company [mining MNE] you feel like a family. They value work participation, consensus and employees’ well-being.” Not surprisingly, Tanzanian government officials praised this level of community engagement and told the authors in interviews that Chinese mining MNEs were often considered as better partners in mining operations due to their dedication to community relations. These officials also mentioned mining MNEs’ reputations with communities would be considered when granting new mining licenses. Voices of these communities are growing more powerful through governmental representation and also through the support of private interests (Farrell, 2014; ICMM, 2013; Muthuri et al., 2012). Community relationships have become recognized as critical to governments, multilateral agencies, NGOs, and policy makers (Chen & Ravallion, 2004; Newell & Frynas, 2007; UNDP, 2008) as well as to mining MNEs. The UN explicitly recognizes the value and diversity of local communities’ cultures, languages,

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social orders, and their traditional stewardship of the lands on which they live (UN, 2012). And the UNGC is an important link in that chain which the UN has progressively strengthened since 1993 (UN, 2004). Williams sums up the strength of this link by writing (2014, p. 244): The purpose of the UNGC is to create a world where all could lead a humane life. The vision is to give a human face to the global market. The mission, the way chosen to realize the vision, is to “facilitate a dialogue” so that the ethical norms embodied in the ten principles of the UNGC are widely accepted in the global community.

The UNGC serves to create and codify valid hypernorms and to catalyze trust-building and managerial buy-in. Where industries had created and delineated their own sets of ethical behavior, the UNGC has establish a global credo to which all industries can aspire (Logsdon & Wood, 2002; Williams, 2004). The long gestation period required for the UNGC’s dialogic process is yielding results, and its purpose is being fulfilled.

NOTES 1. The ICMM was formed in 2001 from a previous mining industry organization, the International Council on Metals and the Environment (ICME). 2. “Bluewashing” is a term used to describe MNEs which figuratively wrap themselves in the UN flag by adhering to the UNGC in name but not in spirit.

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774. Williams, O. F. (2014). The United Nations Global Compact: What did it promise? Journal of Business Ethics, 122(2), 241
251. Yap, C.-W. (2014). At least 26 killed in China coal-mining accidents. Wall Street Journal, April 18, 2014. Downloaded on July 26, 2014.

SOCIALLY RESPONSIBLE INVESTMENT: THE FINANCIAL PERFORMANCE OF SPANISH EQUITY PENSION PLANS Carmen-Pilar Martı´ -Ballester ABSTRACT Purpose
Pension funds are demanding increasingly more information about the levels of corporate social responsibility achieved by companies through the use of corporate social responsibility reports to select which firms’ stocks to invest in. This could improve or reduce the financial performance achieved by pension plans. Therefore, this chapter examines the financial performance obtained by equity pension plans, distinguishing between solidarity pension plans, ethical pension plans and conventional pension plans. Design/methodology/approach
We use a sample of 153 individual system pension plans (129 conventional pension plans, 6 solidarity pension plans and 18 ethical pension plans). Using these sample data, we implement the robust random effects panel data methodology.

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 103
121 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016019

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Findings
The results show that ethical pension plans perform similarly to traditional pension plans, while solidarity pension plans significantly outperform conventional pension plans. Research limitations/implications
We do not know what weights managers give to environmental, social and corporate governance criteria, which may influence the financial performance of pension plans. Practical implications
The results of this study could be relevant for pension plan managers that may be considering the integration of ethical screening in their management strategies in order to offer differentiated products and for investors who would like to invest in ethical pension plans without compromising their financial performance. Originality/value of the chapter
Previous studies have analysed the financial performance obtained by traditional and ethical funds, but in this chapter we compare the financial performance of traditional, solidarity and ethical pension plans. Keywords: Equity pension plans; socially responsible investment; financial performance; transparency; multi-index model

INTRODUCTION Pension funds1 are leading the growth of the SRI industry (Renneboog, Ter Horst, & Zhang, 2008a, 2008b; Sparkes & Cowton, 2004), which could be attributed to (1) increased pressure from retail investors for pension plan managers to invest their asset in the stocks of socially responsible firms (Doh, Howton, Howton, & Siegel, 2010) and/or (2) changes in regulations requiring trustees of occupational pension plans (promoted by firms) to disclose social, environmental and ethical information about their investment policy and about firms in which they invest (Martı´ -Ballester, 2014a; Renneboog et al., 2008a, 2008b). Pension fund managers therefore act as financial intermediaries in our society (Sethi, 2005), thereby contributing to sustainable development: (1) they accumulate the asset of investors who withdraw it when participants become pensioners and (2) they invest the aforesaid asset in the financial markets on behalf of investors. Therefore, these institutional intermediaries, who seek to shape the perceptions of investor behaviour towards a firm’s social responsibility, can put pressure on firms to adopt

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corporate responsibility policies to achieve access to financial resources in consideration of institutional theory (Doh et al., 2010). In this context, investors and pension fund managers need company-based information on corporate social responsibility (CSR) to assess and choose socially responsible firms. However, this information may be difficult to obtain, generating information asymmetry. To solve this situation, pension fund managers could sign the Principles for Responsible Investing promoted by United Nations Environment Programme (UNEP) Finance Initiative and United Nations Global Compact (UNGC), which would commit them to (1) incorporating environmental, social and corporate governance (ESG) issues in investment analysis and the screening of decision-making processes if the conduct of firms in which they invest is based on international norms, such as the UNGC, (2) being active owners and incorporating ESG issues in their ownership policies and practices, (3) seeking appropriate disclosure of ESG issues by the firms in which they invest, (4) promoting acceptance and implementation of the Principles within the investment industry, (5) working to enhance their effectiveness at implementing the Principles and (6) reporting on their activities and progressing towards implementation of the Principles. Thus, one of the mandatory requirements for investment management signatories is reporting, which is a measure of public transparency that makes it possible to enhance the credibility and legitimacy of the process and lessen the scope for multiple interpretations of what reporting means (PRI Association, 2013). Therefore, pension fund managers (who have signed the Principles for Responsible Investing) act as intermediate informational organizations that (1) disseminate information on CSR to investors and other stakeholders and (2) control, verify and translate information produced by firms in terms of CSR behaviour (Dubbink, Graafland, & Liedekerke, 2008). In order to disclose social, environmental and ethical information, firms have joined initiatives such as the UNGC, the Global Reporting Initiative and that proposed by the International Organization for Standardization (ISO). Of these initiatives, UNGC has the highest number of member firms, making it the largest collaborative strategic business policy initiative in the world (Baumann-Pauly & Scherer, 2013; Egels-Zande´n & Kallifatides, 2009). The UNGC is a voluntary and visible initiative that seeks to promote global economic development that is of benefit to society (Waddock, 2004; Williams, 2004), encouraging member firms to work to advance in four

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United Nations areas: environmental, labour, human rights and anticorruption (Kell, 2013; Patrus, de Carvalho Neto, Queiroz Coelho, & de Sousa Teodo´sio, 2013), and which contain ten principles (described in Table 1) that firms should associate to their specific business practices. Companies must publish an annual ‘Communication on Progress’ report, in which they detail the progress made in the above-mentioned areas (Rasche, 2009), thus improving the transparency provided by firms in terms of the socially responsible activities that they have implemented, which is, in turn, satisfying to stakeholders (Janney, Dess, & Forlani, 2009). These reports are positively valued by investors, as described by Berthelot, Coulmont, and Serret (2012), for they help to increase the availability of information about the CSR activities implemented by companies (BaumannPauly & Scherer, 2013; Gonzalez-Perez, 2013; Larssaether & Nijhof, 2009; Lozano, 2013; Pedersen, Neergaard, Pedersen, & Gwozdz, 2013), a key factor that pension fund decision makers (Sieva¨nen, 2014) take into account in order to integrate social, environmental, ethical and corporate governance issues in their purchasing process (Leire & Mont, 2010). However, access to this information can be costly for institutional investors (Dubbink et al., 2008), which could lead ethical pension fund managers Table 1.

The UNGC’s Principles.

Human Rights • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and • Principle 2: make sure that they are not complicit in human rights abuses. Labour • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; • Principle 4: the elimination of all forms of forced and compulsory labour; • Principle 5: the effective abolition of child labour; and • Principle 6: the elimination of discrimination in respect of employment and occupation. Environment • Principle 7: Businesses should support a precautionary approach to environmental challenges; • Principle 8: undertake initiatives to promote greater environmental responsibility; and • Principle 9: encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption • Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. Source: http://www.unglobalcompact.org/abouttheGC/thetenprinciples/index.html

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to violate their fiduciary responsibility to their pensioners (Sethi, 2005), thereby decreasing the financial performance of pension plans in terms of modern portfolio theory (Markowitz, 1952). Additionally, ethical pension funds could underperform with regard to traditional and solidarity pension funds because their universe of investment is limited to firms that pass an ethical screening, which could make it difficult for managers to adequately diversify portfolios and to take advantage of investment opportunities in financial markets (Barnett & Salomon, 2006; Martı´ -Ballester, 2014a). On the other hand, according to stakeholder theory (Freeman, 1984), pension funds that implement ethical screening in their management strategy for selecting firms’ stocks (so-called ethical pension funds) using CSR reports could obtain better financial performance than those pension funds whose purpose is merely to maximize returns while minimizing risk (so-called traditional pension funds), or they may even donate a part of their profit or management fees to social projects (so-called solidarity pension funds). This could be due to the firms in which they invest integrating social responsibility activities in their core business strategy to enable companies to reduce operational costs and risks and, therefore, to achieve better longterm financial performance than their counterparts (Blomgren, 2011; Ioannou & Serafeim, 2012; Martı´ -Ballester, Rovira-Val, & Drescher, 2013; Porter & Kramer, 2006; Waddock & Graves, 1997), which is therefore of benefit to pension funds. Given that previous researchers have focused their studies on the mutual funds industry (Barnett & Salomon, 2006; Bauer, Koedijk, & Otten, 2005; Capelle-Blancard & Monjon, 2014) or have only examined differences between the financial performance of ethical and traditional pension plans without considering solidarity pension funds (Ferruz, Mun˜oz, & Vargas, 2010), more than likely because the latter type of pension fund does not exist in the previously analysed geographic markets due to the relationship established between NGOs and funds being so active that those collaborating with NGOs or investing in firms linked to social projects are considered ethical funds (e.g., in Sweden, NGOs participate in the development and management of funds that provide information on ethical issues, which enables funds to select firms’ stocks by adopting ethical screening based on community criteria) or is less important than in Spain (Signori, 2009). The main objective of this chapter is to check whether ethical equity pension plans that implement ethical screening using CSR reports to select firms’ stocks underperform or outperform traditional and solidarity equity pension plans in Spain.

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The structure of this chapter is as follows: the next section provides the background to responsible investment and institutional investors. Next, the data and methodology are described. In the section ‘Findings’, the results of our analysis are presented. Finally, we report our main conclusions.

LITERATURE REVIEW The growing interest paid by investors to socially responsible activities has led some institutional investors to integrate ethical screening (using CSR reports as a tool) in their management strategies. This has attracted the interest of academicians, who have examined and compared the financial performances of ethical and traditional equity funds by adopting different models and obtaining similar conclusions. Thus, Statman (2000) compares socially responsible US equity mutual funds with traditional mutual funds implementing a traditional Jensen’s (1968) alpha (which includes only one benchmark), concluding that the differences between mean risk-adjusted return obtained by the two types of mutual fund are not statistically significant. However, this result should be interpreted with some caution because the author does not take into account the existence of the small cap bias of most ethical funds (Schro¨der, 2004). For this reason, Luther and Matatko (1994) analyse UK ethical equity funds by including two indexes, a broad market index and a small company index, finding that ethical funds are unable to beat the portfolio market. A similar specification is used by Gregory, Matatko, and Luther (1997) and Kreander, Gray, Power, and Sinclair (2005) to find that ethical and traditional funds exhibit similar financial performance. Focusing on the US market, Benson, Brailsford, and Humphrey (2006) find little difference in stock-picking ability between ethical and traditional equity funds. As an alternative to multi-index models, Kempf and Osthoff (2008) implement the Carhart (1997) four-factor model to compare US ethical equity funds to US traditional equity funds. Their results are consistent with the aforementioned studies. Using a similar model, Humphrey and Lee (2011) find no significant differences between the risk-adjusted return of ethical and conventional funds in the Australian market. In the German, UK and US mutual fund markets, Bauer et al. (2005) reach similar findings. The model proposed by Carhart (1997) could produce biased results because it does not take into account how managers employ dynamic

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strategies for trading stocks. For this reason, Bauer, Otten, and Rad (2006) adopt a conditional Carhart 4-factor model with time-varying betas. Their findings indicate that there are no significant differences in financial performance between ethical and conventional funds in the Australian market. A similar result is obtained by Bauer, Derwall, and Otten (2007) for the Canadian mutual fund market. In the pension fund market, Ferruz et al. (2010) also find no significant differences between ethical pension funds and traditional pension funds using multifactorial models. Additionally, other factors could affect the financial performance of ethical and traditional funds, such as size, age and fees paid by funds (Capelle-Blancard & Monjon, 2014; Humphrey & Lee, 2011). To analyse the effect of control variables on the financial performance of funds, Humphrey and Lee (2011) and Capelle-Blancard and Monjon (2014) estimate a pooled cross-sectional regression. However, this technique does not take into account unobserved heterogeneity, which could produce biased coefficients. Given that (1) the pension fund industry has received less attention than mutual fund performance, probably due to the lack of reliable data and (2) pension funds have a long-term investment horizon that allows them to promote CSR, unlike mutual funds, we analyse the financial performance of equity pension plans by differentiating between ethical, solidarity and traditional equity pension plans and taking into account the unobserved heterogeneity of the pension plan industry. We therefore propose the following hypotheses: H1. Traditional pension plans achieve better financial performance than solidarity and ethical pension plans. H2. Solidarity pension plans achieve better financial performance than ethical pension plans.

METHODOLOGY Sample Our pension plan sample consists of Spanish ethical, solidarity and conventional pension plans of an equity investment style. The obtained dataset comprises (1) monthly information on net asset value, number of participants, liquidation values provided by the Spanish Association of Collective

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Investment Institutions and Pension Plans (INVERCO), (2) quarterly information on management fees, custodial fees and plan inception date provided by the Directorate-General of Insurance and Pension Funds (DGSFP), and (3) annual information on social investment policy provided by Morningstar and the United Nations covering the period from December 31, 2007, to February 28, 2013. Furthermore, we ignore pension plans that lack more than two consecutive data. After excluding these, we have information on 153 individual equity pension plans (129 traditional pension plans, 6 solidarity pension plans and 18 ethical2 pension plans). So our sample does not include data on disappearing pension plans, which could cause survivorship bias in the empirical results. However, Andreu, Sarto, and Vicente-Gimeno (2009), using a similar database, demonstrate that this bias does not affect inference on equity pension plan performance. In this chapter, we also make use of (1) market wide equity indexes supplied by Financial International Analysts (AFI), the Financial Times Stock Exchange (FTSE), the Spanish Stock Exchanges and Markets (BME) and Morgan Stanley Capital International (MSCI) and (2) the Spanish inflation rate and economic development (industrial production growth) rate provided by the National Institute of Statistics (INE).

Variables To test for the effect of corporate socially responsible strategy on the financial performance of equity3 pension plans we take as a dependent variable the annual risk-adjusted financial performance of a given pension plan p in a given month t. Risk-adjusted return is calculated by adopting a multiindex model based on CAPM (Derwall & Koedijk, 2009) that includes a set of indexes representing the types of assets in which Spanish pension plans might invest (Martı´ -Ballester, 2014a, 2014b, 2014c): αp = ðRpt − Rft Þ − ½β1p RTREASURY þ β2p RBOND þ β3p RDEBENTURES t t t MSCIG MSCIV MSCISC þ β4p Rt þ β5p Rt þ β6p Rt þ β7p RMSCIW þ β8p RIBEX35 t t þ β9p ðInf t − Inf t − 1 Þ þ β10p ðIPGt − IPGt − 1 Þ þ ɛpt 

ð1Þ

where αp is the risk-adjusted return of pension plan portfolios, indicating whether a plan outperforms or underperforms a market portfolio when it is significantly different from zero; Rpt − Rft captures the pension plan return

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in excess of the risk-free interest rate (the one-day AFI Repos index); RTREASURY represents the excess return of the AFI Treasury Bill Index; t RBOND captures the excess return of the AFI Medium-Term Treasury t Bonds Index; RDEBENTURES takes the excess return of the AFI Long-Term t Treasury Debentures Index; RMSCIG captures the excess return of the t Spanish MSCI growth index; RMSCIV indicates the excess return of the t Spanish MSCI value index; RMSCISC is the excess return of the Spanish t MSCI small-cap index; RMSCIW captures the excess return of the Spanish t MSCI world index; RIBEX35 denotes the excess return of the Spanish stock t market; Inft − Inft − 1 denotes the changes in monthly inflation; IPGt − IPGt − 1 captures changes in monthly industrial production growth to control for challenges in the portfolio risk loadings as a rational response to publicly available macroeconomic information (Renneboog et al., 2008a, 2008b); ɛpt stands for the idiosyncratic return corrected for autocorrelation and heteroskedasticity using the Newey
West approach. However, the proposed model (1) might produce a Jensen’s alpha bias when we evaluate the financial performance of ethical pension plans due to the investment style of traditional benchmarks possibly differing from that of ethical funds (Bauer et al., 2005; Martı´ -Ballester, 2014a; Statman, 2000).4 We therefore adopt the following model to examine the financial performance of Spanish ethical equity pension plans (Martı´ -Ballester, 2014a): αp = ðRpt − Rft Þ − ½β1p RTREASURY þ β2p RBOND þ β3p RDEBENTURES t t t þ β4p RFTSE4IBEX þ β5p RFTSE4G þ β6p ðInf t − Inf t − 1 Þ t t þ β7p ðIPGt − IPGt − 1 Þ þ ɛpt 

ð2Þ

where αp is the risk-adjusted return of ethical pension plan portfolios, indicating whether a plan outperforms or underperforms an ethical market portfolio when it is significantly different from zero; Rpt − Rft captures the ethical pension plan return in excess of the risk-free interest rate (the one-day AFI Repos index); RTREASURY represents the excess return of the t AFI Treasury Bill Index; RBOND captures the excess return of the AFI t Medium-Term Treasury Bonds Index; RDEBENTURES shows the excess return t of the AFI Long-Term Treasury Debentures Index; RFTSE4IBEX represents t the excess return of the FTSE4GOOD IBEX Index5; RFTSE4G captures the t excess return of the FTSE4Good Global Benchmark Index; Inft − Inft − 1 denotes the changes in monthly inflation; IPGt − IPGt − 1 captures changes in monthly industrial production growth; ɛpt stands for the idiosyncratic

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return corrected for autocorrelation and heteroskedasticity using the Newey
West approach. Previous research by Bauer et al. (2005) and Barnett and Salomon (2006) has compared the financial performance of ethical funds (which screen for social responsibility) to conventional funds (whose managers try to maximize returns while minimizing risk), without taking into account the existence of solidarity funds (whose managers try to maximize the return while minimizing risk in their portfolios and donate a part of their profits or management fee to social projects based on supporting research and developing activities at universities, providing staple food to the needy and so on), most likely because solidarity funds have attracted a lower number of investors in other countries. However, solidarity funds are quite popular in Spain, as mentioned by Signori (2009). We therefore introduce Solidarity and Ethical as independent dummy variables in our model. Thus, the Solidarity variable takes a value of 1 if pension fund managers implement a traditional management strategy and donate a part of their profits or management fee to social projects and 0 otherwise. The Ethical variable takes a value of 1 if pension fund managers select the firms’ stocks in which to invest by taking into account environmental, social and corporate governance criteria and 0 otherwise. In order to measure the impact of CSR strategy on the financial performance of ethical and solidarity pension plans with respect to that of traditional pension plans, we need to control for other variables that may affect the pension plans’ risk-adjusted returns, influencing the relationship between CSR strategy and financial performance (Sieva¨nen et al., 2013). Thus, the age of a pension plan is a factor that could influence its financial performance (Barnett & Salomon, 2006; Martı´ -Ballester, 2014a) by reflecting the existence of a manager’s learning effect. We therefore introduce the Lexperience variable to our model, which represents the natural logarithm of the number of years passed since the pension plan was created. Older pension plans could accumulate a greater volume of assets than younger pension plans, which could influence the financial performance due to the existence of scale economies that allow managers to reduce administrative and operational costs and charge low management fees, which could improve the pension plans’ risk-adjusted return (Martı´ Ballester, 2014a; Martı´ -Ballester, Matallin, & Fernandez, 2009). To control for this size effect, we include the Lsize, Linv, Lmcsize and Lmcinv variables. The Lsize variable is calculated as the natural logarithm of the asset accumulated by a pension plan each month, the

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Lmcsize variable represents the natural logarithm of total assets administrated by each management company, the Linv variable is calculated as the natural logarithm of mean investment per participant in each pension plan per month, and the Lmcinv variable is measured as the natural logarithm of the mean investment per participant in each management company. Given that pension plans that benefit from the existence of scale economies might pay lower fees, which could affect their financial performance (Martı´ -Ballester, 2014a), we introduce the Manfee and Custfee variables to our model. The Manfee variable indicates the management fee paid to a management company for its administrative services and the Custfee variable represents the custodial fees charged by a custodial company for its services. Furthermore, following Barnett and Salomon (2006), we include monthly dummy variables to control for economic factors that could influence all pension plans. The descriptive statistics of these variables are presented in Table 2. To verify that there are no multicollinearity problems between the abovementioned variables, we ran a correlation matrix and the variance inflation factor (VIF), the results of which are shown in Table 3. Table 2. Variables

Descriptive Statistics for Variables of Equity Pension Plans.

Plans

Mean

Median

Experience Traditional 11.56 12.24 Ethical 12.62 12.83 Solidarity 12.33 13.55 Size Traditional 25,427,017.47 11,399,095.24 Ethical 20,647,680.78 4,970,563.49 Solidarity 9,068,674.60 2,730,126.98 Inv Traditional 7,038.54 5,448.68 Ethical 7,138.29 6,164.12 Solidarity 6,265.31 8,650.15 Mcsize Traditional 1,260,345,519.87 854,885,682.54 Ethical 4,353,869,309.52 4,807,410,079.37 Solidarity 684,653,433.86 785,590,492.06 Mcinv Traditional 7,310.05 5,976.51 Ethical 5,326.83 5,472.36 Solidarity 6,763.49 9,226.80 Manfee Traditional 1.72 1.9 Ethical 1.55 1.88 Solidarity 1.74 1.78 Custfee Traditional 0.22 0.18 Ethical 0.17 0.17 Solidarity 0.24 0.24

Standard Deviations 3.37 2.3 3.2 39,270,907.93 33,355,630.08 10,503,129.26 8,641.96 4,064.12 4,044.56 1,256,504,164.88 1,138,135,882.37 148,883,284.92 5,970.44 856.71 3,700.75 0.4 0.55 0.11 0.15 0.1 0.07

Maximum

Minimum

24.13 5.28 18.35 7.86 15.35 5.78 208,126,111.11 16,238.10 119,820,253.97 45,904.76 25,642,444.44 591,190.48 521,444.44 225.81 19,946.67 438.13 11,021.36 848.78 4,326,068,063.49 11,801,904.76 4,807,410,079.37 412,862,920.63 794,097,222.22 474,272,587.30 38,849.44 906.28 5,935.24 906.28 10,483.18 1,758.67 2 0.1 2 0.4 1.82 1.5 0.5 0 0.5 0 0.35 0.1

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Table 3. Ethical Solidarity Lexperience Lsize Linv Lmcsize Lmcinv Manfee Custfee

Correlation Matrix for Regression Variables.

VIF Ethical Solidarity Lexperience Lsize

Linv

1.53 1.02 1.18 1.38 1.63 1.60 1.75 1.20 1.17

1 0.04 0.58 −0.11 −0.08

1 −0.06 0.02 0.00 0.06 0.49 −0.08 −0.28 −0.21

1 0.09 0.01 −0.04 −0.09 −0.02 0.01 0.09

1 0.32 0.14 −0.02 0.08 0.10 0.22

1 0.23 0.23 0.12 0.20 0.23

Lmcsize Lmcinv Manfee Custfee

1 −0.25 −0.03 −0.04

1 −0.15 −0.10

1 0.11

1

VIF, variance inflation factor.

Modelling the Effect of Social Performance on Financial Performance To assess the impact of social investment policies adopted by pension plans on their financial performance, and following Barnett and Salomon (2006) and Martı´ -Ballester (2014a), we estimated Eq. (1) using the random effects approach: Perf pt = α0 þ β1 Ethicalpt þ β2 Solidaritypt þ β3 Lexperiencept þ β4 Lsizept − 1 þ β5 Linvpt − 1 þ β6 Lmcsizept − 1 þ β7 Lmcinvpt − 1 þ β8 Manfeept − 1 þ β9 Custfeept − 1 þ Mt þ Pp þ υpt

ð3Þ

where Perfpt is the year annualized performance measure for plan p according to multi-index models, Ethicalt = 1 if a plan manager implements ethical screening when investing in firms’ stocks or 0 otherwise, Solidarityt = 1 if a plan manager seeks to maximize returns while minimizing risk and donates a part of the profits or management fees to social projects, Lexperiencet − 1 is the log of the number of years in the previous month since the date of the plan’s inception, Lsizet − 1 is the log of the plan’s asset in Euros in the previous month, Linvt − 1 is the log of mean investment per investor in each plan in the previous month, Lmcsizet − 1 is the log of assets in Euros managed by the pension plan management company in the previous month, Lmcinvt − 1 is the log of the mean investment per investor in each management company in the previous month, Manfeet − 1 is the management fee charged for the pension plan, Custfeet − 1 is the custodial fee charged for the pension plan, Mt is the monthly dummy variables, Pp indicates the individual pension plan effect and υp is an error term. We use the feasible generalized least squares estimator.

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Unlike other estimation methods, such as the Fama and MacBeth approach (Derwall & Koedijk, 2009) and cross-section method (CapelleBlancard & Monjon, 2014), the random effects method allows us to analyse the impact of the factors for which there is little variation over time in the financial performance of pension plans while controlling for unobserved heterogeneity, as indicated by Barnett and Salomon (2006).

FINDINGS The results from estimating Eq. (3), where the financial performance of pension plans is modelled as a function of social performance, are shown in Table 4. There appears to be no significant relation between a plans’ financial performance (Perf) and the implementation of ethical screening when investing in firms’ stocks (Ethical). This result could be due to Spanish ethical pension plans and firms only recently having integrated social, environmental and corporate governance activities in their core business strategies (Bauer et al., 2005; Cummings, 2000), while the adoption of the aforementioned criteria helps to achieve better financial performance than Table 4. Variables

After-Fee Risk-Adjusted Return (Model 1) Standard errors

Random effects coefficient

Standard errors

1.9852 4.1468a −1.1194 −0.1227 0.4181 −0.6026b 0.9597 1.2966c 7.0485b −2.4504 Yes 0.2120

1.3861 1.4250 1.0321 0.1952 0.7356 0.2910 1.1495 0.6974 2.8218 10.6120

1.9852 4.1468a −1.1194 −0.1227 0.4181 −0.6026b 0.9597 2.2966a 8.0485a −2.4504 Yes 0.2133

1.3861 1.4250 1.0321 0.1952 0.7356 0.2910 1.1495 0.6974 2.8218 10.6120

Significant at the 1% level. Significant at the 5% level. c Significant at the 10% level. b

Before-Fee Risk-Adjusted Return (Model 2)

Random effects coefficient Ethicalt Solidarityt Lexperiencet Lsizet − 1 Linvt − 1 Lmcsizet − 1 Lmcinvt − 1 Manfeet Custfeet Constant Monthly dummies R-squared a

Regression Estimates.

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the implementation of traditional strategies in the long term (Porter & Kramer, 2006), which is congruent with stakeholder theory. This result agrees with Gregory et al. (1997), Kreander et al. (2005) and Derwall and Koedijk (2009), who also find no significant differences in the financial performance of ethical and conventional mutual funds. Interestingly, the Solidarity coefficient is significantly positive, suggesting that pension plans whose managers try to maximize returns while minimizing risks in their portfolios and donating part of their profits or management fee to social projects, significantly outperform ethical and conventional pension plans. This finding is in line with stakeholder theory (Porter & Kramer, 2006), so firms that make donations to social projects improve their reputation, and therefore their profits, in the short term. However, this contradicts the postulates of modern portfolio theory (Markowitz, 1952). Our results suggest that the financial performance of pension plans is significantly reduced when they are managed by large management companies. This result may reveal (1) the existence of scale diseconomies and/or (2) difficulties finding bargains, so the size of the trades made by large management companies could move the market, complicating the purchase of undervalued stocks (Barnett & Salomon, 2006). Our finding is congruent with Chen, Hong, Huang, and Kubik (2004). Furthermore, we also find a significant and positive relationship between fees paid by pension plans and the risk-adjusted returns that they achieve. This indicates that the best managers charge higher custodial and management fees than poorer pension plan managers. This is maintained after charging the aforementioned fees for pension plans, indicating that the excess return with regard to the benchmark is higher, on average, than the costs associated to an active strategy in terms of equity investment. This result contrasts with that found by Renneboog et al. (2008a, 2008b) and Martı´ -Ballester (2014a), whereby mutual funds and pension plans belonging to other investment styles (fixed-mixed income pension plans, shortterm fixed income pension plans, long-term fixed income pension plans and mixed equity pension plans) could charge high fees that do not compensate for the implementation of an active management strategy.

CONCLUSIONS AND RECOMMENDATIONS Socially responsible investment is growing fast in many countries, including Spain (Martı´ -Ballester, 2014a). However, ethical funds represent a small part of the retail fund market. One factor that could determine investment

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in this product is its financial performance. In modern portfolio theory, the financial performance of ethical pension plans could decrease due to the use of costly environmental, social and ethical information, which would lead ethical pension fund managers to violate their fiduciary responsibility to their pensioners. To verify this, we examined the financial performance achieved by ethical pension plans, solidarity pension plans and traditional pension plans, using a database of 153 equity pension plans. While prior studies have focused on evaluating ethical mutual fund performance by comparing it with traditional mutual fund performance, this chapter has explored pension plan performance by comparing between traditional, ethical and solidarity plans to determine whether pension plans as institutional investors with long-term investment horizons could promote CSR better than mutual funds with a short-term investment horizon (Johnson & Greening, 1999; Neubaum & Zahra, 2006). To do this, we implemented two conditional multi-index models, which take into account the types of assets in which ethical, solidarity and traditional pension plans might invest, unlike previous studies that have not adopted any conditional models or conditional multifactor models, and which allowed us to control for investment style. Additionally, we controlled for such pension plan characteristics as age, size and fees paid. Our study reports different and interesting results. First, we find no evidence of significant differences between the financial performance of ethical pension plans and that of traditional pension plans, which is congruent with Porter and Kramer (2006), who suggest that firms that integrate social responsibility activities in their core business strategy achieve better longterm results than their counterparts (from stakeholder theory) and most Spanish pension plans have recently adopted ethical screening. Therefore, by using company-based information on CSR to assess and choose socially responsible firms, pension fund managers do not endanger their fiduciary responsibility to pension fund beneficiaries or pensioners. Second, solidarity pension plans significantly outperform ethical and traditional pension plans, in striking contrast to modern portfolio theory (Markowitz, 1952). This could be due to (1) management companies maybe making donations to social projects and thus reducing the management fees they earn rather than decreasing the profit obtained by pension plans and/or (2) solidarity pension plans attracting top managers and/or (3) those managers more fully embracing their fiduciary responsibility. Therefore, solidarity pension plans act as direct intermediaries of socially valuable activities, adding their donations and investment value to investors’ portfolios, and at the same time outperforming their counterparts. Third, other factors that could

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influence the financial performance of pension plans include the size of management companies, custodial fees and management fees. Given that investing in ethical pension plans does not compromise the investors’ financial performance, governments should encourage management companies to adopt ethical screening in their management strategies, which may lead firms to implement socially responsible activities in their core business strategies and therefore contribute to sustainable development. In addition, Spanish government could promote laws requiring management companies to report their adopted social responsibility strategies when administrating ethical and solidarity personal pension plans. Finally, one limitation of this chapter is that we do not know what weights managers give to environmental, social and corporate governance criteria, which may influence the financial performance of pension plans.

NOTES 1. Pension funds are institutional investors whose assets are contributions made by participants and employees on their behalf for the exclusive purpose of financing their retirement (Martı´ -Ballester, 2014c). Therefore, their investment time horizon is long term (Johnson & Greening, 1999; Neubaum & Zahra, 2006), which is positively associated with corporate social responsibility (CSR) as mentioned by Sieva¨nen, Rita, and Scholtens (2013). This could also explain why the socially responsible investment market is dominated by pension funds that manage 97% of the total assets in Spain (Martı´ -Ballester, 2014c). 2. Most ethical pension funds are administrated by management companies that are signatories to the Principles for Responsible Investment supported by United Nations. 3. The composition of equity pension plan portfolios could include up to a maximum of 30% bonds, debentures and/or treasury bills. 4. We have calculated the risk-adjusted return for ethical pension plans using model (1) and then compared the risk-adjusted return for ethical pension plans obtained by adopting model (1) and model (2). The result obtained (t-test: 2.376; p-value: 0.023) shows that there are significant differences between risk-adjusted returns obtained from model (1) and risk-adjusted returns obtained using model (2). Therefore, running Jensen’s alpha without taking into account ethical benchmarks could lead to biased results for ethical equity pension plans. 5. The FTSE4GOOD IBEX index integrates firms in the Ibex35 and FTSE Spain All-Cap that meet specific environmental, social and stakeholder, human rights, supply chain labour standards and countering bribery criteria, which allows us to control for the size effect mentioned by Cortez, Silva, and Areal (2012) and Gregory et al. (1997). The FTSE4Good Global Benchmark Index includes firms in the FTSE All World Developed Index that meet environmental, social and corporate governance criteria.

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WHY DO SPANISH FIRMS ENGAGE IN THE GLOBAL COMPACT INITIATIVE? AN EXPLANATION FROM INSTITUTIONAL AND SOCIAL IDENTITY THEORIES Maria dels A`ngelsDası´ Coscollar, Consuelo Dolz Dolz and Esmeralda Linares-Navarro ABSTRACT Purpose
This chapter seeks to explain why Spanish companies are so active in Global Compact (GC) initiative, while their external environment is worse than other European countries. From 2010 onwards, Spain ranks first in business participants in GC initiative, ahead of European countries with higher levels of transparency and higher quality of governance. Design/methodology/approach
In this chapter we relate the Spanish evolution of GC signatories and external uncertainty (measured by Worldwide Governance Indicators and Corruption Perception Index);

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pointing out two theoretical approaches: Institutional and Social Identity Theories. Findings
Economic perspective is not sufficient to explain the companies’ adhesion to the GC initiative. In this chapter we explain the companies’ behaviour regarding to the Corporate Social Responsibility (CSR) activities from a social perspective. Practical implications
This chapter provides a response to understand the active behaviour of Spanish companies regarding to GC initiative. Originality/value of the chapter
This is the first study that analyses the relationship between the GC evolution in a country and its external uncertainty. Moreover it contributes to the CSR field by providing two theoretical approaches that offer complementary explanation and advance our knowledge about the GC motivations. Keywords: Global Compact; Institutional Theory; Social Identity Theory; external uncertainty; international transparency; governance quality

INTRODUCTION The economic crisis in Spain is being followed by a strong social movement where demonstrations are the most visible consequence. According to CIS1 (2014), unemployment, corruption and politicians are perceived as the main problems for the country. In fact, in the European context the Spanish level of international transparency and quality of governance is rather low. However, in the last years, the number of Global Compact (GC) Spanish participants has radically increased, even under an environmental situation of crisis, financial losses and closures. From 2010, Spain ranks first in number of business participants of the top 20 countries GC signatories, ahead of European countries with higher levels of international transparency. In 2013, the number of Spanish business participants was 4.252 of which 314 were large companies and 903 were SMEs (UNGC, 2013). These data suggest that a discrepancy exists between Spanish managers’ behaviour in Corporate Social Responsibility (CSR) and the perceived state of transparency and quality of governance in the country. Why is Spanish business participation in GC initiative increasing while the level of the country international transparency indicator is decreasing?

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When comparing with other European countries, what explanation can be given for Spanish firms and managers being so active in signing up for the GC? From a theoretical point of view there are two approaches that help us understand why Spanish firms behave in this way: Institutional Theory and Social Identity Theory. Institutional Theory allows us to understand organizations’ behaviour in order to maintain their external legitimacy, specifically under conditions of external uncertainty. The external uncertainty refers to the lack of knowledge the firm has about the environmental conditions. This lack of knowledge makes it difficult to specify in advance all possible contingencies and to adapt to the environment. Such uncertainty increases under, for example, political and economic instability, corruption, or market volatility. The acceptance of the organization by its environment is critical for its success (Hannan & Freeman, 1977; Kostova & Zaheer, 1999). In Spain, the GC initiative is being led by Fundacio´n Rafael del Pino, one of the most relevant Spanish foundations with important external relationships. Hence, it has effects on two domains of the institutional environment: the cognitive and the normative domains. The fact that well-reputed firms and organizations agree on GC raises the status of this initiative and increases its degree of societal support. Institutional Theory elucidates the mechanisms behind such societal support and extension of the initiative among firms. Both normative and mimetic isomorphism effects (DiMaggio & Powell, 1983) allow clarification of why organizations develop homogeneous patterns and follow model practices in order to reduce external uncertainty
or improve their knowledge about the environment
and, therefore, behave in such a way that increases their legitimacy. So, we argue that being part of the initiative in Spain is a means for maintaining external legitimacy under conditions of social dissatisfaction. Social Identity Theory and Self-Categorization Theory (Ashforth & Mael, 1989; Hogg & Terry, 2000) suggest that people classify themselves into social categories on the basis of various factors. Those categories are useful for identifying members of the group and then excluding the ones that are not members. At organizational level, these theoretical approaches have been used to explain why corporate social performance is positively related to firms’ reputation and to their attractiveness as employers (Aguilera, Rupp, Williams, & Ganapathi, 2007; Turban & Greening, 1997). We apply similar reasoning to explain why Spanish managers are so active in their commitment to the GC. Managers classify themselves and manifest part of their social identity by the firm they are working for

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(Turban & Greening, 1997), so their decisions will take into account factors that affect firm’s reputation and legitimacy. To the best of our knowledge, this is the first study that analyses the relationship between the GC evolution in a country and its external uncertainty, specifically related to the firm’s and managers’ perception of transparency and quality of government. Recent literature has analysed the main reasons underlying the firms’ GC engagement (Arevalo, Aravind, Ayuso, & Roca, 2013; Cetindamar & Husoy, 2007) and the driving forces for CSR in general (Aguilera et al., 2007; Mele´, 2004). Nevertheless, such studies neglect the relationship between the country’s environment regarding corruption and governance and managers’ behaviours. In this sense, analysing the theories that underlie these motivations would help clarify this phenomenon. Our study contributes to the field in three ways: first, by analysing firm and manager behaviour from the most-participatory country in the United Nations Global Compact (UNGC); second, by employing a multi-level which might be of value to other IB and CSR scholars and third, by providing two theoretical views that offer complementary explanation and advance our knowledge about the motivation behind this behaviour. The chapter is structured as follows. In the first section, we offer a brief introduction to the GC initiative and we provide some data to contextualize the analysis and to propose the research questions. In the second section, we delve into Institutional Theory and Social Identity Theory, considering them suitable for explaining this phenomenon. In the third section, we consider government quality and corruption as indicators of the external uncertainty and we analyse businesses’ behaviour regarding GC initiative. Finally, the discussion and conclusions are presented answering the research questions proposed in this chapter.

GC AND LOCAL NETWORKS GC Initiative In 1999, the former Secretary-General Kofi Annan introduced in a speech to a meeting of CEOs the proposal that business and the UN should initiate together a ‘global compact of shared values and principles, to give a human face to the global market’ (Gonzalez-Perez, 2013). His message caused a great impact on the audience and the following year, the small

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GC initiative was born
with 44 signatories, coming from companies, influential civil society, labour and employer organizations (UNGC, 2010). In 2014, the UNGC is the world’s largest corporate citizenship and sustainability initiative with over 12,000 signatories, including more than 8,000 businesses from over 147 countries around the world, that are committed to implementing the GC principles into business practices and taking actions to advance UN goals (UNGC, 2010, 2014a, 2014b). The GC is a voluntary initiative where the public accountability, transparency and enlightened self-interest of participants are basic and necessary (Arevalo et al., 2013). The GC initiative is supported by the CEOs of the signatory organizations and prescribes a set of 10 principles focused in four different areas
human rights, labour, the environment and anticorruption
that should be accepted and taken into account in the actions carried out by the signatories. However, given that the initiative is a voluntary one, it is not without controversy. The participants, especially business participants, do not always take the GC principles into account when implementing their actions, and therefore they can deviate from philanthropic discourse. This risk
called ‘bluewashing’
together with the use of the relationship with the UN by participants to positively influence their image without concern for improving their CSR strategies are its main disadvantages (Arevalo & Aravind, 2010). In 2012, SMEs became the largest group of participants in GC (36%). Business participants (SMEs and large companies2) accounted for 66% of the total participants while Non-Business represented 34% (UNGC, 2012). The participation in the GC initiative is by far greatest in Europe, comprising close to 48% of all signatories (UNGC, 2012). Furthermore, as reflected below, businesses account for the largest number of participants.

GC Local Networks and Evolution of the Spanish GC Local Network The GC Local Networks (GCLNs)3 are clusters of participants who group themselves to work within a particular geographic area. Their role is to facilitate the progress of companies (both local firms and subsidiaries of foreign corporations) engaged in the GC with respect to the implementation of the 10 principles, while also creating opportunities for multi-stakeholder engagement and collective action. Furthermore, networks deepen the learning experience of all participants through their own activities and events and promote action in support of broader UN goals (UNGC, 2014b).

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In Spain, the GC initiative was launched in 2002. At that time, thanks to the Fundacio´n Rafael del Pino, 135 entities endorsed this initiative. In 2003 a Coordination Committee was created
with CSR Manager of Inditex as president
to encourage learning and dialogue amongst institutions, companies and their stakeholders. The Spanish Local Network was launched in 2004, making it the tenth European GCLN. Following the launch of Spanish Local Network, other 14 European GCLNs were created. Since then, the number of participants and members in the GC in Spain has not ceased to increase, as can be seen in Figs. 1 and 2, respectively. The number of GC Spanish signatories went from 369 in 2005 to 2,452 in 2013. We emphasize the experienced growth in 2009 with 923 participants, an increase of 42% from 2008. Similarly, in 2011, the Spanish GC signatories increased 40.7% over the previous year. In the same way the membership of GC Spanish network has evolved. The number of members in 2005 was 132, achieving 350 in 2013. The most significant growth in membership occurred in 2006 (35.6%) and in 2013 (36.7%). Following the global trend, in Spain SMEs
including microcompanies
are the largest group of GC participants, increasing 37% in 2012, and 26% in 2013. In 2013, SMEs accounted for 71% of total participants. Combined, SMEs and large companies accounted for 84% of total participants. This is a first difference compared to Europe’s average. As a result of this evolution Spain, from 2010 onwards, has the greatest number of business participants, and is ranked in first position. Fig. 3

3,000 2,500 2,000

Large company SME and Micro

1,500

Other institutions

1,000

TOTAL 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013

Fig. 1.

GC Spanish Signatories Evolution. Source: Global Compact, Spanish Local Network (2014).

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Why Do Spanish Firms Engage in the Global Compact Initiative? 400 350 300 250

Large company

200

SME and Micro

150

Other institutions

100

TOTAL

50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013

Fig. 2.

GC Spanish Members Evolution. Source: Global Compact, Spanish Local Network (2014).

Fig. 3.

Top 20 Countries with Local Networks by Number of Business Participants (2012). Source: UNGC Local Network Report (2012).

shows that Spain ranks first in the top 20 countries with Local Network by number of business participants in 2012. Of the top 20 Local Network represented, eight are from Europe, seven from the Americas and five from Asia/Oceania. This study focuses on the European context. We have taken into account the position of the European countries involved in the GC in

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the ranking, namely, Spain, France, Italy, Germany, the United Kingdom and Nordic Network (Iceland, Denmark, Finland, Sweden and Norway). The Local Network of these countries has been in the top 20 by number of business participants from 2007. France has held the top position from 2007 to 2010. In 2007, Italy was in seventh place but from 2008 began to fall, reaching the 16th position in 2012. However, the United Kingdom, Germany and Nordic Countries remained in the top 10. Why are Spanish firms the most active in adopting the GC initiative? Why is there a different behaviour compared to other countries?

THEORETICAL EXPLANATIONS: INSTITUTIONAL THEORY AND SOCIAL IDENTITY THEORY Several studies have identified some external and internal factors acting as the firm’s drivers of CSR (Arevalo et al., 2013; Aguilera et al., 2007; Campbell, 2007; Turban & Greening, 1997). These studies increase our knowledge about the motivations for behaving in socially responsible ways, but they do not allow us to understand why there is a different behaviour among firms from different countries and what are the mechanisms underlying a manager’s decision to engage in socially responsible initiatives as the GC. From our view there are two theoretical perspectives that can help understand the above-mentioned research questions: Institutional Theory and Social Identity Theory. While Institutional Theory increases our knowledge about the mechanisms that explain the relevance of external pressures in a specific country, the Social Identity Theory contributes to our understanding of why managers respond to these pressures in a specific way, involving their organizations in the GC Initiative.

Institutional Theory There is a recent interest in adopting an institutional point of view for explaining why corporations engage in socially responsible initiatives (Aguilera et al., 2007; Brammer, Jackson, & Matten, 2012; Campbell, 2007; Husted & Allen, 2006). The role of institutions in shaping the behaviour of firms has been well established by different authors (Hotho & Pedersen, 2012; Kostova, 1997; DiMaggio & Powell, 1991; Scott, 1995). A country’s institutional environment is the set of political, economic, social and legal

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conventions that establish the basis for the organizations’ functioning. In this sense, ‘institutions are taken for granted ways of acting, which derive from shared regulative, cognitive and normative frames’ (Morgan & Kristensen, 2006, p. 1470). Therefore, institutions influence organizations by different processes. According to Scott (1995) there are three main domains by which institutions exert their influence: the regulative, the normative and the cognitive systems. Following this line of reasoning, Kostova (1997, p. 180) defines the three dimensions that configure a country’s institutional profile. The ‘regulative’ dimension refers to the ‘existing laws and rules in a particular national environment that promote certain types of behaviours and restrict others’. The ‘cognitive’ dimension is formed by the ‘cognitive programs that affect the way people notice, categorize and interpret stimuli from the environment’. Finally, the ‘normative’ dimension consists of ‘social norms, values, beliefs and assumptions that are socially shared and carried out by individuals’. Even in the absence of regulative pressures, institutions can have a strong effect on organizations’ behaviour through the normative and the cognitivesystem domain (Kostova & Zaheer, 1999; Scott, 1995). On the one side, the normative components of institutions define what is right and appropriate and what is wrong for a society’s members. On the other side, the cognitive programs and shared values foster imitation patterns of those activities that have strong acceptance and cultural support in a specific society. This mechanism explains why organizations can become homogeneous by developing organizational isomorphism. Following this perspective, institutions shape the organizations’ behaviour by guiding and encouraging certain types of structures and practices. Organizations will follow these institutionalized practices because it is internally rewarding and increases their external legitimacy (Kostova & Roth, 2002; Kostova & Zaheer, 1999; Scott, 1995). Isomorphism can take different forms (DiMaggio & Powell, 1983). While we cannot claim that the GC initiative exerts a coercive isomorphism because of its voluntary character, we defend that its growth in Spain is due to normative and mimetic isomorphism. Mimetic isomorphism occurs when organizations respond to uncertainty and ambiguity by imitating other organizations that become the model. In this sense, modelling is a response to uncertainty (DiMaggio & Powell, 1983). Normative isomorphism occurs when organizations adopt patterns that are considered appropriate in their environment (DiMaggio & Powell, 1983). The legitimacy of these patterns has been established previously by the members of the collective and by imitating them the organization gains external legitimacy. The GC initiative is a powerful institutional pressure that increases mimetic and

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normative isomorphism. Firstly, by becoming a model for organizations, this initiative is a convenient source of practices that allows reducing uncertainty and ambiguity by mimetic behaviour. Therefore, the GC can affect the cognitive domain of the organizations under conditions of uncertainty. Secondly, the extent to which the initiative GC receives value from the organizations’ collectives is a source of normative isomorphism because it increases its legitimacy.

Social Identity Theory Social Identity Theory (Ashforth & Mael, 1989; Hogg & Terry, 2000; Tajfel, 1982) explains the self-categorization processes of individuals and groups dynamics. This theory introduces the concept of social identity or an individual’s awareness of belongingness to certain groups, whose characteristics are different from those that identify other groups. The social categorization of self and others into an in-group and an out-group is very useful for understanding the individuals’ behaviour, because it accentuates the perceived similarity of the individual to the relevant in-group prototype (Hogg & Terry, 2000). This process of depersonalization implies that the individual, because of being part of the group, assimilates herself or himself to the stereotypical attributes that define the prototype and makes her or his own distinctive characteristics fuzzier. Social Identity Theory has been applied to explain that an organization’s social actions matter to its employees and influence their willingness to work for the organization (Aguilera et al., 2007). Similarly, it has been supported that a firm’s corporate social performance is positively related to its reputation and, consequently, to its attractiveness for employees (Turban & Greening, 1997). Hogg and Terry (2000) posit that social identity processes are guided by the need to reduce subjective uncertainty about one’s perceptions, attitudes and feelings. Self-categorization as in-group reduces uncertainty by assimilating the individual to a prototype. Such prototype is both descriptive and normative because it implies the accomplishment of stereotypes and establishes how the individual should feel and behave. So, self-categorization can be a process for resolving uncertainty. Therefore, under circumstances of external uncertainty and ambiguity, where criticism about old management practices is rising and new demands for more transparent organizations are appearing, managers can feel compelled to be part of the group that has socially desirable characteristics.

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There are several factors that increase the identification’s willingness (Ashforth & Mael, 1989). The first one is the ‘distinctiveness’ of the group’s values, or extent to which these values are specific to the group and different from others. The second one is the ‘prestige’ of the group (Ashforth & Mael, 1989) that can increase its popularity and extend the group’s identification. This effect is due to the fact that social-identification affects selfesteem and the desire for positive prototyping will drive individuals to be part of the group. The third element that is associated with identification is the salience of the out-group (Ashforth & Mael, 1989). When awareness of the out-group traits and behaviours is high, the characteristics of the in-group become more salient, affecting the individuals’ identification. Social Identity Theory contributes to explaining why Spanish managers are so active in their commitment to the GC because it focuses on the individual and how he or she behaves in order to improve his or her selfperception. This theory clarifies that under external uncertainty conditions managers can feel forced to join the group. In the following section we will illustrate how these two theoretical approaches allow understanding why GC initiative has become ingrained in Spain under conditions of crisis and external uncertainty.

EXTERNAL UNCERTAINTY IN THE SPANISH ENVIRONMENT Since 2008, Spain has been affected by a deep economic crisis. In the last years, this country has seen a sharp fall in GDP due to a combination of overvalued exports, the EU recession, austerity policies, the collapse in the property market and the banking crisis. Consequently, the unemployment rate has increased substantially. This has resulted in long-term unemployment that has hit middle and upper-middle class employees. This economic crisis has led to a social crisis: in 2011 the May 15 Movement exploded onto the streets; in 2012 there was a large demonstration for independence in Catalonia; many cases of corruption have come to light in different areas and levels. During this time, the economic and social crisis has turned into a political crisis. Discontent with the political system has reached levels never before seen since democracy returned in 1978, having a clear effect on the last elections in May 2014, where both big parties have not been able to obtain half of the votes and small parties have obtained greater representation. According to a recent study by the CIS (2014),

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the problems that Spaniards are most concerned about are unemployment, corruption and the economic situation. Obviously companies, especially SMEs, have suffered the effects of the crisis. The lack of credit and financing facilities, delays in payments and the tax burden have slowed their growth and have even led to the closure of many companies. So the priorities of the firms have changed with liquidity being one of the most important aspects to survive (Miras, Escobar, & Carrasco, 2013). The economic crisis has dramatically altered the context of companies and in consequence of the CSR efforts, being one of the most important challenges (EABIS, 2009). In this sense, it might be expected that given the restrictions businesses will reduce their participation in socially responsible initiatives. Notwithstanding, some studies suggest that, contrary to expected, in crisis periods the constraint of resources of the companies do not affect the efforts of GC participants (Arevalo & Aravind, 2010). In the Spanish case, as noted above, the number of GC participants has increased considerably instead of being negatively affected. As we have pointed out before, the external uncertainty refers to the lack of knowledge that managers have about the formal and informal institutional environment of a country and has been pointed out as a source of transaction costs4 and it is related to corruption, among other factors (Demirbag, Glaister, & Tatoglu, 2007). In order to compare the external uncertainty of Spain with other European countries we use the Worldwide Governance Indicators (WGIs) that have been used as a proxy measure (Dikova & Van Witteloostuijn, 2007; Slangen & Van Tulder, 2009; Thomas, 2006). Additionally, we also include the analysis of the corruption in these countries. Corruption increases the perceived external uncertainty and firms’ transaction costs by making unclear the rules of the game (Demirbag et al., 2007; Habib & Zurawicki, 2002). To measure this phenomenon the most well-known corruption indicator is the Corruption Perception Index (CPI), published every year by Transparency International (TI) (Berg, 2001; Teixeira & Grande, 2012). Although the WGI includes corruption among its indicators, we use this as a global measure of external uncertainty and CPI as a specific measure of corruption.

Worldwide Governance Indicators Governance is the way in which authority in a country is exercised in the management of public goods and services, including the process of selection,

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monitoring and replacement of governments, their capacity of government and the respect of citizens (Kaufmann, Kraay, & Zoido-Lobato´n, 1999). The WGIs are a research dataset summarizing the views on the quality of governance. These data are gathered from a number of survey institutes, think tanks, non-governmental organizations, international organizations and private sector firms (Kaufmann & Kraay, 2008; Kaufmann, Kraay, & Mastruzzi, 2010). The WGIs, developed by the World Bank, consist of six aggregate measures of governance covering more than 200 countries. The six dimensions of governance quality are: voice and accountability, political stability and absence of violence/terrorism, government effectiveness, regulatory quality, rule of law, and control of corruption (Kaufmann et al., 2010). Measures are reported in the standard normal units of the governance indicator, ranging from around −2.5 (weak) to 2.5 (strong) governance performance. To measure quality of governance, we averaged the scores of the six WGIs for several years collected by the World Bank into a composite measure of the overall quality of a country’s governance (Dikova & Van Witteloostuijn, 2007; Ha˚kanson & Ambos, 2010; Slangen & van Tulder, 2009). We include 2007 (before crisis), 2010 and 2012 (during crisis).5 Regarding the European countries considered
ranked in the top 20 GC participants
we can appreciate some countries with quite low scores (see Table 1). It is the case of Spain (below 1) and Italy (near 0.5). France, Table 1. Governance Quality between Spain and the Rest of Top European Countries with Local Networks by Number of Business Participants. Absolute Governance Quality

Spain France Italy Germany United Kingdom Denmark Finland Sweden Norway Iceland

Relative Governance Quality

2007

2010

2012

2007

2010

2012

0.85 1.24 0.57 1.51 1.47 1.91 1.81 1.75 1.66 1.73

0.86 1.26 0.52 1.43 1.39 1.82 1.87 1.77 1.72 1.43

0.86 1.18 0.48 1.45 1.37 1.77 1.87 1.82 1.78 1.46

0.39 −0.28 0.65 0.61 1.05 0.96 0.90 0.80 0.87

0.41 −0.33 0.57 0.53 0.96 1.01 0.91 0.87 0.58

0.32 −0.38 0.59 0.51 0.91 1.00 0.96 0.92 0.60

Source: Worldwide Governance Indicators, see http://info.worldbank.org

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Germany and the United Kingdom have scores between 1.1 and 1.5 but all the scores have reduced during crisis. It should be noted that countries of Nordic Network have the highest scores of quality of governance, and these have improved in the last years, except in the cases of Iceland and Denmark. To compare Spain with the other countries we have calculated relative governance quality as the difference in WGI scores between other European countries and Spain in the three years analysed (Ha˚kanson & Ambos, 2010). Therefore, a positive value indicates that Spain has a less-transparent governance system than the compared country. As showed in Table 1, in the three years all the values are positive with the exception of Italy. This means that Spain has a system of government less developed than the other countries, except for Italy that is worse. The difference is higher regarding France, Germany and the United Kingdom, although their governance quality has been reduced in 2012. The biggest difference is found with the countries of the Nordic Network, which means that these countries have a more developed governance system than Spain has. However, it should be noted that the Iceland case differs from the other Nordic countries. The relative governance quality in Iceland as regards Spain has been reduced substantially from 2007 to 2012. It should be pointed out that, despite the fact that most countries have reduced their quality of governance during the crisis, in Spain the situation has not changed whilst in Finland, Sweden and Norway they have improved their governance quality. This means that in these last three countries external uncertainty has decreased while in the rest it has increased. In the case of Spain, even though this indicator does not show significant changes, we should note that it is rather low and has maintained stagnant in its low score, indicating that there is not a perception of efforts for improving even that the Spanish population is claiming for that.

International Transparency: CPI The CPI scores and ranks countries based on how corrupt a country’s public sector is perceived to be. It is a composite index, a combination of surveys and assessments of corruption that is collected by a variety of reputable institutions and calculated on a yearly basis. Launched in 1995, the CPI is the most widely used indicator of corruption worldwide (Transparency International, 2014a, 2014b).

Why Do Spanish Firms Engage in the Global Compact Initiative?

Table 2.

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CPI in the Top European Countries with Local Networks by Number of Business Participants.

Spain France Italy Germany United Kingdom Denmark Finland Sweden Norway Iceland

2007

2010

2012

6.7 7.3 5.2 7.8 8.4 9.4 9.4 9.3 8.7 9.2

6.1 6.8 3.9 7.9 7.6 9.3 9.2 9.2 8.6 8.5

65 71 42 79 74 90 90 88 87 82

Source: Transparency International, see http://www.transparency.org

The CPI draws on data sources from independent institutions specializing in governance and business climate analysis.6 The CPI scores before 2012 are not comparable over time, because of the update in the methodology this year.7 As part of the update to the methodology used to calculate the CPI in 2012, TI established the new scale of 0
100,8 where 0 means that a country is perceived as highly corrupt and 100 means that a country is perceived as uncorrupted. However, in this study we want to compare the Spanish CPI with the other European countries in specific years and not over time. As observed in Table 2 CPI values for Spain are the lowest among the analysed countries for the three years considered, except in the case of Italy. The public sector in the Nordic countries is perceived as less corrupt with values close to 10 in 2007 and 2010, and close to 100 in 2012. Spain, France, Italy, the United Kingdom and Iceland have reduced their CPI value in 2010 compared to 2007, meaning that increases the perception of corruption in these countries. According to TI, in 2013 Spain was one of the biggest CPI decliners along with Syria, Libya, Yemen or Iceland.

DISCUSSION AND CONCLUSIONS It is difficult to understand the active engagement of Spanish organizations in GC if we only adopt an economic perspective (Campbell, 2007). The

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economic conditions in Spain can make difficult for firms to behave in socially responsible ways, because they cannot turn a healthy profit in the short term and their financial performance does not allow them to invest in such practices. We argue that the perceived environmental uncertainty
manifested in an increasing perceived corruption and in a stagnation of the low quality of government in Spain
is critical for understanding the Spanish firms’ behaviour. We point out two theoretical approaches that relate external uncertainty and firms’ and managers’ behaviour. Taking an institutional point of view we argue that the Spanish GCLN has become a model that has exerted influence in the normative system by clarifying the appropriate patterns of behaviour and reducing the uncertainty. This is due to the fact that, in Spain, this initiative has been led by a very influential firms’ network that gathers successful and well-recognized firms. Analysing the Global 2000 List (Forbes, 2014), there are 27 Spanish firms between the world’s biggest companies. In the case of Spain, 24 of the 27 firms, included in the ranking, are participants in the GC initiative and most of them are leaders in the adhesion to this. The pioneer was Inditex, a leading company in textile and apparel sector, signing the GC a year later that this was launched. As we can see in Table 3, the initiative, carried out by Inditex, was followed by top companies in the sector like Cortefiel, Adolfo Dominguez or Mango. The behaviour in other sectors has been similar. The pioneers in banks and financial services sector were BBVA and Santander, the two main Spanish banks, followed by Banco Sabadell, CaixaBank or Bankinter. Concerning Infrastructures, Construction, and Services Group sector, FCC, Abertis, OHL and Sacyr followed to the leaders Ferrovial and ACS. The initiative has also affected the cognitivesystem domain by fostering the imitation patterns. The fact that such large companies, well positioned both nationally and internationally, are among the signatories has exerted a mimetic pressure over small firms that try to reduce the external uncertainty by following successful paths. The Social Identity Theory complements this institutional approach by explaining why individuals are willing to identify themselves with referent groups and assimilating themselves to an ideal prototype. First of all, the distinctiveness of the group characteristics is claimed to be a factor that increases such willingness. If the group has distinctive values, as it is the case of GC initiative, by being part of this group
for example by committing their organizations with the GC initiative
managers gain the benefit of prototyping and depersonalization. At the same time, being part of the group allows to differentiate them from out-group members, for example those that have not signed any socially responsible initiative. The

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Table 3.

Leading Participants of the GC Initiative and Followers in Spain.

Leaders Companies

GC Participant Since

Sectora

Inditex

19/09/2001

Textile and Apparel

BBVA Santander

24/06/2002 03/08/2002

Gas Natural F. Iberdrola Abengoa Ferrovial ACS

24/06/2002 24/06/2002 20/09/2002 03/07/2002 30/09/2002

Repsol

01/11/2002

Telefonica

24/04/2002

Followers Companiesb

Cortefiel Adolfo Dominguez Mango Banks and Financial Banco Sabadell Services Caixabank Bankinter Electricity, Gas, Endesa Water and Enagas Multiutilities Infrastructures, FCC Construction and OHL Service Group Oil and Gas Cepsa Producers Union Fenosa Gas Telecommunications Euskaltel Vodafone

BME Banco Popular Bankia Gamesa Acciona Abertis Sacyr

Source: Ranking ‘Global 2000’ (Forbes, 2014) and UNGC (2014b). a Adapted from the GC classification. b The participation of these companies is later in time than leaders companies.

‘distinctiveness’ of the group’s values provides a unique identity for its members. This is very important in current Spanish environment, where firms are more and more criticized and corruption is one of the main problems for society. The second element that increases such willingness is the ‘prestige’ of the group. The fact that the GC initiative has been launched by United Nations and it is coordinated in Spain by well-reputed institutions and leader firms has, with no doubt, increased the prestige and legitimacy of the in-group and explains why the initiative has gained momentum and escalated in this way. Finally, the third element, the salience of the outgroup characteristics is very clear in Spain. As the Spanish crisis has been characterized by a raising perception of widespread corruption among firms and institutions and damaged social and labour conditions, the opposite values
those defended by GC initiative
have been more salient and desirable. In the European context, Italy has a similar uncertain environment. However, as we have seen above its evolution has been very different from

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Spain. In 2007, Italy ranked in the top 10 GC participants. Nevertheless, from 2008 this country has lost positions in the ranking because of the decrease of the signatories. The behaviour of Italian participants can also be explained by the theories proposed. Italian Local Network has not been led by a particular reputed institution. Its launch was supported mainly by the government, but during the last years the Italian government has not been characterized by best practices. Important political crisis and high governmental instability have characterized this last period. Moreover, ENI was one of the first signatories in the Italy Local Network in 2001. This company, 30% participated by Italian government, has been involved in several corruption cases from 2005 (e.g. the scandal with Russian company Gazpron that implicated the Italian Prime Minister9 or bribery problems with Uganda10 and Algeria11). So this is not exactly a business model to be followed by other companies in order to reduce external uncertainty. In this line the prestige and legitimacy of the in-group GC participants could be questioned by Italian companies. Therefore, while Spanish firms use GC initiative to escape the reputational risk of their country, the Italian firms cannot escape. So, Spanish managers can lead their companies to a better reputation and lower their firm’s legitimacy risk, nonetheless Italian firms are stuck. Further studies should analyse in deep the Italian case to find more evidence between companies’ GC behaviour and Institutional Theory and Social Identity Theory. Consequently, to explain the companies’ adhesion to the GC initiative the economic perspective can be necessary but not sufficient. In a recession situation and lack of resources, it can be expected that firms withdraw CSR initiatives. Nonetheless, as we can see in the European countries, there are some examples (e.g. Spain and Iceland) where economic situation does not seem to hinder this kind of initiatives. In this chapter we emphasize the importance of a social perspective to explain the companies’ behaviour with regard to the CSR activities. In so doing we contribute to a better understanding of the GC initiative and to a deeper theoretical foundation of managers and firms’ behaviour in CSR. In this sense, we complement other studies that have relied on Institutional Theory for analysing why firms behave in a socially responsible way. But, more important, we provide a new glance to the field by relying on Social Identity Theory that has not been previously applied to this regard. However, our study is not without limitations. In this chapter we compare the case of Spanish GC participants with other European countries with cultural differences. But we do not consider the influence of country’s cultural features in the behaviour regarding to CSR initiatives. So, future

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research should consider the impact of cultural differences in these kinds of initiatives. On the other hand, we have used the number of GC participants in absolute data. To improve the evidence of the results future studies should consider the GC participants with respect to the total number of companies in each country. Derived from the development of this chapter, other research topics have also risen. An empirical research would be desirable in order to analyse the impact of the adhesion to the GC on the reputation or prestige of the companies. Likewise, it would be very interesting to know the reasons that lead SMEs to embrace UNGC initiative more than large companies. Finally, future research about CSR activities carried out by Spanish participants in GC initiative will be welcome.

NOTES 1. Centro de Investigaciones Sociolo´gicas (Center for Sociological Research) is an independent administrative body, with its own legal status and funding, dependent on the Ministerio de la Presidencia, whose purpose is to conduct scientific studies of Spanish society. 2. Of the total 3,262 large companies engaged in the GC, 49% were from Europe, 25% were from the Americas, 20% were from Asia/Oceania and 6% were from Africa/Middle East & North Africa. 3. There are three GCLN categories (formal, established and emerging networks). The differences between them are the type of requirements accomplished by their members. While the formal local networks involve those organizations that meet all governance and accountability requirements laid out in the Memorandum of Understanding (MoU), the emerging network gathers those institutions that are in early stages of implementation of GC requirements. Nowadays, there are 100 GCLNs around the world (62 formal, 10 established and 28 emerging networks). 4. We refer to Spanish macro environment, that is, the environment that a Spanish firm faces when attempting to increase its legitimacy. We thank to one of the reviewers for calling our attention on this point. 5. We do not include 2013 because of the lack of data. 6. The methodology of each data source is reviewed in detail to ensure that the sources used meet Transparency International’s quality standards. For more information about CPI sources, see http://www.transparency.org/files/content/ pressrelease/2013_CPISourceDescription_EN.pdf 7. Saisana and Saltelli (2012) justify the differences between old and new methodology that make unfeasible to compare CPI scores obtained by different methodologies. 8. Values for years prior to 2012 are placed on a scale of 0
10. 9. The Putin and Pals Project. Kommersant, December 24, 2005 (http://www. kommersant.com/page.asp?id=636565).

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10. Uganda names bribes-claim minister new PM. Reuters, May 24, 2011 (http:// af.reuters.com/article/ugandaNews/idAFLDE74N1W320110524?sp=true). 11. Saipem shares plunge on Algeria probe and loss forecast. Financial Times, June 17, 2013 (http://www.ft.com/cms/s/0/e58144dc-d75c-11e2-8279-00144feab7de. html#axzz37Wj9bziY).

ACKNOWLEDGEMENTS We appreciate the collaboration of the Spanish Local Network, with special thanks to the General Manager, Isabel Garro, for providing us with the GC Spanish data.

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HOW INTERNATIONAL INVESTMENT AGREEMENTS CAN BETTER CONTRIBUTE TO SUSTAINABLE DEVELOPMENT BY REFLECTING THE U.N. GLOBAL COMPACT PRINCIPLES Rafael Tamayo-A´lvarez ABSTRACT Purpose
This chapter proposes that social clauses within International Investments Agreements shall explicitly refer to the Global Compact initiative to be more effective at engaging foreign investors with the sustainable development policies of recipient States. Therefore, it analyzes the interaction between investment treaties and sustainability, evidencing an ongoing trend aimed at including corporate social responsibility provisions into these instruments, in order to address social goals from the perspective of foreign investors and Transnational Corporations.

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 145
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Design/methodology/approach
The argument of this chapter relies mostly on literature review, but it also takes into account evidence provided by some selected International Investment Agreements. It is out of these sources that I infer that the Global Compact initiative can contribute the most to engage investors with the promotion of sustainable development goals within States recipient of Foreign Direct Investment. Findings
The main finding of this chapter is that labor and environmental provisions in International Investment Agreements should make explicit reference to the U.N. Global Compact initiative. Certainly, because of its universality, legitimacy, and flexible implementation, this initiative constitutes the best approach for helping host States to achieve their sustainable development goals without losing their allure for foreign investors. Practical implications
Although there are some International Investment Agreements whose labor and environmental clauses call for the voluntary adoption of corporate social responsibility provisions among foreign investors and Transnational Corporations, none of them makes explicit reference to the U.N. Global Compact initiative nor reflects the universal scope of its 10 principles. Thus, this chapter could serve as a departing point to discuss the inclusion of the U.N. Global Compact principles within International Investment Agreements. Originality/value of the chapter
Even though there is literature about the inclusion of instruments of corporate social responsibility in International Investment Agreements, the originality of this chapter consists in approaching this subject matter from the perspective of the U.N. Global Compact initiative. Keywords: International Investment Agreements; corporate social responsibility; Global Compact; sustainable development

INTRODUCTION Problems like the decline of labor standards or environmental degradation in developing countries or recipients of Foreign Direct Investment (FDI) are not always the result of poor regulation enforcement by national authorities. Sometimes, they are also the consequence of corporate misbehavior. Hence, the purpose behind the U.N. Global Compact initiative and other

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similar corporate social responsibility (CSR) instruments is to create a market-based incentive that encourages Transnational Corporations (TNCs) to voluntarily adopt the highest available standards on labor, human rights, environmental protection, and among other social objectives. A stable legal regime and business environment are essential elements for inward investment. This is the reason why the focus of International Investment Agreements (IIAs)1 is to ensure a transparent and predictable framework for investors, and to ensure them a minimum standard of treatment accorded under international customary law. However, IIAs are also expected to promote sustainable development between the contracting parties of the treaty.2 Nevertheless, most of the provisions incorporated into IIAs for addressing social objectives target intergovernmental action only, with a marked emphasis on the lack of enforcement of regulations at a national level, especially when maintaining low labor, human rights, or environmental standards that entail an unjustified competitive advantage for one of the contracting parties.3 This chapter assesses how IIAs could better contribute to sustainable development by means of incorporating or reflecting into their social clauses the U.N. Global Compact Principles. By doing so, they would be fostering compliance, directly among investors and TNCs, of the highest available international standards in regard to labor, human rights, environmental protection, and anticorruption practices. The first section of this chapter contains a brief overview of the international investment regime created by IIAs. The second section focuses on the ongoing trend toward mainstreaming sustainable development into IIAs; while the third section notices the increasing use of CSR provisions into IIAs. Finally, the fourth section describes the reasons why relying specifically on the U.N. Global Compact Principles is the best approach to engage foreign investors and TNCs with the promotion of sustainable development goals via IIAs.

THE INTERNATIONAL INVESTMENT REGIME States celebrate IIAs in order to promote and attract FDI flows. For that purpose, these instruments create an international protection regime that entitles investors to sue recipient States4 for regulatory acts that result in a violation of any of its substantive provisions.5 As a regulatory body, the International Investment Regime entails obligations in regard to the treatment that governments shall accord to covered investments and investors,

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setting a legal framework based on standards, instead of predefined rules as is the case of consistent and uniform regulatory systems. Given their nature as standards, and especially because their wording is often vague or imprecise, substantive provisions contained in IIAs require, for their proper application, to be interpreted by international arbitral tribunals who are responsible for resolving investor-state disputes. Such interpretation should be conducted in accordance with State practice reflecting the existing rules of customary law in regard to the standard of treatment owed to foreign investors. However, the jurisprudence by arbitration tribunals is plentiful of interpretations that go beyond the customary international law standard concerning the scope of protection to foreign investors, as if the legal framework established by IIAs could be autonomous in relation to State practice and dependent on the assessment of arbitrators instead. Hence, protection to foreign investors under the international investment regime entails the maintenance of a predictable and stable environment for business. This rather abstract criterion has given rise to a number of investment claims, only because the recipient government exercises its regulatory power or modifies its policy goals, in a general and not discriminatory fashion, in response to changing circumstances, the growing public interest for environmental issues6 or the adoption of public health measures.7 As a result, contracting States become aware of the degree of commitment assumed under IIAs ex post. Indeed, it is only after an investment dispute arises and an ad hoc tribunal releases its ruling, the scope of the treatment that was supposed to be afforded to the investor becomes clear. This leaves excessive discretion to arbitrators (Simma, 2011). IIAs were designed to facilitate and promote global commerce. Hence, they can be seen as primarily safeguarding the interests of private investors (Wells Sheffer, 2011). In fact, for Peterson and Gray (2003), IIAs are “extremely narrow in their formulation: according substantive rights to investors, without any need for corresponding duties or obligations on the part of those investors” (p. 33). This reveals an innate regulatory imbalance within the international investment regime, which results particularly problematic for developing countries (Wells Sheffer, 2011). Hence, the question: why would developing counties enter into this kind of compromises? Elkins, Guzman, and Simmons (2008) believe that in the absence of the regulatory framework created by IIAs, the commitments that recipient states can make vis-a`-vis foreign investors lack credibility because of the possibility of future government intervention. In this respect, Comeaux and Kinsella (1994) define political risk as “the risk that the laws of a country

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will unexpectedly change to the investor’s detriment after the investor has invested capital in the country, thereby reducing the value of the individual’s investment” (p. 1). This creates a sui generis state of necessity in which developing countries have no other option but concluding IIAs despite the mentioned imbalance. What happens, in other words, is that “these instruments secure an exchange: the State agrees to certain protection obligations in exchange for a foreigner’s commitment to invest” (Wells Sheffer, 2011, p. 491). Because developing countries compete against each other for obtaining the most of FDI flows, and because of the dynamic inconsistency problem8 pointed out by Guzman (1997), these counties are encouraged to reduce the enforcement of national regulations as a wrong strategy to gain allure among investors and fostering the establishment of more TNCs but at an expense of their own development. The inherent inequality of the international investments regime has worked in favor of capital-exporting countries and at the expense of developing or transition States (Van Harten, 2010). Furthermore, “the asymmetry caused by the international investment regime has resulted in developing States negotiating agreements without fully appreciating the risks that they entail and concluding them despite they favor foreign investors” (Wells Sheffer, 2011, p. 492). Within this context and in accordance to De Brabandere (2012), States in which investors are willing to invest often lack the economic incentives to respect the human rights of their citizens voluntarily, especially in the areas of labor rights, environmental law, and other rights protecting the physical and mental health of individuals.

SUSTAINABLE DEVELOPMENT AND IIAS As FDI fosters the internationalization of production chains, investors take advantage of the facilities to move capital into jurisdictions with less labor costs and less demanding regulations in economic or environmental terms. This leads to a race to the bottom, “whereby developing nations loosen regulations in competition to attract FDI, or constrain their regulatory power to pursue legitimate public interest objectives” (Wells Sheffer, 2011, p. 492). This “increases the likelihood of the extension of any related environmental damage to a greater number of countries and, therefore, to a larger part of the world’s environment” (United Nation Conference on Trade and Development (UNCTAD), 2004, p. 94). It also constitutes a

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form of social and environmental dumping (European Parliament, 2010) which works to the detriment of the host State instead than for its benefit, as it is supposed to happen as a result of the increase of FDI flows into developing countries. Hence, the real beneficial impacts that FDI could bring to the promotion of development are dependable on the capacity of host states to enforce their domestic regulation and to incorporate into national law international standards on labor, human rights, protection of the environment, and other social objectives intertwined with sustainability. However, developing countries require certainty that while promoting and enforcing these highest available standards in such regulatory areas, they will not affect their ability to attract investments. Consequently, as the practical interface between FDI and development comes into tension, social objectives are beginning to find greater resonance in IIAs, to the point that the inclusion of sustainable development provisions in both Free Trade Agreements (FTAs) and IIAs is on the rise. The latter trend is the consequence of the widespread understanding that “the notion of sustainability is composed of three interdependent and mutually reinforcing pillars: economic development, social development and environmental protection” (Prislan & Zandvliet, 2013, p. 5). Because of this broadened scope, current reference to sustainability in IIAs is not limited to a general mention in the preamble. Instead, it entails precise clauses entirely focused on specific topics such as workers’ welfare and environmental conservation. There is for instance the United States Model Bilateral Investment Treaty (BIT), whose provisions were incorporated into Investment Chapters of FTAs signed by the United States, and which was recently upgraded in 2012. Like its predecessor (the 2004 Model), this latest version features two clauses (articles 12 and 13) devoted to the interaction of investment on the environment and labor rights respectively. However, they are both general, rather hortatory, provisions, because their wording simply exhorts parties to encourage employment promotion or environmental protection but does not establish well
defined, neither effective, commitments. Indeed, both articles call it “inappropriate” to promote investment by weakening or reducing the protection afforded by domestic environmental laws, or by affecting labor rights, and assert that parties “shall ensure” that they do not derogate from or fail to enforce internal regulations. However, they do not indicate, clearly and soundly that contracting States enjoy full discretion to hold investors accountable for violations of their internal regulations; or that such acts of regulatory power do not fall within the

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category of violations of the minimum standard of treatment that shall be afforded to foreign investors by virtue of the treaty. Perhaps the above-mentioned situation is a consequence of the very nature of IIAs. Indeed, as international treaties, these can only entail binding commitments for sovereign states. Therefore, compliance with social clauses is mostly dependable on the willingness and effectiveness of a particular government to implement these provisions, either by adhering to international agreements or by incorporating them into its national legislation. Moreover, social policy objectives do not have a horizontal effect under international law, in the sense of constituting a direct obligation to nonstate actors (De Brabandere, 2012). On the contrary, it is the responsibility of the recipient States either to pass regulation addressing social issues such as human rights, or to effectively enforce their national laws on the matter. However, investors and TNCs would have, along with states, a shared responsibility to (at a minimum) respect, protect, and fulfill fundamental human rights (Cˇernicˇ, 2010) and contribute to the realization of policy goals on social aspects. In this sense, there are certain IIAs advancing specific responsibilities to investors like the COMESA Common Investment Area Agreement9 or the Community Rules on Investment (2008) adopted within the ECOWAS.10 However, both examples are far for representing the existing canons on IIAs clauses, especially in regard to the interests of developed economies. Within this context, while investors enjoy full security and protection from host states, they should demonstrate correlative deference for States’ policies aimed at sustainable development, a concept that involves not only economic progress, but also social development and environmental protection as well. Hence, the rationale for the inclusion of several sustainable development provisions in IIAs, and the necessity to enhance them by the possibility to turn current hortatory provisions into tangible results, a process that would entail taking such clauses to another level of effectiveness, that is, by extending their scope of application directly to TNCs. .

THE ONGOING TREND TOWARD THE INCORPORATION OF CSR PROVISIONS INTO IIAS The reason for this is that ongoing issues of corporate disregard of social objectives are more related with deviant corporate conduct rather than a total lack of state regulation. Certainly, human rights, international labor

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standards, and obligations on environmental protection are widely accepted throughout the world (although there is room for improvements in regard to their enforcement). However, companies may remain reluctant to upgrade to these voluntarily if it only represents an increase in operational costs and a subsequent decrease of profits. Therefore, it is necessary to address the attention upon contraventions against labor, human rights, environmental protection, and business ethics in developing countries by TNCs who know that host States cannot effectively enforce their laws without affecting, at the same time, their overall allure for investors. Certainly, the role that FDI can play in promoting social objectives that are indicators of sustainable development, such as fair employment and industrial relations in the developing world, depends in a greater extent on the capacity of host states to effectively enforce national regulation that incorporate stringent international standards. IIAs contribute better to achieving this goal by incorporating provisions that directly address TNCs conduct via CSR provisions in general and even further by referring to the Global Compact Principles specifically, as will be explained below. Through CSR, companies try to align their business strategy with social, economic, and environmental policy goals, that is, the three reinforcing pillars embodied in the concept of sustainable development. They do it voluntarily and sometimes it even entails going beyond what national regulation requires. Yet, there are market-based incentives for companies to engage in this CSR initiatives. For instance, in the course of international trade, adherence to CSR does actually entail a competitive advantage.11 There have been efforts in multilateral fora to address social issues as a form of CSR. The most noticeable of these endeavors are the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the OECD Guidelines for Multinational Enterprises (OECD Guidelines). It is crucial to point out that their effects are not legal (De Brabandere, 2012) as neither of the two is legally binding.12 However, they are focused with detailed attention on issues related with TNCs conduct than current clauses in IIAs, whose attention is rather posed on governmental aspects such as the nonderogation of standards, policy space, or regulatory chill (Prislan & Zandvliet, 2014). Additionally, they entail a market-based incentive approach for stimulating compliance among investors. Due to a European Parliament’s resolution,13 since 2010 CSR clauses are present in all of the European Union’s trade agreements.14 These are generally based on the 2010 update of the OECD Guidelines. Most recently,

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the joint statement of the European Union and the United States on Shared Principles for International Investment, which serves as a roadmap for the negotiation of the Transatlantic Trade and Investment Partnership (TTIP), also referred to responsible business conduct.15 For its part, Canada’s FTAs Investment Chapters concluded with Peru (2009) and Colombia (2011) also incorporate a clause on CSR.16 A similar clause is present in the Netherlands
United Arab Emirates BIT (2013), whose scope goes even further, as it specifically calls for the application of the OECD Guidelines if they do not result contrary to the domestic law of each contracting party. All of the above initiatives suggest an ongoing trend toward the incorporation of CSR provisions into IIAs. However, these CSR clauses are shaped in the form of soft law, as a reminder that governments, not companies, have the obligation to encourage the voluntary adoption of CSR instruments among investors. Therefore, they are perceived as “less demanding than non-derogation and policy space-type provisions” (Prislan & Zandvliet, 2014, p. 18).

WHY IIAS SHOULD MAKE EXPLICIT REFERENCE TO THE U.N. GLOBAL COMPACT PRINCIPLES Although the inclusion of CSR provisions into IIAs is on the rise, there is plenty of space for improvement in the path of aligning foreign investors and TNCs with the sustaining development goals of recipient States. For instance, current CSR provisions usually refer to the OECD Guidelines as the existing benchmark of responsible behavior, notwithstanding the fact that these are not more than recommendations made by governments to corporations. Therefore, the issue of how to encourage effective adherence to these and other standards persist. Moreover, within the context of IIAs, there is a limitation for transforming these voluntary standards into national legislation, as commitments arising out of a treaty cannot be directly imposed to particulars. At this point, the U.N. Global Compact initiative serves as a link to facilitate adherence to the highest principles and standards that relate with the consecution of sustainable development in the core areas of human rights, labor standards, environment protection, and anticorruption. Certainly, Global Compact’s universality and flexible scope for the assumption of particular commitments can enhance the effectiveness of CSR

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provisions embodied in IIAs, in the way that they can embrace corporate conduct directly. No other CSR initiative can match the Global Compact in universality and legitimacy. Its 10 principles are subject to widespread consensus, and it is now the world’s largest corporate citizenship initiative. Its success not only has to do with the monitoring and guidance framework provided by the United Nations itself, but also with the fact that its implementation is quite flexible, as it offers to participant companies different levels of engagement. Furthermore, the scope of the Global Compact is to address social objectives from the perspective of the day-to-day functioning of a company, with the aim of obtaining tangible results within the range of influence of each particular participant, so companies can actually measure and perceive the beneficial aspects resulting from their ethical behavior. Moreover, there is a market-based incentive represented in the competitive advantage arising out of the Global Compact legitimacy. Another key advantage for incorporating clauses that make express reference to the Global Compact initiative is that social clauses would not have to be reflected into national legislation. Hence, in a certain way, it would not appear that the host State is tightening its internal regulation with the risk of losing its allure for foreign investors; neither would have to impose a direct obligation upon them to abide to national legislation in the way other IIAs are currently doing in it. Furthermore, as there is scrutiny within the public opinion to find out whether these treaties can actually promote sustainable development, referring to the Global Compact within the context of IIAs, may work as a catalyst to encourage voluntary adherence among investors and counterbalancing the prerogatives that they enjoy due to the IIAs.

CONCLUSIONS 1. The question whether IIAs can actually contribute to sustainable development has become one of the major issues in international investment law. This issue has been spurred by the asymmetric nature of these instruments along with a lack of horizontal coherence between host developing States sustainable goals and IIAs main substantive commitments. 2. Today most of the IIAs include clauses dealing with specific social issues, such as the social and environmental components of the concept of sustainable development. However, these provisions mainly focus on

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3.

4.

5.

6.

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intergovernmental action, establishing certain obligations for governments like the prohibition to ease national standards to invite investments. Yet, they do not address the conduct of TNCs, whose well-functioning entails considerable challenges for the achievement of sustainable development as well. In response to the above, there is an ongoing trend toward the inclusion of CSR provisions into IIAs. This is an alternative to pursue sustainability by directly targeting the conduct of investors. Nevertheless, having regard of the nature of both CSR instruments and IIAs, with the former being voluntary while the latter are only binding for States, the effectiveness of these clauses is still limited, constituting soft law. The Global Compact initiative can strengthen the effectiveness of CSR provisions incorporated into IIAs. Unlike other CSR instruments, its universality, legitimacy, and flexible implementation allow, on the one hand, to encourage investors committing with sustainable development policies of the host country and, on the other, to allow the latter to promote high standards of protection without jeopardizing their attractiveness as an investment destination. Therefore, as most of the universally accepted principles embodied in the U.N. Global Compact are directly related to both the social and environmental components embodied within the concept of sustainable development, assessing whether IIAs reflect these principles constitutes an efficient approach to determine if social clauses are actually contributing to achieve sustainability through IIAs. Nevertheless, the main limitation of the preceding conclusion is that so far there is no empirical evidence suggesting that the inclusion of CSR measures in IIAs is what best promotes sustainable development. For that reason, further analysis is required in order to establish a factual link between the U.N. Global Compact Principles and sustainable development goals within recipient States. Still, such approach has to be appraised as a starting point to identify the actual path through which IIAs can effectively interconnect the actions of foreign investors with sustainability goals.

NOTES 1. Within the scope of this chapter, the term International Investment Agreements (IIAs) also covers Investment Chapters that form part of Free Trade Agreements, as well as the expression Bilateral Investment Treaties (BITs).

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2. See for instance the preamble of the Canada
Jordan Agreement for the Promotion and Protection of Investments, or the Chapter on Sustainable Development and Commerce of the Free Trade Agreement concluded by the European Union with Peru and Colombia. 3. For that purpose, IIAs incorporate an intergovernmental mechanism for consultation and dispute settlement. Thus, each contracting party has the possibility to contest the policy measures taken by its counterpart, when these measures suggest a breach of the aims and the scope of the agreement, such as a deliberate cut in the applicable labor standards for protecting a local industry at the expense of foreign competitors. 4. The direct standing of corporations in investment law has been encouraged by the ineffectiveness of the traditional system of diplomatic protection. 5. Like the obligation to confer a minimum standard of treatment, including a fair and equitable treatment, protection in case of regulatory expropriation, national treatment, most favored nation treatment, among other substantive provisions. 6. See for instance: Vattenfall AB and others v. Federal Republic of Germany (ICSID Case No. ARB/12/12). 7. See for instance: Philip Morris Brand Sa`rl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7). 8. It refers to a barrier to efficient FDI, as host developing States are unable to make credible agreements to investors. To remedy this, developing countries are not only willing to conclude IIAs, but they also offer greater concessions to potential investors, bidding against each other in order to obtain the most of capital flows, even if that offsets the overall gains that the host State would have otherwise obtained from the investment. 9. Its article 13 (Investor Obligation) provides that “COMESA investors and their investments shall comply with all applicable domestic measures of the Member State in which their investment is made.” 10. It contains to contemplate a whole part with a set of specific duties for investors, like an obligation against corruption (article 10), an obligation of compliance with domestic law (article 11), or an obligation to carry on environmental and social impact assessments (article 13). 11. For instance, in a recent WTO case dealing with a voluntary labeling scheme for the protection of dolphins, the Panel questioned such voluntariness after finding that the dolphin-safe label had a commercial value within the US market for tuna products, and then it influenced both retailers and consumers preferences, to the point that wearing the label constituted an advantage. See US
Tuna II (Mexico) DS381, Panel Report, para. 7.289. 12. Although voluntary, their application is to monitored by the institutional machinery available in each case. 13. See European Parliament resolution of November 25, 2010, on CSR in international trade agreements (2009/2201(INI)). 14. See for instance Chapter 13 of the Free Trade Agreement between the European Union and South Korea. 15. It asserts, “Governments should urge that multinational enterprises operate in a socially responsible manner. To this end, the European Union and the United States

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intend to promote responsible business conduct, in general, and adherence by third countries to the OECD Guidelines for Multinational Enterprises, in particular.” 16. Articles 810 and 816, respectively. They provide: “Each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles address issues such as labor, the environment, human rights, community relations and anti-corruption. The Parties therefore remind those enterprises of the importance of incorporating such corporate social responsibility standards in their internal policies.”

REFERENCES Cˇernicˇ, J. L. (2010). Corporate human rights obligations and international investment law. Anuario Colombiano de Derecho Internacional, 3(Especial), 243
273. Comeaux, P. E., & Kinsella, E. (1994). Reducing political risk in developing countries: Bilateral investment treaties, stabilization clauses, and MIGA & OPIC investment insurance. The New York Law School Journal of International and Comparative Law, 15, 1. De Brabandere, E. (2012). Human rights considerations in international investment arbitration. In M. Fitzmaurice & P. Merkouris (Eds.), The interpretation and application of the European convention of human rights: Legal and practical implications. Leiden: Martinus Nijhoff Publishers. Elkins, Z., Guzman, A. T., & Simmons, B. (2008). Competing for capital: The diffusion of bilateral investment treaties, 1960
2000. University of Illinois Law Review, 265. European Parliament. (2010). Resolution on corporate social responsibility in international trade agreements (2009/2201(INI)). Guzman, A. T. (1997). Why LDCs sign treaties that hurt them: Explaining the popularity of bilateral investment treaties. Virginia Journal of International Law, 38(639), 640
678. Peterson, L. E., & Gray, K. R. (2003). International human rights in bilateral investment treaties and in investment treaty arbitration. Winnipeg: International Institute for Sustainable Development (IISD). Prislan, V., & Zandvliet, R. (2013). Labor provisions in international investment agreements: Prospects for sustainable development. Grotius Centre Working Paper 2013/003-IEL. Prislan, V., & Zandvliet, R. (2014). Mainstreaming sustainable development into international investment agreements: What role for labor provisions? Grotius Centre Working Paper 2014/023-IEL. Simma, B. (2011). Foreign investment arbitration: A place for human rights? International and Comparative Law Quarterly, 60, 573
596. United Nation Conference on Trade and Development (UNCTAD). (2004). International Investment Agreements: Key Issues. Volume II. Retrieved from http://unctad.org/en/ Pages/Publications/Intl-Investment-Agreements—Issue-Series-I.aspx Van Harten, G. (2010). Five justifications for investment treaties: A critical discussion. Trade, Law & Development, 2(1), 19. Wells Sheffer, M. (2011). Bilateral investment treaties: A friend or foe to human rights? Denver Journal of International Law & Policy, 39(3), 482
521.

LEADERSHIP STYLES IN ORGANIZATIONS PARTICIPATING IN THE UN GLOBAL COMPACT Emel Esen ABSTRACT Purpose
The United Nations Global Compact is a voluntary initiative in four areas as human rights, labor, environment, and anticorruption with 10 universal principles. This network brings corporations, nongovernmental organizations, employees, and people together. There is a need to have responsible and committed leaders to promote good corporate citizenship in the framework of Global Compact. Leaders have a unique position through which they can influence factors concerning organizations’ and employees’ behavior. According to the areas of UN Global Compact, some leadership styles seem to better suit to benefit economies, societies, markets, and people all over the world than the others. By this way, from the theoretical perspectives, the primary purpose of this chapter is to investigate the leader’s behavior and different leadership styles in organizations that are the part of Global Compact platform. There are certain leadership theories
transactional, transformational, sustainable, ethical, and servant
which are examined in Global Compact initiatives.

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 159
173 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016022

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Design/methodology/approach
An extensive literature research is conducted in order to understand the different types of leadership styles while organizations are adapting and understanding the Global Compact principles. Findings
Modern leadership styles especially ethical leadership behavior should be effective to comply with universal principles and organizations can also have commitment to disclose a report with powerful leadership. Research limitations/implications
However, this research is a theoretical study; for further studies, longitudinal studies can be conducted to understand the leadership styles from the perspective of Global Compact principles, and these different managers’ behaviors can be measured. Practical implications
This study may be useful for the board of directors and managers since they should participate and adapt themselves to this initiative about how they should behave in the right way. Originality/value
There is a lack of behavioral studies while analyzing Global Compact principles. Especially examining leadership theories that are complied with these principles will add a value to the literature in this area. Keywords: Leadership styles; Global Compact initiative

INTRODUCTION Businesses want to pursuit social and environmental issues in their operations by communicating with their stakeholders (Bernhagen, Mitchell, & Thissen-Smits, 2013). Many business organizations commit to corporate social responsibility (CSR) and corporate citizenship from the globalization perspective by being an active member of social and environmental initiatives
United Nations Global Compact (UNGC). UNGC initiatives can encourage organizations to have a solution about global governance concerns by understanding and practicing CSR (Baumann-Pauly & Scherer, 2013). Therefore, if organizations want to create sustainable value for their stakeholders, UNGC can be a best initiative to bring businesses and other types of business organizations, nongovernmental organizations, organized labor, UN agencies, and governments to the consensus (Rasche, Waddock, & Mclntosh, 2012; Williams, 2014).

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This initiative is able to attract participants from all over the world. One of the main purposes of GC is to achieve partnership among the members of this initiative. GC provides a network-based approach at the local, national, and global platforms by using some important elements: leadership, communication (dialogue), learning, and network (Kell, 2003). One of the most important elements among these is leadership. Leadership, which is the mostly discussed topic in organizational behavior area, is generally about influencing and inspiring people (followers) to achieve a common goal. Leadership acquires power which may come from different sources. It has been explained as a process for coordinating people and followers’ efforts. In the leadership function, leaders’ characteristics, followers’ behaviors and characteristics, and contextual factors are important. How leaders can behave effectively is related with leadership behavior in different situations. Therefore, leadership styles and behavior should be important in organizations participating in GC. We know that leaders can influence other people’s ethics and social responsibility behavior. CEOs have major responsibility about leadership. CEOs should have loyalty to GC principles to sustain the movement. They should have committed to have an action on CSR and sustainability, and lead efforts to define new targets on global issues (Kell & Berthon, 2013). The morality of leadership can base on moral character of leader, the morality of process between leader and follower. If the leader has a strong moral value system, he or she behaves more ethically than other leaders with weak value. By this way, some leadership theories which are based on these kinds of values are obvious in GC initiative. These leadership theories that are associated with GC principles are transformational leadership, transactional leadership, sustainable leadership, ethical leadership, and servant leadership. Idealized influence (charisma), inspirational motivation, intellectual stimulation, and individualized consideration are the dimensions of transformational leader behavior. On the other hand, contingent reward, management by exception (active or passive), and laissez-faire are the fundamental characteristics of transactional leaders. Sustainable leaders realize to keep people, environment, and resources in balance for organizations both in present and future. Separately, ethical leaders expect from their subordinates to behave in ethical manner and treat against moral standards, and lastly, servant leaders show sensitivity to other people’s interest, helping and empowering them, and giving support and assistance to them. This chapter attempts to understand the GC from the perspective of leadership in organizations participating in this initiative. The main objective is to determine what kinds of leadership styles are certain in organizations

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participating in GC platform. For this purpose, GC and GC principles were defined and examined and then which leadership styles are obvious in the members of GC was stated, and transformational, transactional, sustainable, and ethical leadership types were given.

GLOBAL COMPACT On January 31, 1999, business leaders in the world came together in the leading of United Nations for Secretary-General, Kofi Annan, and embraced and shared principles in the areas of human rights, labor standards, and environmental practices (Kell & Levin, 2003). He invited the private sector to “initiate a global compact of shared values and principles, which will give a human face to the global market” (Fritsch, 2008). This initiative can not only solve the people’s problem all over the world but it can also increase their quality of lives. Since 2004, principles about anticorruption were also added (Bernhagen et al., 2013). The GC is an international voluntary initiative including participants as companies, NGOs, governments, academic institutions, and other stakeholder groups (Runhaar & Lafferty, 2009). GC tries to encourage companies to be a member of this voluntary organization by 10 principles (Whitehouse, 2003). UNGC seems as a mechanism for organizations about CSR and sustainable development (Perez-Batres, Miller, & Pisani, 2011). Basically, the GC invited corporations, governments, civil-society advocates, and labor organizations to join a voluntary coalition to work individually and collectively for international cooperation (Nason, 2008). Therefore, this initiative encourages the private sector to participate in United Nations. The GC has two approaches. First of these approaches is a set of 10 norms for CSR related to human rights, labor, the environment, and anticorruption. Secondly, the GC offers platforms for companies and NGOs to discuss issues related to CSR development and implementation, and through interaction and cooperation (Runhaar & Lafferty, 2009). Table 1 represents the GC principles. Specifically about the principles, the GC has faced some criticisms. Some scholars examine that principles are hard to practice and they should be clear enough to implement (Rasche, 2009). As it was seen in Table 1, United Nations brings new rules and standards especially about the rights for both individual and collective rights and also all principles are covered by international agreements in GC (Therien & Poulit, 2006).

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Table 1. Area Human rights

Labor conditions

Environment

Anticorruption

The 10 GC Principles. Principles

1. Businesses should support and respect the protection of internationally proclaimed human rights; and 2. make sure that they are not complicit in human rights abuses. 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; 4. the elimination of all forms of forced and compulsory labor; 5. the effective abolition of child labor; and 6. the elimination of discrimination in respect of employment and occupation. 7. Businesses should support a precautionary approach to environmental challenges; 8. undertake initiatives to promote greater environmental responsibility; and 9. encourage the development and diffusion of environmentally friendly technologies. 10. Businesses should work against all forms of corruption, including extortion and bribery.

Source: Retrieved from http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/ index.html. Accessed on June 13, 2014.

As a result, these principles represent guideline for CSR initiatives. These norms are based on Universal Declaration of Human Rights (Principles 1 and 2), the Fundamental Principles on Rights at Work from the International Labor Organization (Principles 3, 4, 5, and 6), the Rio Declaration on Environment and Development (Principles 7, 8, and 9), and the UN Convention against Corruption (Principle 10) (Arevalo, Aravind, Ayuso, & Roca, 2013). Today, GC is one of the most important and widespread initiative with more than 10,000 participants, including over 7,000 businesses in 145 countries around the world.1 Almost each sector and industry is represented by participating companies (Kell & Haertle, 2011). Using GC principles in business strategy and enhancing cooperation between stakeholders are the two objectives of GC initiative (Annan, 2002). By this way, people in all countries around the world have an opportunity to find resources and benefits which come from everywhere.2 There are four core actors that create the GC organization: United Nations system, businesses (at the heart of the GC), government (set up regulations to facilitate 10 principles), and civil society organizations (Rasche, 2009).

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UNGC can also act as a driving force for companies in environmental responsible behavior and corporate citizenship in the global perspective (C¸etindamar & Husoy, 2007, p. 164). In the GC initiative, CSR should be mentioned.

LEADERSHIP TYPES IN ORGANIZATIONS THAT ARE MEMBERS OF GC In this section, some of the leadership theories will be discussed in the framework of GC. As it is stated in the general information about GC, this initiative is a framework for the development and implementation of moral values, social responsibility mechanisms, and sustainability; therefore while I will analyze leaders’ behaviors in these participant organizations, we should also look into leadership types that are based on these values. Leadership is defined generally as the process of being perceived by followers as a leader and influence them by using power domains (Trevino, Brown, & Hartman, 2003). As it was seen in the definition, leadership can be based on two areas: influence and power. There are many types of leaderships that can be performed by leaders using these two areas. In the following section, I will examine specific leadership types that are obvious in organizations participating in GC.

Transformational and Transactional Leadership Some leadership styles have a positive relationship with CSR activities
company’s obligation to exert a positive impact and minimize its negative impact on society
specifically transformational and transactional leadership types seem that they are drivers of CSR activities (Du, Swaen, Lindgreen, & Sen, 2013; Esen, 2013). Two forms of leadership as transformational and transactional leaders have been discussed frequently in modern leadership theories which are frequently associated with moral values and social responsibility activities. Both practitioners and researchers examine that all forms of leadership behavior are based on leaders’ morality and ethical standing (Kanungo, 2001). Transformational leaders have an effect on their followers by their charisma; they can inspire employees and intellectually stimulate them (Bass, 1991). They can coach, give personal attention and advise to their

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followers. As a result, idealized influence (on behaviors and attributes by charisma), inspirational motivation, intellectual stimulation, and individualized consideration are the determinants of transformational leader behavior (Avolio, 1999). The model of transformational leadership is based on continuing empirical development by Bass, Avolio, and other scholars (Groves & LaRocca, 2011). Transformational leaders increase the development of their followers by thinking, motivating, and giving high standards to them (Bass, Avolio, Jung, & Berson, 2003). They can have a positive impact on ethical behavior and ethical performance of the organization, and therefore ethical values, beliefs, and policies can enhance and thereby encourage ethical behaviors in the organization (Carlson & Perrewe, 1995). Specifically charismatic leaders (as part of transformational leadership) can reach higher degrees of moral development and moral values, in contrast to transactional leaders (Waldman, Siegel, & Javidan, 2006). They encourage their followers through empowerment and understand their needs and requirements (Druskat, 1994). Contingent reward, management by exception (active or passive), and laissez-faire are the fundamental characteristics of transactional leaders (Bass, 1991). Transactional leaders avoid making decisions, intervene only when problems occur (passive), monitor performance faults, and contract the exchange of the rewards. They have a role as counterpart to transformational leader (Druskat, 1994). Transactional leaders have ethical perspective as well; however, transformational and transactional leaders have different ethical foundation. As it was shown in Table 2, teleologic ethics, also named as utilitarian approach, are related with transactional leadership, but on the other hand, deontologic ethics, also named as Kantian rights or altruism, are associated with transformational leadership (Groves & LaRocca, 2011). Deontological theories give attention to the rules, duties, and moral obligations; the behavior intention is more valuable than the result of the behavior (Gotsis & Kortezi, 2013). On the contrary, utilitarianism is concerned with the result Table 2. Rights and obligations Ethical theory

Note: Kanungo (2001).

Differences among Two Leaderships. Transactional Leadership

Transformational Leadership

Individual rights Teleologic (utilitarian) ethics

Social obligations Deontologic (altruism or Kantian rights) ethics

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of actions and is rooted in the thesis that an action is right if it leads to the greatest good for the greatest number or to the least possible balance of bad consequences (Cohen, Pant, & Sharp, 1996; Cruz, Shafer, & Strawser, 2000; Hansen, 1992). Transformational leaders are also contributing to their followers’ CSR engagement than transactional leaders do. The fundamental differences among these leadership styles are followers’ ethical perspectives as deontologic and teleologic (Chen & Baesecke, 2014).

Sustainable Leadership Global developments and trends can influence effective leadership. Therefore, CSR and sustainability have higher degree in their list that they achieve. Nowadays sustainability is becoming an important area especially in the emerging markets. CEOs look at sustainability as an important driver for their company’s success and performance (Lacy & Hayward, 2011). A well-known and most widely accepted definition of sustainability examined in Brundtland Report was “the ability to meet the needs of present generations without compromising the ability of future generations to meet their own needs.” According to the definition, future generations are accepted as stakeholders of current generations. Organizations and leaders as part of the society should be interested in these generations’ needs and expectations (O¨zso¨zgu¨n & C¸alı ¸skan, 2014). A survey of Lacy and Hayward (2011), which was conducted with 800 Global CEOs in partnership with the UNGC, represents that CEOs believe sustainable development is a guarantee for organizations’ future survival and sustainability that impacts mostly brand, trust, and reputation (Lacy & Hayward, 2011). CEOs believed that sustainability gives shape to the business of the organizations (Lacy, Haines, & Hayward, 2012). Sustainable leadership should also be discussed as one of the leadership types in the GC perspective. Organizations are expected from their leaders in all sectors to take more responsibility in their operations which can impact environment and society (Rogers, 2011). This kind of leadership is shared responsibility about not to consume and damage human, financial, and environmental resources (Hargreaves & Fink, 2012). The purpose of sustainable leadership is to realize that people, environment, and resources are kept in balance for organizations both in present and future. This leadership also involves humanistic perspective which is about considering people and organization (Avery & Bergsteiner, 2011a). This struggle can reinforce businesses survival and performance.

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Avery and Bergsteiner propose a sustainable leadership pyramid about sustainable practices with four steps. At the lowest step of the pyramid, there are 14 fundamental practices
developing people, labor relations, long-term retention of staff, valuing people, communication between CEO and top team leadership, ethical behavior, long-term perspective, organizational change, independence from financial markets, environmental responsibility, social responsibility, stakeholder approach, shared vision, and succession planning. Decision making, self-management, team orientation, corporate culture, knowledge sharing and retention, and trust are high-level practices on the second step. At the third step, there are three key performance drivers for sustainability: strategic innovation, self-engagement, and quality. These practices result in organizational performance outcomes: brand and reputation, customer satisfaction, financial performance, longterm shareholder, and stakeholder value (Avery & Bergsteiner, 2011b). These are honeybee leadership practices that are resilient and show humanist approach for organizations (Kantabutra & Saratun, 2013). Casserly and Crtichley (2010) state that sustainable leaders have their functions at four levels: personal level, organizational level, sociological level, and ecological level. Personal level means the leader keeps balance both at physical and psychological levels to be effective. In organizational level, the organization should support and enhance sustainability in the organization. At sociological level, organizations should try to make positive interaction with community. As a final level, ecological level means organization feels pressure to cut back on energy use and carbon emissions. Organizations that are part of GC platform should enhance and develop sustainability if they want to survive in global environment. Therefore, sustainable leaders have major responsibilities and roles in these struggles.

Ethical Leadership As it was discussed in transformational leadership and transactional leadership, this type of leadership involves ethical behavior and code of conduct, but ethical leadership has a different meaning. In ethical leadership theory, ethical leaders expect from their subordinates to behave in ethical manner and treat against moral standards (Liu, Lam, & Loi, 2012; Mayer, Kuenzi, Greenbaum, Bardes, & Salvador, 2009). This explanation means the leaders as moral managers have proactive efforts to influence their followers’ ethical and unethical behavior (Brown & Trevino, 2006).

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Specifically, they are more likely to influence employee and organizational behavior treating ethically (Trevino, 2003). Leaders are expected to monitor employees’ behaviors through social exchange processes
exchange of activity, rewards, and tangible and intangible assets between, at least, two people (Cook, Cheshire, Rice, & Nakagawa, 2013; Mayer et al., 2009). From the perspective of social learning, ethical leaders can be role models for their followers by inspiring them with ethical values (Liu, Kwan, Fu, & Mao, 2013). Ethical leadership which is based on social power has four attributes: character/integrity (determines the correct course of action), altruism (serving the greater good), collective motivation (motivates and inspires their followers), and encouragement and empowerment (Martin, Resick, Keating, & Dickson, 2009). Leadership styles should be examined on different environments and cultures. Specifically ethical leaders differ across cultures (Martin et al., 2009). Therefore, culture differences have an influence on ethical leaders; how to behave and motive their followers about ethical and moral values (Yang, 2013). On the other hand, universal ethical values represent that UNGC achieves a consensus on universal moral norms than ethical differences and ethical relativism (Voegtlin & Pless, 2014). Ethical values and norms are also fundamental for global CSR activities.

Servant Leadership Servant leadership is defined in several dimensions: acting ethically, showing sensitivity to other people’s interest, helping and empowering them, giving support and assistance to them, represent the leaders’ responsibility as well as his or her moral responsibility to other stakeholders (Peterson, Galvin, & Lange, 2012). This leadership differs from other types of leadership about the relationship with followers. They give high priority to their followers on serving. Their aim is also to become an ethical role model to make their followers behave ethically (Clerg, Bouckenooghe, Raja, & Matsyborska, 2014). Servant leaders are also named as serviceoriented leaders who practice their activities both outside and inside of the organization by promoting and developing communities at large (Miao, Newman, Schwarz, & Xu, 2014). By this way, they have a movement to encourage followers’ growth, learning, and autonomy both personally and professionally (Sendjaya, Sarros, & Santora, 2008).

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Empirical research about servant leadership indicates that this leadership type can be an important determinant of organizational citizenship behavior
which is a prosocial behavior to work voluntarily (Ebener & O’Connell, 2010). As it was discussed above, corporate citizenship and citizenship behavior create potential to improve companies themselves which are the members of GC initiative.

CONCLUSION This chapter has critically analyzed the leadership styles in business organizations which are involved in GC initiatives. For this purpose, our literature review focuses on transformational, transactional, sustainable, ethical, and servant leadership forms and investigates these styles in the scope of GC initiative. Leadership is increasingly becoming a critical factor in all types of organization: private, public, formal and informal, and profit and nonprofit organizations. Successful leaders need to understand people and organizations. For leaders, some important challenges that they cope with are economic challenges and ethical challenges that determine their achievements in international area. Economic challenges represent gaining profit and sustaining competitive advantage in global market. Ethical challenges involve ethical and social responsibility such as obeying ethical standards, securing work and labor standards, and protecting environment. Thus challenges increase social responsibility behaviors and practices to meet stakeholders’ expectations and needs. Now, organizations are trying to adapt CSR practices for moral and ethical values that are shaped by effective leadership. All leadership types that we discussed in this study have moral and ethical potential, but there are some differences among them. From the GC initiative perspective, ethical and social behavior aspects of leadership theories are obvious. For instance, transformational leaders not only influence individual-level outcomes, but can also affect group and organizational level outcomes. Therefore, improving organization-level outcomes as CSR and corporate citizenship that change transactional leadership to transformational leadership can be important drivers for organizations in GC initiative. On the other hand, sustainable leaders try to protect and pursue sources about environment, people, and planet both in present and for future generations. This attempt and personality are also about the environmental GC principles. Also ethical leaders are good ethical role

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models for their followers. If the ethical leader in an organization as a member of GC platform can influence his or her ethical treatment, he or she can prevent unethical behavior both inside and outside the organization. Employees can be more sensitive and always on alert to report the wrongdoings in the organization. This consciousness of employees can create ethical work and ethical global environment. By this way, serious misconduct, incompetence, and corruption can be exposed by ethical organizations which are committed to principles specifically about anticorruption. And lastly for servant leaders, giving attention to employees’ interest, needs, and requirements are the main value of this leadership type. In GC initiative, human rights are fundamental and challenging areas. For sustainable growing, organizations not only meet expectations, but also realize new opportunities for them. Servant leaders can have this major responsibility in organizations which are members of GC.

NOTES 1. http://www.unglobalcompact.org/ParticipantsAndStakeholders/index.html 2. http://ftp.awl.co.uk/Longacre/marketing/Sp/Northern/0273654330/chap6% 252fLiving%20%25c9orporate%20Citz.pdf

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INTERNET What is the Global Compact? Retrieved from http://ftp.awl.co.uk/Longacre/marketing/Sp/ Northern/0273654330/chap6%252fLiving%20%25c9orporate%20Citz.pdf. Accessed on June 19, 2014. Retrieved from http://www.unglobalcompact.org/ParticipantsAndStakeholders/index.html. Accessed on June 13, 2014.

THE ESPOUSED VALUES OF MNES OPERATING IN COLOMBIA: THEIR ETHICAL ORIENTATION AND STAKEHOLDER CONSIDERATION Sergio Castrillo´n-Orrego ABSTRACT Purpose
To study the values espoused by top MNEs operating in Colombia, through their vision and mission statements, in order to interpret their ethical orientation and to examine their concern toward diverse stakeholders. Design/methodology/approach
Content analysis
an analytical framework was crafted from the literature review, while allowing room for emergent phenomena. Thus a combination of deduction and induction was enacted. Findings
Most values are either teleologically oriented or grounded in deontological values, with a significant amount of values that could be related to a virtue ethics. Regarding stakeholders, narrow definitions tend to prevail.

The UN Global Compact: Fair Competition and Environmental and Labour Justice in International Markets Advances in Sustainability and Environmental Justice, Volume 16, 175
198 Copyright r 2015 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-503020140000016023

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Research limitations
The comparability of the vision and mission statements could be affected because sometimes they are offered at the national level and others at corporate level. Practical implications
By offering a critical regard at the values that are publicly espoused by some of the most influential companies in Colombia, we enhance the comprehension of the prevailing ethical environment and the compatibility with the principles of the Global Compact. Originality/value
We have studied key actors in a growing emerging market, which could advance Global Compact principles. Besides we have crafted a pedagogic and systemic prism through which values can be taught and thought. Thus, the methodological and theoretical framework facilitates subsequent empirical research, both in comparative and longitudinal ways. Keywords: MNEs; values; stakeholders; vision; mission; ethics

A value is a view of life and a judgment of what is desirable that is very much part of a person’s personality and a group’s morale. (Andrews, 1980, p. 81f) quoted by (Freeman, Gilbert, & Hartman, 1988, p. 823) Ethical behavior often originates from values such as honesty, integrity, and respect. These expectations should be stated in mission, conduct, or values policy statements. Universities and colleges should emphasize ethics education so that graduates can effectively confront difficult situations that they will encounter in their professional lives. (McCraw, Moffeit, & O’Malley, 2009, p. 1)

INTRODUCTION Since its creation in 1999, the UN Global Compact has impacted the world in multiple senses. Thanks to its positive influence most publics are now aware of its principles, its areas of concern, and the reporting methods. Tracing the Communication on Progress (COP) reports allows us to sense the advancement in terms of sensibility and results. In order to stimulate reflective thinking and ignite the pedagogic promotion of business ethics beyond predictable categories, in this study, we have

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evaluated the importance that companies ascribe to diverse values, even those not explicitly stated by the Global Compact. Thus, we have set out to study the values that are espoused by the most influential MNEs that operate in Colombia through their vision and mission statements. What is the ethical orientation of their values? Which stakeholders do they consider? To what extend are they fine-tuned with the Global Compact? This research offers original contributions in diverse senses: first, it provides an updated diagnosis of the stakeholders and values that influential companies claim to appreciate the most in an emerging country, but in a way that is not circumscribed to categories previously defined by reporting frames. Second, the fact that values are extracted from strategic statements, and not from specific reports addressed to particular publics, offers an opportunity to explore the range of ethical orientations of those values through methodological lenses that might support further research and ignite pedagogic approaches that could serve and complement the purposes of the Global Compact initiative. Third, this kind of analysis offers a framework that could be used to promote axiological sensitivity and pedagogic strategies to better understand, discern, and discuss the strategic and axiological orientations promulgated by multiple economic actors within the complex economic arenas of the contemporary world. The importance of research on values within the field of international business could be extensively justified, for example, Freeman et al. (1988) have demonstrated the foundational role of values in strategic management, to the point that “morally significant values” are “essential to effective management.” Their assertion, that “research on strategic management has paid insufficient attention to values … the tendency to underestimate the role of values is evident in several predominant themes of current research in the field” (Freeman et al., 1988, p. 821), seems to be as sound and compelling now as then, and even more for the Latin American context, where for the last few decades there has been a significant inflow of FDI and trends of insertion in free trade, with the consequent strengthening of MNEs influence. Nevertheless the field has been nurtured by studies that explore how the influence of corporate social responsibility (CSR) in international business dynamics, conceptually examining how CSR models relate to some ethical and political theories, and international framework agreements that set the context for business dynamics (Gonzalez-Perez, 2013). Other studies highlight the importance of several ethical dimensions and international business. Esen (2013) demonstrated the importance of CSR activities in order to craft corporate reputation by analyzing dimensions such as trust, positive intent, leadership, culture, and public relations activities.

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Given the frequent asymmetry of power between corporate entities and nation-states, the corporate strategies of MNEs become even more important, because instead of being reactive, they set the tone for the business environment that might become institutionalized, shaping the field of opportunities for all active and passive participants of the game. Here it is interesting to notice that morality considerations become ineludible for business, and even more in a world permeated by international exchanges. Although the sources of that morality are disputable and are always in state of flux and debate, a minimum of mores (or morally binding habits, manners) that link multiple parties requires to be adopted in order to make economic activity sustainable. Therefore, we should acknowledge that even market customs and traditions constitute a form of morality. Nowadays, where the market is global, that morality is partly created by MNEs, usually for merely strategic purposes and not necessarily oriented by genuine ethical concerns, but nevertheless ethically influential, even affecting the MNEs themselves. As Bowie puts it “Systematic violation of marketplace norms would be self-defeating. Moreover, whenever a multinational establishes businesses in a number of different countries, the multinational provides something approaching a universal morality
the morality of the market place itself” (2000, p. 480). Accepting the premise that “Any theory of strategic management, furthermore, necessarily deals with a concept of corporate morality” (Freeman et al., 1988, p. 821) we take on the challenge of researching the morality that multinational corporations assert publicly. Thus, spotting a void in the study of the axiological statements of the MNEs that operate in Colombia, we have decided to take on this problem. Therefore, we have developed a theoretical and methodological know-how to better learn to discern the values promulgated by the MNEs that operate in Colombia. Among the multifarious reasons that justify this concern, we argue that the economic strength of MNEs makes them very influential actors in market dynamics and governmental decisions; affecting the life of many individuals as potential consumers, employees, and even as tax payers and citizens. In the following sections, we present a literature review that integrates studies about the importance of ethical statements, ethical theories, and approaches on values and stakeholders. Then we explain the methodology and the specifics regarding the values and prevalence of stakeholders on the vision and mission statements of the sampled companies.

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LITERATURE REVIEW The existing theoretical and methodological literature related to the study of axiological statements of MNEs alongside is guided by three questions, that is, first, how can we analyze the values through which MNEs espouse themselves? Second, how can we develop a classification of their ethical orientation? Third, how can we typify the groups which are addressed or considered in the MNEs’ proclaims? In consequence the following pages cover a literature review divided in three sections. In the first, we argue how the ethical values to which MNEs’ commit publicly can be analyzed through the prism of their vision and mission that constitute the most visible expressions of values espoused by a company and a key indicator of strategic commitments. In the second section we recall different ethical theories to advance a taxonomic development that could help to typify the ethical orientation of the values evoked by MNEs, contrasting the defining axioms of the deontological and teleological/utilitarian perspectives. In the third section, and as a complement to the analysis of the ethical orientation of key statements, we identify the different actors included in those ethical statements using a guiding framework constructed after comparing the antagonistic views of shareholders and stakeholders, defended by Milton Friedman and Edward Freeman, respectively.

Reviewing the Importance of Ethical Statements The ethical values espoused by organizations are not incidental, in fact they are much elaborated statements presented in many forms and subject to multiple interpretations, as varied as the several potential motives behind their promulgation. Among the diverse forms through which MNEs explicitly commit to axiological goals, we have targeted the vision and mission declarations. They pursue multiple communicative purposes addressed at multiple publics. What is important to highlight here is that throughout the key declarations we can track the most significant ethical commitments MNEs are willing to web, at least in their discourse. For a more detailed discussion and comparison of the definitions of different “corporate ethical statements” see Stevens (1994, 2008).

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The importance of the values thus explicated transcends a mere formality; their structure might reflect strategic trends, intentions to promote ethical initiatives or to erode governments’ regulations, appeasement efforts to please demanding stakeholders, or true intends to enhance ethical behavior. And in this regard, we do not mean to be sarcastic, we only want to stress the potential abuses and risks associated with marrying a set a values, whatever they are; while highlighting the power to trigger and multiply forces of development, such as those that animate the Global Compact. In fact, when studying commitment to values, many empirical studies have not found strong evidence to support the effectiveness of ethical codes. But although effects of ethics codes seem controversial, they certainly contribute to create ethical awareness and thus serve ultimate educative purposes. For example, one study found that employees of companies that promulgate written codes of ethics “were significantly less likely to find international bribery acceptable” (McKinney & Moore, 2008). Or as Stevens demonstrates after he reviewed studies of corporate ethical codes published in the last decade and concluded that “codes can be effective instruments for shaping ethical behavior and guiding employee decision-making” (Stevens, 2008). Nevertheless, beyond immediate concern about their effectiveness, it is important to seriously research values, because they generate expectations that potentiate ethical actions. In this sense it has been demonstrated that “Ethical behavior often originates from values such as honesty, integrity, and respect” (McCraw et al., 2009, p. 1). The values adopted and nurtured by any organization inescapably affect the decision making of all the actors that interact with the organization, be it external parties or the individuals that work within it. The actions of these parties “inevitably stem from a learned value system. The system may arise from unreflected sources such as the family or culture, or from sophisticated frameworks requiring critical analysis” (McCraw et al., 2009, p. 2). We argue that the diverse ethical statements mentioned above are embodiments of those sophisticated frameworks that compel a deep study. In fact, ethical statements could be understood as the missing link between the overall strategy, the behavior of its employees, and the legitimacy it seeks from the surrounding environment. Indeed, if we think about the complexities of international business settings, we realize that the most compelling challenges for MNEs gravitate around the need to develop strategically, while organizing a multicultural workforce, and most importantly,

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pursuing global legitimacy from multiple publics exposed to centripetal traditions and values. In terms of strategy, it has been proved, with clean simplicity, “… that strategic management, one slice of human behavior, can be understood only in the light of the activating force of values. And, when we ground strategic management in values, we go far beyond ‘symbolic management’ ” (Freeman et al., 1988, p. 822). This provides support to the claim that values have intrinsic force to motivate action, and in consequence any praxeological study of an organization should be complemented, and actually preceded by an axiological examination of the values that permeate a given human collective and the individuals that compose it. Trying to sustain the link between the strategy of a company and the legitimacy it seeks from its diverse stakeholders, let us recall McCraw’s notion of sophisticated frameworks (McCraw et al., 2009, p. 2) to apply it to ethical codes as a collection of values. For example, Long and Driscoll have advanced the understanding of “codes of ethics as institutionalized organizational structures that extend some form of legitimacy to organizations” (2008, p. 173), even if it is done as part of macro-isomorphic processes that engulf any other strategic triggering event, it ends up deriving legitimacy to companies that enact those codes. In other words, all ethical codes (or for our purposes, any ethical statement) play a strategic role, even if it is only because they reflect an imitation of the strategies of the field leaders, which end up being institutionalized. But as with any institutionalization process, there emerges the gap between the isomorphic establishment and the original causes. In relation to our research it is important to highlight how institutionalized isomorphism “… confers a cognitive form of legitimacy to the organization and further distances the codes from their moral foundation” (Long & Driscoll, 2008). It is because of this potential disconnection from the moral foundation that we strive to discern the axiological dimension of the ethical statements of MNEs. Besides as many authors warn, codes of ethics are not always bred by ethical reflection. For example, Mcdonald recalls Starr (1983) who points out that “Attempts to links codes of ethics in ethical theory do not appear to have gone far” (Mcdonald, 2009, p. 349). Nevertheless, it is interesting to notice an apparent paradox, for even if “… ethical theory has often not featured significantly in the development of codes of ethics on the domestic front […] this appears not to be the case for the development of international codes” (Mcdonald, 2009, p. 351). Actually, when it comes to think about making ethical proclaims in

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international business, it seems that MNEs that operate in different cultural, political, and legal contexts must go beyond the promulgation of codes that adjust to domestic requirements, and look for more cosmopolitan guidelines, probably based on philosophical and ethical reflection. Indeed “International codes have been more successful in drawing in ethical theory” (Mcdonald, 2009, p. 351), and thanks to the help of philosophers concerned with the field of business ethics that relativist positions can be dealt with in order to advance to a more universalistic ethical language that helps reduced inner tensions among the multiple stakeholders of companies that operates worldwide. When we acknowledge the trend to incorporate ethical language in the international economic agents, it becomes clear that MNEs become the best ground to study how ethical theories could actually associate with ethical statements, in whichever form they take; be it in those more general and strategic, or in those statements where we can expect more theoretical elaborations pertinent to the field of business ethics.

Ethical Theories Among the ethical theories that have permeated the field of business there are two very significant conceptions, not only because they could be applied at the individual, organizational, and institutional level, but also because they are built from different perspectives. Adopting other authors’ developments, Fisher and Lovell propose an axis contrasting principles and policies to ultimately present what are known as deontological and teleological ways to conceive ethics (Fisher & Lovell, 2006, p. 100). From the deontological perspective, it is principles that dominate. Within this category Fisher and Lovell include Kantian, and Rights and Justice based theorizations. A principle is seen as “a standard that is to be observed, not because it will advance and economic, political or social situation, but because it is a requirement of fairness or justice or some other dimension of morality” (Fisher & Lovell, 2006, p. 100; evoking Dworkin’s definition). By contrast, teleological refers to ulterior or distant purposes, thus fitting under the label of policies (which evoke goals to be achieved), and highlighting the utilitarianism of Bentham and Mill. In short, deontological ethics are based on principles that have to be formally sustained, while teleological ethics develop upon the aspiration to

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achieve some end results. While the first wants to assure pulchritude about the means, the second is mostly concerned with the ends. Our intend is not to exhaust the contrasting perspectives which have been extensively documented, but to use their semantic richness to make sense of the diverse universe of values that we expect to find once we analyze the key public statements of MNEs. Basically we want these theoretical perspectives to nurture the analytical horizon and to extract from them all possible concepts and notions that will help us categorize what MNEs express in their visions and missions. In other words to formulate a deductive framework, which we want wide and comprehensive but still open to emergent phenomena, as we shall indicate in the methodological section. Stakeholders and Values The values espoused by organizations might serve many purposes, intended or nonanticipated, explicit or implicit. In order to grasp a better understanding of the ultimate effects of the ethical statements asserted by MNEs the results will be very interesting to discern: who could be their main beneficiaries?; what different values imply for different actors; for whom are they proposed? In general terms the discussion could be framed between the opposite views articulated by Milton Friedman and Edward Freeman. Originally published in 1970 Friedman posited that besides following the law, corporate executives as employees are held responsible only to the shareholders and their desires (2000, p. 233). This view implies that the only right that matters is the right to property, and the main concern is the linear generation of profits. A more complex interpretation of the realm of business came in the 1980s when Freeman challenged the assumptions of managerial capitalism and argued that “managers bear a fiduciary relationship to stakeholders”, that is, “… those groups who have a stake in or claim on the firm” (Freeman, 2000, p. 247). He contended that corporations should be reconceptualized by questioning: “For whose benefit and at whose expense should the firm be managed?” (Freeman, 2000, p. 247). By denouncing the limits and negative effects of privileging only shareholders, Freeman defends the concept of stakeholders, which includes all parties that might benefit or hurt from the firm’s actions and/or omissions. By acknowledging their “rights to make claims” Freeman legitimizes diverse stakeholders vis-a`-vis the corporation.

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We paraphrase Freeman’s question and ask: “For whose benefit and at whose expense are values espoused by MNEs?” We leave the question open to an inductive analysis of the MNEs statements, but for its comprehensive power, we would like to highlight Svensson and Wood framework which has resulted from analyzing codes of ethics artifacts (2008, pp. 263
267) and reinforces Freeman conceptualization. Friedman is right in the sense that executives should not spend the company’s profits in a way that raise the price to customers, or reduce the salaries to employees, or indirectly tax shareholders and citizens; but he might be wrong when he denies other parties to respect their rights. For the sake of corporations, the importance of stakeholders could hardly be exaggerated, for sustainable strategies and businesses necessarily have to beware of dynamic environments, populated by multiple interacting actors, not only capital providers. Focusing on values, we recall Freeman in another paper: We intend to defend and develop three points that these critiques of strategic management tend to ignore. First, values have always been a crucial element of models of strategic management. […] Second, the critics often ignore the interdependence that underlies strategic choice and, thus, the importance of the values of a diversity of strategic actors. In simple terms, strategic management only makes sense in the context of interdependent choice. Third, values are not slogans, and they are not mysterious entities. They are both reasons for and causes for action. (Freeman et al., 1988, pp. 822
823)

Freeman demonstrates that the managerial team of a company bears a fiduciary relationship to multiple stakeholders, and not only toward stockholders (Freeman, 2000). Following his argument and his previous work with Reed, we evoke their distinction between “narrow” and “wide-definition” of stakeholders; understanding by the first “those groups that are vital to the survival and success of the corporation” (2000, p. 249); and including in the wide definition “any group or individual who can affect or be affected by the corporation” (2000, p. 249). Taking this into consideration, we use Freeman’s stakeholder model of the corporation in order to visualize all possible stakeholders, in order to compare their presence in the vision and mission statements. Thus key stakeholders to be tracked are owners, employees, customers, suppliers, the local community, the corporation itself, and the management team, which play a dual role, because besides being employees, managers are the guards of the corporation as an separate entity.

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METHODOLOGY We have combined induction and deduction. Although we looked for the key terms that represent ethical theories, diverse stakeholders, and obviously the values explicated by the reviewed sources, we procured a spontaneous reading of the ethical statements in order to facilitate the emergence of values and themes of potential interest. In the inductive approach we followed the case-based inductive content analysis of corporate ethics artifacts conducted by Svensson and Wood (2008). Supported by Atlas.ti, we recorded all the official statements of the companies, and carefully marked significant contents. The software facilitated the task of tracing key quotations, and the coding of meaningful notions and concepts that nurtured categories, and the measurement of frequencies. Although the research was mostly qualitatively oriented, it builds some basis for ulterior longitudinal and comparative studies with more quantitative analysis. The sample of MNEs was selected from the updated rankings offered by the main economic publications in Colombia (Dinero, 2013; Portafolio, 2013; Semana, 2013), out of which, we focused on the vision and mission statements of the top 50 corporations. After selecting the top 50 companies in those rankings, we searched through their web sites procuring a simultaneous gathering of information, in order to enhance comparability. All the vision and mission statements that were gathered were then analyzed, selecting the most significant quotes and coding them. It is important to notice that out of these four companies did not have the vision and mission statements available in their web site, and three of them, forwarded the search to their headquarters. The coding was done both inductively (highlighting the most significant expressions, values, and attitudinal traits that emerged, as they were found) and deductively, according to the generic codes derived from the theoretical framework that resulted from reviewing the main business ethics theories. Afterwards, the most frequent codes and most representative quotes were identified,1 in order to prepare the interpretation of all documents. Based on the evidence provided by the statements, and on the conceptual meaning of the different theoretical orientations, we interpreted the contents within the whole set of vision and mission statements, associating the quotes and codes to the diverse theoretical approaches. Since this is more a qualitative study, meaning was searched and constructed through a narrative that intended to link the contents of what the

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diverse MNEs wrote on their web sites, by revealing the spirit of those statements. Thus we searched for content meaning, and not statistical significance, although we used frequencies in order to identify the values most commonly expressed. Among the research limitations, it is important to mention that the comparability of the vision and mission statements is reduced because it is sometimes offered at the level of headquarters and sometimes at the national level. Also the fact that the statement expressed verbatim in English, French, and Spanish creates room for polysemic interpretations when comparisons are made. Nevertheless, this enhances reflexivity and a deeper care when interrogating the meaning of diverse concepts, which could be a source of strength when exploring pedagogic discussions of the results.

FINDINGS The research findings are presented in two sections. The first corresponds to the analysis of the vision statements and the second presents the analysis of the mission statements. Within each one, the presence of stakeholders is discussed.

Analyzing the Vision Statements The content analysis of the vision statements identified different sets of values related to different ethical orientations and stakeholders. Here we discuss those findings by categories, considering semantic links and the frequency of their presence and the importance given to them. Teleological Values Within the vision statements we found multiple elements which can be directly linked to the teleological perspectives, because they have a clear utilitarian orientation. Concerns for innovation, change, creative solutions, enhanced production, and strategic planning support the most in the utilitarian perspective. These are soundly reinforced by conceiving ‘business as an end’, or ‘humans as a resource’. The drive to ‘reduce costs’, or to promote ‘continuous improvement’, ‘efficiency’, ‘productivity’, ‘profits’, and ‘return on investment’, all appear mentioned in a context where the ultimate goal is to improve what is

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assumed to be as the most desired outcome for implied stakeholders; which prima face seem utilitarian. The overall language and tone of many vision statements fit well with the utilitarian perspective, for they stress ‘means’ toward the achievement of a goal and look for ‘maximization’ (e.g., of production). They talk about ‘reaching strategies’, or ‘contributing to society’. The notion of leadership is present many times, some of which are clearly linked to utilitarian performance, for they envision gaining market share, or growth, mostly in terms of income; in other words leadership at the service of an ulterior utilitarian goal. When achievements are presented within this perspective, they tend to support the underlying belief that more is better. For example, in terms of technology or creativity, they are not seen as virtuous achievement, but more as utilitarian contributions to provide more goods or services. Deontological Values Reading through the vision statements, several notions connected to deontological values emerge. The presence of elements, like ‘moral imperative’, ‘Eleven Commandments’, ‘Basic business principles’, evidence a sense of duty which is one of the key components of the deontological perspectives. This is compatible with the belief on a broader ‘ethical responsibility’, based on principles, and somehow unconcerned about the consequences. In fact, the explicit commitment to principles like ‘transparency’, or to a set of duties that shall nurture a ‘corporative culture’, is by itself proof of deontological orientation. In this sense it is interesting to see the case of one company that engages in what could be interpreted as a ‘duty-based autopoietic’ enactment challenge, to fulfill a set of self-imposed duties. In this line of thinking we interpret how some MNEs seek ‘sustainable’ development and relations with the natural environment, as well as the ‘recognition’ of other agents from the socioeconomic field where they operate. Analogously, assuming the identity of being a ‘global player’, and several allusions that companies make to their belonging to world, reflects a cosmopolitan spirit that reveals deontological orientation. Probably the best indicators of deontological orientation are the several allusions to ‘the world’, or the desire to contribute to ‘a better world’, because these are constitutive of the universal aspirations constitutive of deontological perspectives. Virtue and Leadership Let us remember that ‘virtue’ depends more on the character and actions of the actor/agent being considered, than on the ultimate goals which are

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intended to be achieved, or on strict attachment to some normative principles, like teleological or deontological ethics will respectively do. When we analyzed the vision statement, we found many features that allude to virtue ethics, and especially to ‘leadership’. It is very interesting to notice that these notions do not appear so much in mission statements. In the contemporary business world, leadership and excellence are often seen as the embodiment of virtue. Specially from the mainstream western perspective (which, as globalization advances, seems to be colonizing business reasoning in other parts of the world), the virtuous business person or organization is the one that is assertive, excellent performer (aristos), and is always trying to achieve the most, striving to be her/his best. We found more than 16 allusions to leadership, for example, in terms of ‘market share’, ‘product’, or ‘brand’. We interpret this thirst for leadership as an expression of virtue, because it is inspired by principles or ultimate goals. It is basically based on the drive for performance and excellence. Companies expressing this kind of willingness to become leaders seem eager to build a character that will enable them to become “the best company”, “the best employer,” and the “best partner” in the scenarios where they operate. Related to this leadership purpose, we found the desired of companies to receive the recognition of other agents in the contexts
to ‘be identified as’ leaders. They could be described as ‘reputation oriented’, in terms of ‘brand’, or just plain acknowledgment of their outstanding position by others. Besides the explicit leadership aspiration, we found several other notions that could be expressed as traits of character that reflect sensibility about virtuous ethics. At the individual level, virtue seems to be pursued through ‘self-control’, ‘autonomy’, and the correlated ‘freedom’ of action and ‘opinion’ (some of which could be paradoxical, contradictory, and problematic within business dynamics); and of course the invitation for each employee of “being a model” or reference. At the organizational level, there also exists the intention of turning the company into ‘a model’. Likewise the desire to obtain ‘competitive advantage’ and ‘level’, or to become a “great company,” reveals what we can define as the virtue orientation for the contemporary business world. Consistently with these, we found the willingness to ‘take on challenges’, and ‘not taking not as answer’, and the willingness to perform at ‘international standards’. From this perspective ‘quality’ is not at the service of utilitarian ‘maximization’ but the prestige of the agent. The same could be said of the

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pursuit of ‘responsibility’, and the provision of ‘service’, which are done more for the sake of virtue and eventual recognition. The fact that ‘recognition’ is given a lot of importance by the MNEs studied is consistent with aspirations and commitments for ‘greatness’ and the thirst for ‘vanguardist positions’, for example, in terms of ‘responsible mining’; or the desire to be a source of ‘inspiration’, or to ‘lead’ in terms of performance. All these manifestations are more related to virtue than to the adherence to any given set of ethical principles or pursue of goals. Others Besides teleological and deontological orientations, in the vision statements we found clear indication of other ethical concerns: a couple about ‘justice’ and ‘dialogue’, but mostly about virtue. Within this last category multiple evocations of leadership emerged, such as explained below. When justice is evoked, it is basically associated with fair dealing and fair relationship with their business partners. Dialogue is mostly evidenced by giving employees and other parties the ‘opportunity’ to express their points of view, and to foster ‘participation’ as a constant in the daily life of the organization. Stakeholders within Visions Here we present the allusions to diverse stakeholders within the vision statements, according to their frequency of appearance. Employees: The most frequently mentioned category of stakeholders (STH) is ‘employees’. Regarding them, we found in total seven related notions that vary from the purely instrumental to the most idealistic. For example, concerns for training and empowerment are presented as efforts to improve productivity, but are not supported by any ethical reasoning. In the idealistic sense, we found explicit visions that relate to various ethical orientations, that is, some want to make work pleasant and joyful, even ‘passionate’ (utilitarian), or make work a team activity, which could be interpreted either as virtuous (because of the fit, and reference to a social group), or deontological (because of the expectation to fulfill a duty). The desire to be the ‘best employer’ that some companies express could be included in both of these categories (virtue and duty). In other words, it is important to highlight that in the vision statements, there are some clearly instrumental approaches toward employees, but some others are based on principles or other ethical aspirations. Customers and Clients: The second most frequently alluded category of STH is clients and/or customer, with four clear exclusive references. In

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these, promises are made to satisfy or captivate them through enhanced service or increased supply. Shareholders: Surprisingly enough, shareholders were specifically mentioned just twice in the vision statements. Somehow questioning the conventional wisdom, which would predict they constitute the most privileged party. Of course, by envisioning the bridge between service to clients and return to investment, it is possible to see the ultimate benefit for shareholders. Suppliers: Regarding suppliers we found just one specific allusion, where one company aspires to be the ‘best partner’ for their business counterparts. This is somehow worrisome, for it might reflect a lack of integration of these foreign MNEs with potential local business partners. Is it selfishness or perhaps an indication that some of these companies belong to multinational networks where foreign subsidiaries owned by the same holding tend to be self-sufficient? If any of those would be the case, that is not really problematic from the ethical point of view, but it might be revealing about the limited contribution to the market and national economic dynamics by the part of these MNEs. Plurality of Stakeholders Besides the presence of specific stakeholders, it is important to clarify that in general terms, the vision statements tend to be quite comprehensive when evoking stakeholders. In contrast to narrow delimitations, we found most visions include a wide set of stakeholders. Some of them explicitly acknowledge several interest groups, starting with the community or society that host them, but advancing toward a more cosmopolitan perspective, sometimes mediated by some key values, like justice, fair dealing, etc., or inspired by some ethical orientations (like we discussed in the above sections). For example, some visions evoke simultaneously the importance of society, clients, workers, and employees; and up to five different interest groups. While mentioning the local community or background society some MNEs propose visions that sound virtuous in tone. The overriding concern in the vision statements seem to be more cosmopolitan (which can ultimately be considered deontological, if we follow Kantian reasoning). We arrive to this conclusion because we found claims of companies that consider themselves a ‘global player’, ‘open’, ‘boundaryless’, and conceive themselves as being in the world. This deontological orientation is reinforced by such claims as being ‘people oriented’. Although somehow vague, the concern about people seems nonexclusive,

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and its inclusiveness reveals a deontological principle of respecting the dignity of all, without any discrimination whatsoever. Complementing the analysis we found that some MNEs express the explicit intention to contribute to ‘a better world’; this fact can be either interpreted as fulfilling a duty or as a utilitarian motivation to maximize welfare but in both cases as an explicit (although vague) desire to satisfy a wide set of stakeholders. In several quotes we find that diverse stakeholders are addressed, and in other ones we detect promulgations that suggest open approaches toward the surrounding environments. This could be interpreted as a lack of specific strategic approaches to key interest groups, which are expected to be addressed through very general and perhaps superficial terms, which might lead to ambivalence, and even voids in terms of criteria to arbitrate priorities.

Analysis of the Missions The content analysis of the mission statements identified different values that relate to diverse ethical orientations. In the following sections, these different sets are presented and analyzed following these perspectives and in order of frequency. Teleological Values within Mission Statements In relation to the teleological perspective we have found quite an array of notions and concepts that evoke the idea of teleological achievement, which could be intuitively related to utilitarian principles, but which not necessarily would pass a more rigorous examination. From a philosophical perspective, it is clear that the generation of some benefits for some parties does not necessarily lead to the maximization of benefit to all, therefore it would not be genuine utilitarianism, and which should strive to achieve the maximum benefits for the whole (and the correlated principle of reducing the negative effects to the minimum); but a common misinterpretation of it that confuses the profit seeking of a particular agent, with the capacity to maximize overall welfare. Somehow, this could be interpreted as a superficial approach, for none of the companies touch the issue of the externalities or other potential negative effects that they might generate. They only stress the initial benefit of increasing supply. It could be unawareness, lack of care, or even rude exaggeration of some positive effects, visible to most, but without a critical examination of the whole impact of their operations. This could be

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explained as an uncritical adoption of the general belief that economic growth is always correlated to an improvement of the quality of life, unquestioning its possible negative effects. It is interesting to note that among the notions with a utilitarian orientation the most frequently mentioned in the mission statements are evocations of well-being or prosperity, which could be considered utilitarian in the sense that they go beyond the mere interest of the company, and suppose a concern for the overall maximization of happiness for all participants of the system. Willingness to ‘innovate and change’, to enhance ‘quality standards’, ‘efficiency’, and ‘productivity’, clearly pursue ‘growth’, ‘profits’ and ‘financial value’ objectives, which can be achieved through increased sales that reflect wider ‘consumption’. Therefore, it is not surprising that companies put “knowledge at the service of production,” and value ‘industrial and commercial activity’ (imports and distribution) in order to augment the “supply of goods,” and make them more accessible to potential customers. One company even seems to foster a “Philosophy for Consumerism” making it look as a virtue, which is easy to promote in the contemporary world where “more satisfactory experiences” and “enjoyment of products” are presented as means to achieve happiness, perhaps the ultimate criterion proposed by utilitarian philosophers. Deontology within Missions Within the deontological perspective we find diverse quotes that evoke notions classifiable as duty-based orientation. Among these elements connected to deontological perspectives, ‘respect’ and ‘integrity’ appear the most. Respect appears in connection to the ‘natural environment’ and toward the ‘community’, somehow related to the desire to contribute to the development of both, and the intention expressed by some to be responsible toward several stakeholders. Respect appears as well associated to the concern for ‘Human Dignity’, and the will to support a ‘Healthy Life’. Integrity is seen by some as an attribute for the whole organization, but as well as a prerequisite for all the persons. And, we could argue, integrity is concomitant to sustainability, for this implies the preservation of any entity as such. The associations revealed by the content analysis of the missions set the tone for normative approaches toward the environment and diverse stakeholders, suggesting coherent platforms in the way some companies compose normative approaches while crafting their mission with solid deontological content.

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Virtue Ethics Values and orientations toward ‘excellence’, ‘leadership’ (somehow embodying the archetype of an efficient hero), or “enthusiastic commitment,” illustrate the fact that some MNEs do not claim to be, or not necessarily see themselves, as in the pursuit of an ultimate goal (teleological), or adhering to predetermined principles (deontological), but express a prevalence toward what could be considered virtue ethics. From this perspective, their mission is virtue-oriented when they seek balance between philanthropic and economic interests, when they care about gaining recognition, about demonstrating honesty and proper behavior, or when they see education as important. In other words, it is about the actions, the character, the behavior that demonstrates virtue and excellence, and this does not exclude it as a means toward either a utilitarian goal, by the means of providing satisfaction to different stakeholders; because one of the notorious features of virtuous actors is that they are at the service of a given cause. Similarly, the drive for excellence could be as well connected to the awareness that the business field in general, and business operators in particular, are part of, and must fulfill a social contract within, the societies where they operate, and by extension to the whole globalized community. In a couple of companies we found this conscious responsibility of fulfilling this social contract by the way they express their efforts toward sustainability and toward the ‘satisfaction of their associates and stakeholders’. When only shareholders are mentioned, other interpretations suggest ethical egoism or utilitarianism sharing Friedman’s belief that the greatest contribution of business to society is to generate profits. Other Ethical Orientations The mission statements also reflect values that escape the deontological and utilitarian perspectives. Although they are not necessarily exclusive, for theoretical purposes it is convenient to discuss them separately. Thus, we find several quotes that refer to virtue ethics, others that are compatible with a social contract interpretation, and some others related to ethics of justice or ethics of care. Justice and Care within Mission Statements: We found just a clear evocation of justice, when a company expresses that “We believe in a proper and fair relationship with our business partners.” And two which could be related to ethics of care, as when companies show intentions “to better know our people” or when they express consideration about the “inclusion and sensibility toward employees.”

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Stakeholders within Missions When the missions of the selected MNEs are analyzed, we find that mostly the mentioned stakeholder is set of clients/customers, timidly followed by shareholders and employees. Clients: When clients are mentioned, some interesting values are correlated, like loyalty and service, which somehow evoke virtue ethics. But we mostly find them associated to teleological values like satisfaction of needs and other expectations, value creation, and good price-quality relationship. Employees: When employees are mentioned, it is usually in terms of respecting their dignity or improving their performance capabilities to contribute to the organization. At first sight, this could be interpreted as a deontological concern, but ultimately it is impossible to ignore in the hypothesis an instrumental relation toward employees, subordinating their welfare to the ultimate goal of enhancing productivity. Shareholders: When shareholders are mentioned, it is done in a clear-cut utilitarian way, without any efforts to justify the decision. Under this perspective it is usually assumed, without much interrogation, that increasing shareholder value equals increasing the benefit for society. Suppliers: When suppliers appear within the text of the missions, there is no much detail about how they will be considered. Management Team: The fact that the management team is not mentioned in the mission statements should not be seen as a surprise from the strategic point of view, because actually managers are the ones in charge of enacting the mission, of making them come alive. Nevertheless, from an ethical perspective, all parties should be considered in such important declarative statements, in order to clearly specify the positions that companies would like to stand for. Community and Society: When society or community is mentioned, it is usually done in a vague way, without clear indications of how the company pretends to benefit them. Although the word ‘development’ appears, it does not include references to any ethical standpoint; from the context, references evoke mere economic growth which translates in a sort of utilitarian thinking. Stakeholders’ Presence It is interesting to note that although different stakeholders are mentioned within the missions, companies do not spell out how their fates could be mutually related. Of course, the mission cannot be all inclusive, but is most likely to find the stakeholders mentioned as a collection of actors, and not

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as a set of parties that share impacts (although different) because of the existence of a given company. From a truly ethical perspective, it would be interesting to see companies conceptualizing their connection to the fate of workers, shareholders, and society in general. It is evident that professional ethicists and philosophers do, but managers do not; which demonstrates the gap between both normative ethics and current business practices. In general terms, when stakeholders are addressed within the mission of the MNEs we have studied, the main orientation that prevails is that stakeholders are considered from mostly a teleological perspective; where the bottom line of the different relationships with them will be to achieve outcomes related to enhanced quality, efficiency, and ultimately profitability. Although some elements of deontology and virtue appear, most forms of interaction with different stakeholders (even through cooperation) point toward the achievement of results.

CONCLUSIONS AND RECOMMENDATIONS In general terms, the key strategic statements that MNEs promulgate in Colombia espouse multiple values and encompass a wide range of stakeholders. This could be interpreted as recognition of the need to transcend the short-term profit-seeking behavior and as a growing interest to enact sustainable values and include the interest of multiple stakeholders. From the ethical point of view, most values can be classified as either utilitarian, deontological, or virtue oriented, which demonstrates an interesting diversity of orientations. Nevertheless, it is interesting to note that no many MNEs express values related to justice, care, or dialogue. These findings might suggest that in many cases the strategic statements could be nourished by deeper consideration of ethical reflections, so the values exposed really reflect a commitment toward an intended pattern of behavior. Regarding stakeholders, we see that narrow definitions tend to prevail and reveal an opportunity to go beyond conventional allusions to employees and customer, and really develop strategic approaches to multiple stakeholders, so more inclusive management practices could be installed. For management this implies a plausible intellectual and ethical challenge, which consists in nurturing strategy with solid ethical grounds, and procuring an inclusive array of actors, so that it could be sustainable in the

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long term. In other words, top management should be able to conceive strategic and ethical approaches to the whole range of parties that could affect or might be affected by its actions and omissions. Companies should be aware that the values they espoused generate expectations to all stakeholders, who will react depending on the perception of being treated with dignity and respect, or instrumentally. Besides, their perceptions of possible scenarios for dialogue, fair treatment, and care might as well condition patterns of behavior and the building of mutually enriching and sustainable relationships. Companies’ purpose of profit generation will gain further legitimacy when principles like those promulgated by the Global Compact are sincerely embraced. There is a clear difference in motivation and procedure, where the mandate for management is to maximize investors’ return through the service to an external stakeholder (e.g., clients) than to pursue directly the narrow goal of profit maximization, which creates antagonisms between the company and its surrounding environment. It is our belief that genuine concern for the well-being of all stakeholders will result in sustainable and value-added relationships. In that sense, we highlight the importance of fostering deep thinking on ethical grounds, so the ambiguity that often appears on public statements of business corporations is transcended by going beyond carefully crafted public relations campaign, which does not necessarily rule out as unethical, but does not make it ethical, just because it sounds good. Although some might argue that there is a pragmatic underpinning supporting many strategic statements, we found no enough evidence of rigorous elaboration from an ethical or theoretical perspective. In cases like this, it might be more accurate to consider those statements as nonethically informed; sort of amoral. But this is even more problematic, for it leaves room for interpretations of lack of responsibility, or convenient superficial answers of those companies to their surrounding environments. This could be interpreted as a lack of specific strategic approach to key interest groups that are expected to be addressed through very general and perhaps superficial terms, which might lead to ambivalence, and even voids in terms of criteria to arbitrate priorities. The real capacity to implement the Global Compact principles require the top management of business corporations to reflect and to take an ethical stand, and to discern wisely how to really interact with all stakeholders. This implies a big challenge for business schools, which must promote deeper ethical thinking and awareness about the legitimate claims of all actors of the economic system.

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NOTE 1. We identify verbatim by using double quotation marks (“…”); and single quotation marks (‘…’) were used to signal the codes that were elaborated while analyzing the documents.

ACKNOWLEDGMENT My greatest gratitude goes to EAFIT who granted me time and resources to conduct this research. I also had the privilege of being nourished by the dialogues with colleagues and several groups of students, with whom we have observed the behavior of MNEs and discussed the importance of philosophical reflection in order to enrich business ethics. On special terms I want to thank the students, Juliana Castro and Natalia Raigoza, who helped to download and keep track of the MNEs’ information publicly available on the web sites, and to Maria Jose´ Gaviria, a very dynamic and clever assistant at our school, who has served as proof reader, and to my colleague Maria Alejandra Gonzalez-Perez, who has always encouraged me to keep combining research with the rest of my activities.

REFERENCES Andrews, K. (1980). The concept of corporate strategy (Rev. ed.). Homewood, IL: R.D. Irwin Inc. Bowie, N. (2000). The moral obligations of multinational corporations. In J. W. Dienhart (Ed.), Business, institutions, and ethics (pp. 471
483). Oxford: Oxford University Press. Dinero. (2013). 5 mil empresas. Dinero, June 14, 90-258. Esen, E. (2013). The influence of corporate social responsibility (CSR) activities on building corporate reputation. In M. A. Gonzalez-Perez & L. Leonard (Eds.), International business, sustainability and corporate social responsibility (Vol. 11, pp. 133
150). Advances in Sustainability and Environmental Justice. Bingley, UK: Emerald Group Publishing Limited. Fisher, C., & Lovell, A. (2006). Business ethics and values: Individual, corporate and international perspectives (2nd ed.). London: Prentice Hall. Freeman, R. E. (2000). A stakeholder theory of the modern corporation. In J. W. Dienhart (Ed.), Business, institutions, and ethics: A text with cases and readings (pp. 246
255). Oxford: Oxford University Press. Freeman, R. E., Gilbert, D. R., Jr., & Hartman, E. (1988). Values and the foundations of strategic management. Journal of Business Ethics, 7(11), 821.

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Friedman, M. (2000). The social responsibility of business is to increase its profits. In J. W. Dienhart (Ed.), Business, institutions, and ethics: A text with cases and readings (pp. 233
237). New York, NY: Oxford University Press. Gonzalez-Perez, M. A. (2013). Corporate social responsibility and international business: A conceptual overview. In M. A. Gonzalez-Perez & L. Leonard (Eds.), International business, sustainability and corporate social responsibility (Vol. 11, pp. 1
35). Advances in Sustainability and Environmental Justice. Bingley, UK: Emerald Group Publishing Limited. Long, B., & Driscoll, C. (2008). Codes of ethics and the pursuit of organizational legitimacy: Theoretical and empirical contributions. Journal of Business Ethics, 77(2), 173. McCraw, H., Moffeit, K., & O’Malley, J. (2009). An analysis of the ethical codes of corporations and business schools. Journal of Business Ethics, 87(1), 1. Mcdonald, G. M. (2009). An anthology of codes of ethics. European Business Review, 21(4), 344. McKinney, J., & Moore, C. (2008). International bribery: Does a written code of ethics make a difference in perceptions of business professionals. Journal of Business Ethics, 79(1
2), 103. Portafolio (2013). 1001 Compan˜ı´ as del An˜o en Colombia. Portafolio, May
June, 73-242. Semana. (2013). Las 100 empresas ma´s grandes de Colombia. Semana, May 13, 106-322. Starr, W. C. (1983). Codes of ethics: Towards a rule-utilitarian justification. Journal of Business Ethics, 2, 99–106. Stevens. (1994). An analysis of corporate ethical code studies: Where do we. Journal of Business Ethics, 13(1), 63. Stevens. (2008). Corporate ethical codes: Effective instruments for influencing behavior. Journal of Business Ethics, 78(4), 601. Svensson, G., & Wood, G. (2008). International standards of business conduct: Framework and illustration. European Business Review, 20(3), 260.

FIRST CONTACT PILOT PROGRAM: A CONTRIBUTION FOR THE DISSEMINATION OF THE GLOBAL COMPACT IN MEDELLIN, COLOMBIA Juan Carlos Diaz Vasquez, Jaime Alberto Ospina Gallo and Margarita Marı´ a Montoya Pela´ez ABSTRACT Purpose
The purpose of this chapter is to describe the First Contact Pilot Program carried out in collaborative work between ISAGEN, a partly government-owned firm within the energy sector, and Universidad EAFIT, a private university in the city of Medellin. Design/methodology/approach
The First Contact Pilot Program was developed following an existing model implemented at the Universidad Externado de Colombia, a private university located in Bogota´. Nevertheless this pilot program took methodology elements from ISAGEN and

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its suppliers relationship policy. Additionally content concerning the Global Compact and its principles was provided within the subject “Senior Seminar.” Students from this subject were voluntary participants in the pilot program. Findings
The chapter provides a brief survey conducted by ISAGEN wherein some findings are visible. In this survey the First Contact Pilot Program participating entrepreneurs were asked about their motivations in order to voluntarily be part of the program and they recognized the great importance of this initiative for their businesses to change lots of practices and to become part of a global market culture. Research limitations/implications
This first version of the program was at the same time a way to invite other big organizations in the city of Medellin to take part in such activities. Massive participation, not only from the big players but also from small and medium enterprises, is necessary to achieve the goal of spreading the Global Compact’s principles. In the longer run it assures the creation of a fairer market place where all players in all sizes contribute to respect and promote a core of best practices in business. Practical implications
One of the most remarkable implications by designing and implementing the pilot program was the fact of having interactions between International Business Students and local small and medium firm managers together talking about the Global Compact and the way it may improve many aspects within the firm and toward stakeholders. Originality/value of the chapter
A particular feature of this chapter to be considered as original and valuable is the establishing of networks for the dissemination of the Global Compact’s principles. Collaborative work among private and public sectors and with higher education institutions in fostering the transformation of business practices to achieve a fairer global market place constitutes the aim of this particular pilot program. At the same time this pilot program embodies the spirit of the UN PRME in giving the students of International Business the opportunity to develop their capabilities to become the future managers aware of the sustainability value for business. Keywords: Global Compact; networking; dissemination; stakeholder’s engagement; sustainability

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INTRODUCTION We believe that companies are made up of people who exist to meet the needs and expectations of other human groups, together they form the society. So companies have an ethical imperative to create economic value and wealth for stakeholders and society, contributing to social development and environmental protection, as well as the creation of conditions to bring about fairer markets, under equal opportunities for all participants. In this sense, ISAGEN and Universidad EAFIT have in recent years engaged in different global and regional initiatives to promote good practices that allow the generation of transformations that contribute to building a more just, transparent, and equitable society (ISAGEN
Compromiso con la Sostenibilidad, 2014). We promote the Global Compact (ISAGEN
Pacto Mundial, 2014) initiative among our stakeholders, as it has become a constant guide for the activities, programs, and projects we develop. We have engaged in building a relationship policy for suppliers defining principles such as diversity, consistency, openness, and collaboration. Suppliers are expected to assume related sustainability commitments, which include ethical, labor, environmental, and human rights issues, on a voluntary basis. This generates a dynamic that allows suppliers to integrate with different concepts of corporate social responsibility (CSR), allowing small and medium enterprise (SME) insertion in a fairer and competitive market that not only aims to create and but also maximizes economic value (Gonzalez-Perez & Leonard, 2013). The First Contact Pilot Program between Universidad EAFIT and ISAGEN is an initiative designed to strengthen compliance with ISAGEN’s minimum standards of sustainability by suppliers, in order for firms to internalize practices deployed in the 10 principles of the Global Compact. It also facilitates networking, thereby providing the integration of different sectors such as academia, local organizations, and the private sector. The purpose of this chapter is to systematize methodological activities carried out in the first version of pilot program, to serve as a guide for the following versions to keep strengthening work in collaborative networks. This chapter describes the vision for relations with suppliers, as well as the university’s efforts to train students in the International Business program of topics such as sustainable development and global initiatives, which can be implemented locally. To undertake this pilot program, it was necessary to develop certain methodologies, supported by specific theoretical foundations, which are part of this chapter. This chapter also includes a summary

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of the survey performed with different companies involved, where we can see the great value placed on the issues proposed by the Global Compact, demonstrating that it is indeed possible to conduct such initiatives in complex environments. Having the Global Compact as the core for conversation between suppliers and students, we intend to train our future business leaders, EAFIT students, through the opportunity to disseminate this knowledge to a group of ISAGEN suppliers. We recognize the commitment, seriousness, and willingness of participants who freely and spontaneously took the time and effort to participate in this initiative, allowed us to generate a series of recommendations to be implemented in future versions, with special concern for the local context.

THEORETICAL-CONCEPTUAL FRAMEWORK The available literature on the issue of CSR points out the fact that there is no consensus on the definition of the concept, since most of what has been written on these issues appears to be descriptive rather than positivist (Campell, 2007). Some authors consider CSR concerns as a response to the increasing disparities resulting from the globalization phenomenon (Renouard & Lado, 2012; Scott, 2007; Swift & Zadek, 2002). In this line, one of the core aspects easily identified when reviewing the literature on CSR is considering the integration of different actors (civil society, business, and government) to diminish the growing gap between developed and emerging economies and the social consequences of these differences. As shown by Gonzalez-Perez and Leonard (2013) there is enough evidence in the literature supporting the argument to consider CSR as a global reaction integrating the public and private sectors, to reach a level of “planetary bargain” where the relation between economic actors and civil society is considered as a symbiotic one. This assumption brings together not only the achievement of economic goals but also the social implications of development (Gonzalez-Perez & Leonard, 2013). The most real and vivid expression of this trend took place in 1999 when the UN Secretary-General launched in the World Economic Forum in Davos probably the most revolutionary initiative in the search for a global fair market. The adjective “revolutionary” is well deserved here due to the scope of this initiative across three dimensions. The first is the audacity of this proposal coming from the UN which from its very beginning

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constituted the opposite shore of business defending its neutral position and its willingness to foster social development among nations. The second is a paradigm shift regarding global governance, since previous models of cooperation for development were not actually effective. And the third is the notion of joining forces to achieve a world economy where fair competition is key for development (The´rien & Pouliot, 2006). The first aim of Global Compact, as a corporate citizenship initiative, is to gather organizations from the public and private sectors to embrace, apply, and disseminate within their sphere of influence a core group of principles covering issues such as human rights, labor standards, environment protection, and anticorruption. The second objective of the Global Compact targets the creation of a forum to facilitate cooperation of different economic and social actors in order to develop the creation of best practices based upon the 10 principles, containing values taken from other international conventions. These two objectives are crucial to understand the framework on which this chapter is anchored. The first objective could be summarized, as stated at the UN Global Compact Web page, as follows: “The UN Global Compact works toward the vision of a sustainable and inclusive global economy which delivers lasting benefits to people, communities and markets” (United Nations Global Compact, 2014). The application and dissemination of the 10 principles by large companies throughout their supply chain contributes to this vision, ensuring that all players know and respect the same core of rules. On the one hand, the replication of best practices by smaller companies related to bigger ones contributes in the long run with the confirmation of a sustainable and inclusive market, but also in the short run it builds up a business environment where fair competition is possible. By the same token, Principles 3, 4, 5, and 6, which shape the group of principles dealing with labor, also promote fair competition in the working environment. If all companies
big, medium, and small
engage in respecting these four principles inside their organizations, competition among companies would be fairer. This is exactly what the Global Compact and the companies engaged in this initiative are seeking to achieve. At the same time the 10th principle “Business should work against corruption in all its forms, including extortion and bribery” (United Nations Global Compact, 2014) in its objective points out the challenge faced by companies in joining government and civil society to realize a more transparent global economy, which is also a fundamental ingredient to build up a fair competition in the business environment.

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The Global Compact’s second objective, related to the creation of networks in order to promote and disseminate the principles containing guidelines for best practices in business, is also essential to understand the case presented in this chapter. Great emphasis has been made in the aspect of collaborative work among business, government, and civil society as a key factor to accomplish the goals proposed by the Global Compact initiative. This collaborative work is inspired by the UN voluntary work undertaken by people and organizations without any kind of reward. The Importance of Voluntarism (United Nations Global Compact, 2014) is well described by the UN as a way to understand the spirit of the Global Compact as “… a complement rather than substitute for regulatory regimes” (United Nations Global Compact, 2014). This sentence clearly describes the way collaborative work must be carried out so that many other organizations inspired by various initiatives engage themselves in applying and promoting the Global Compact’s principles. The “First Contact” Pilot Program documented in this chapter is an instance of the two previous objectives pursued by the Global Compact initiative. In the first place because the leading organizations ISAGEN and Universidad EAFIT are setting an example on best practices regarding business and educational issues, and secondly because the invitation they are offering to other organizations, ISAGEN suppliers in this particular case, is a way to disseminate the core principles of the Global Compact. By doing so, many companies in the city are changing their practices to comply with what the Global Compact suggests and recommends, and International Business students from the Universidad EAFIT are developing a greater awareness in CSR and sustainability issues to apply them in their professional lives.

PILOT PROGRAM PRESENTATION Background The pilot program was based on the experiences and activities of the pilot study that the Universidad Externado de Colombia (Primeros pasos en RSE
Universidad Externado de Colombia, 2014) has been conducting since 2007. It has three objectives: 1. Support the management training of students, in order for them to conduct responsible business management in the future.

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2. Encourage the short- and medium-term implementation of social responsibility criteria in SMEs. 3. Learn about the performance, practices, and management styles of SMEs in order to improve strategies, methodologies, and tools that aim to consolidate the sustainable competitiveness of these enterprises. This experience (CECODES, 2014) is used to generate a methodology and guidelines for the design of a pilot program to replicate the experience in other organizations in the region. Nevertheless this pilot program is undertaken by two very important institutions in the city of Medellin. The nature and proposals of both are briefly described in these following paragraphs. Universidad EAFIT It is a very important university in the city of Medellin and particularly its business school is a reference in the region regarding management education. With more than 50 years of presence through its commitment toward excellence, the university has earned the recognition of the community and the certification from the government as a high-quality educational institution. EAFIT University has been working in bringing solutions to the industry sector through the education of managers and professional awareness of today’s challenges. As for the international projection of the students the university has clearly defined itself as a university open to the world. This particular feature drives all the efforts on connecting all activities to a global context therefore to join international initiatives such as the Global Compact is part of the university’s spirit. Making part of the Global Compact the EAFIT University is aware of the key elements in education for the future leaders. These elements comprise an ethical position on decision-making, awareness of the environmental challenges businesses are facing now, and sustainability as a part of every managerial action in order to assure the well-being of future generations. ISAGEN ISAGEN undertakes the construction of massive energy generation projects, produce and sell energy in order to meet clients’ needs and create business value. It is the third largest energy generator in Colombia, with 16.45% participation in Colombia’s electrical grid and one of the main participants in the electricity market.

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ISAGEN is convinced that companies are made up of people who exist to meet the needs and expectations of other human groups forming together the society. So companies have an ethical imperative to create economic value and wealth for stakeholders and society, contributing to the social development and environmental protection. A development that balances economic growth with social development and environmental protection not only depends on policies of state or government programs, but it is also a commitment by citizens and businesses. ISAGEN in recent years has joined different global and regional initiatives which promote sustainability of good practices that allow the generation of transformations that contribute to building a more just, transparent, and equitable society.

PILOT’S GENERAL OBJECTIVES EAFIT
ISAGEN Validate further actions to apply a permanent program for the dissemination and application of the Global Compact principles, so that it can be implemented in a regional context.

Pilot Methodology EAFIT
ISAGEN We applied a simple methodology for conducting the relations process between students and suppliers within the framework of collaborative work between EAFIT and ISAGEN.

Phase 1: Process Design Identifying stakeholders and designing activities are needed to carry out the pilot program’s activities. In order to do so we were thinking how to provide spaces for the building up of relationships needed among the different actors that allow to have a common understanding of the programed activities. The design process was conducted in conjunction between EAFIT and ISAGEN, opting for voluntary participation from both companies and students. The efforts are focused on a minimum of a three face-to-face meetings, wherein it would be possible from the students to explain the basic concepts of the Global Compact inviting people of the chosen firms to reflect on the aspects covered by the 10 principles.

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It was determined that a maximum of four students will be sent to a company and that in accordance with the first results, it will subsequently be validated whether the program will continue, in order for it to be extended to other universities and companies in the region (Table 1). Specific Pilot Program Objectives
Provide understanding of the Global Compact and ISAGEN’s supplier relations policy to a group of companies and identify whether they can implement it on their own business.
Generate new learning opportunities for students outside the classrooms in collaboration with ISAGEN’s SME suppliers.
Generate recommendations for companies to take action on the implementation of elements of the Global Compact.
Expand networking in order to carry out actions in compliance to the Global Compact.

Phase 2: Invitation to Voluntary Participation in the Pilot Program Firms were invited to participate in the pilot program mostly because they met the requirements of being ISAGEN’s suppliers and being members of the supplier’s network supported by ISAGEN. Understanding the level of awareness on these issues among the different stakeholders is essential to defining the continuity of the pilot program, for its subsequent transformation into a full program. From the side of students, senior students taking the Senior Seminar subject were invited to participate on the pilot program, because most of the content of this subject deals with issues such as CSR, corporate governance, and corporate citizenship. Getting the basics on

Table 1. Pilot Program Stakeholders. Stakeholders EAFIT Students ISAGEN ISAGEN suppliers (SMEs, companies)

Description Faculty guide, methodological approach, and specific knowledge of the issues to be handled. Active students from the academic community. International Business Undergraduate program. Company engaged in reporting aspects of the Global Compact. Small companies that are ISAGEN suppliers.

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the Global Compact as a Corporate Citizenship International Initiative, the students can voluntarily engage in the program for them to witness the reality of SMEs regarding the main aspects covered by the Global Compact, such as human rights, labor standards, environmental protection, and anticorruption practices.

Phase 3: Discussions and Meetings First Meeting at ISAGEN The purpose of this meeting is the recognition of the participants, students, and firms through an exercise where each of the companies’ portfolios are presented through small business meetings, where it is ensured that all students are aware of all the companies participating in the pilot program. For this meeting, the Relationship Meeting Methodology developed by ISAGEN was applied. Firms were standing in a round table explaining business aspects such as the following: deliverables, offer, support, experience, and customers. These elements allow the participants to quickly understand how each firm understands its business commitments. Students were running around listening to the aspects presented by each firm. Once all students attend all the firm’s presentations, they voluntarily decided the company they are motivated to work with. Meeting No. 2
Conducted by Students We promote participation in interactive dialogue among the participants. This meeting includes a visit to supplier facilities, a brief of the 10 principles of the Global Compact, and an interactive chat with supplier managers on different issues regarding how they can use these principles to improve different business aspects. Visit: Students agreed with the selected company to visit their facilities, with the aim of taking information on the application of the 10 principles of the Global Compact and interact with staff regarding potential practices to be implemented, improvement actions, and/or practices currently applied that should be improved, maintained, or permanently eradicated. Meeting No. 3
Conducted by ISAGEN’s SME Suppliers This meeting is conducted by the SME supplier, and shows students what they are already doing, of the 10 principles of the Global Compact.

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It is an opportunity for companies to discover by themselves what elements are not covered or are pending and are ready for implementation. There is open interactive dialogue with students, expressing everything that could be done to comply with the 10 principles of the Global Compact.

Phase 4: Conclusions The students have to give a final presentation regarding all processes involved in the relationship with their companies and report the level of understanding and commitment observed for future implementation of the 10 principles in each ISAGEN supplier. This also includes feedback from business owners.

PARTICIPANTS SME Suppliers From the supplier relationship group, ISAGEN promotes the building of supplier networks to enhance collaboration and promote adoption regarding sustainability and other commitments aimed at building a fairer, transparent, and equitable society. A group of volunteer suppliers from these networks was taken as base to conduct the pilot program with the premise “We all contribute/We all win by understanding the Global Compact.” Nine of them finally took part in the pilot program due to availability and the attractiveness of working with students. Managers from the companies who have decision-making power participate; these are volunteers from ISAGEN’s supplier companies. These companies have different conditions, sizes, and lines of business, and are grouped by supplier networks (Table 2).
Engineering and Maintenance Supplier Network: (RIM) Founded 2013, with 18 supplier members, 6 of them accepted participation 33.3% of the total.
Branding and Communication Supplier Network: (RAM) Founded 2012, with 30 supplier members, 3 of them accepted participation 10% of the total.

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Table 2. Supplier

ISAGEN Participant Suppliers. Network

Quick Description of Business

Polytech S.A.S.

Engineering and Maintenance Supplier Network/Member (RIM)

Zeiki Comunicaciones

Communications Partner Network (RAM)

Maquinamos

Engineering and Maintenance Supplier Network/Member (RIM)

INRECA

Engineering and Maintenance Supplier Network/Member (RIM) Engineering and Maintenance Supplier Network/Member (RIM)

Company dedicated to the production and commercialization of engineering plastics in the Colombian and Latin American markets. Serves the mining industry, cement, paper, sugar mills, and bottling industry (Polytech, 2014) Services supplier, from the perspective of a global and sustainable environment, in various economic sectors and branches of engineering, management, and environmental and social sciences (Zeiki
Consultores en Gestio´n Social y Ambiental, 2014) Dedicated to the manufacture of gears, maintenance, industrial parts repair, and micropower plants (Maquinamos, 2014) Specialized in manufacturing all kinds of parts and items based on rubber, both natural and synthetic (Inreca, 2014) Metalworking company, providing services in the manufacturing of molds, dies, and parts (Metal Works Manufactura Avanzada, 2014) Commercialization of materials, products, and equipment for general industry, and provision of specialized technical consultancy (Asteco, 2014) Field work with rural communities, creation of service networks and coordinating communications and social management solutions (ComunicacionActiva.com Soluciones Integrales en …, 2014) Company dedicated to the repair of electric motors for general industry

Metal Works

Asteco

Engineering and Maintenance Supplier Network/Member (RIM)

Comunicacio´n Activa

Communications Partner Network (RAM)

H. R. Bobinados

Engineering and Maintenance Supplier Network/Member (RIM) Communications Partner Network (RAM)

FotoEditores

Solutions for the production and management of photographic images, with professionals in 16 cities in Colombia, allowing it to offer photography, publishing, and event coverage services throughout Colombia (Fotoeditores, 2014)

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TESTIMONIALS We performed a direct survey among the participating firms in order to receive their comments and observations on the pilot program conducted and to find out important aspects about the process.

How Did You Hear about the Pilot Program, Conducted by ISAGEN and EAFIT? All voluntary participants were informed through different on-site meetings conducted by ISAGEN. The firms had time and space to express their doubts about the pilot program, and make a free decision on whether to participate or not.

What Motivates You to Participate in This First Contact Pilot Program? Similar to the processes undertaken in pursuit of meeting the Millennium Development Goals have functioned, knowledge on different initiatives prevailing the interest in our Company to build awareness and support and generating comprehensive growth for the company and our stakeholders is required. All this cannot be achieved without involvement in the initiatives that exist, and therefore it is important have knowledge of them and get the best out of them in order to contribute to the sustainable development of society. Metal Works has always been open to developing new forms of negotiation and growth for both the company and society itself, and it is greatly motivated by working hand in hand with academia. The need to find new ways to make the company more competitive and better optimized to meet the needs and demands of the environment. Understanding the basic structure of the approach, the objective and how we can provide support from the organization in order to make progress in the implementation of this program. Building relationships with different generations of professionals. (Metal Works)

In general, suppliers are excited to participate in global initiatives, in which they can contribute and interact with society, stakeholders, and different generations. Did you know the contents of the 10 principles of the Global Compact before starting the “First Contact” Pilot Program? Four companies responded that they knew the 10 principles; three said they had moderate knowledge of them; and two suppliers stated that they did not know them.

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What was the students’ contribution to improving understanding of the Global Compact? Response options were: Very High, High, Medium, and Low. Supplier responses were distributed as follows: four suppliers responded high and four medium, and one suppler described the contribution from the students as very high. It is worth noting that none of them rated the contribution of the students in the Global Compact pilot program as low. What do you consider as the main contribution of the “First Contact” Pilot Program to the organization? Literally, the suppliers provided the following testimony regarding the pilot program: a. “Raising our awareness on the importance that all businesses have in achieving the objectives and how rewarding it is to do our bit to make this world a kinder world.” b. “Raising the company’s awareness regarding environmental commitment.” c. “The ability to self-analyze what we actually do on a day-to-day basis.” d. “Becoming aware of the importance of getting involved in this initiative and showing ourselves that no matter how small the company, we can contribute to making a significant difference in society. Beginning to understand the importance of the Global Compact and its impact on the company’s environment, in addition to managing social responsibility that is not only local, but global.” e. “The opportunity to review our CSR system from the academic perspective as represented by the students.” To what extent you think the implementation of the 10 principles of the Global Compact will improve your business? The rating consisted of a scale from 1 to 10 points, by level of importance; six of the suppliers gave a rating of 10 points to the level of importance regarding the application of the principles in their companies. There was one rating of 7, one of 8, and another of 9 points. This shows that the importance of applying the Global Compact principles in their companies is clear for all participants. Would you recommend participation in the “First Contact” Pilot Program to other ISAGEN suppliers? All business owners (100%) that participated in the pilot program would recommend other companies to participate in a new exercise for the application of the Global Compact principles with students and ISAGEN.

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Suppliers explain why they would recommend participation to other business owners, with the following arguments:
“It’s a program that teaches you to be more responsible and provides you with guidelines to always keep the organization on step ahead in the quest to minimize the impact caused to our environment due to human activity.”
“It is important that all companies at the national level are aware of the 10 principles of the Global Compact; it is essential that even if they don’t enter the program, they start carrying out awareness raising plans with their employees.”
“It becomes an opportunity to build a more inclusive society and analyze the contribution from each of our companies.”
“It isn’t a very time-intensive program and is not an imposition, it’s an opportunity to align our efforts with those of many other companies, to bring about positive change in society. Best of all, each company can manage their pace in terms of implementation.”
“Often companies measure growth with profits, especially when you are starting up the company. These programs involve all the company’s employees and help it become associated with personal growth. As a result, employees become identified with the company and performance improves, and in this case the growth in profit is a positive consequence.”
“If society and the environment are not sustainable, neither are businesses. The long-term for societies and companies is achieved through the fulfillment of the Millennium Development Goals.”

RESULTS We have different result types, one for each stakeholder.

Students
Knowledge exchange between academia and local business.
Work was done on the application of the Global Compact’s concepts in business scenarios, where it is necessary to balance efforts aimed at creating and maximizing economic impact, with activities that do not contribute directly to the generation of economic value, which in the

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long-term ensures sustainable development and promotes the creation of fair and competitive markets.
Students were able to identify sustainable development themes to be applied in their professional development.

SME Business Manager Participants/Suppliers
The companies had a forum to decide what level of commitment they must undertake to adopt responsible practices, aligned with that described in the 10 principles of the Global Compact.
Awareness raising on the issues of the Global Compact.
Promotion of the dissemination of Global Compact principles in the local environment and among other stakeholders of ISAGEN’s SME suppliers. EAFIT University
Taking a group of students who are going to be our future leaders in international business and giving them the knowledge to take actions to comply with Global Compact commitments.
Bringing together business leaders and students in real environments, which enhance the understanding of Global Compact.
Be a bridge between the business and academia.
Be a word-spreading leader on the Global Compact for Colombian SMEs. ISAGEN
Generate dissemination and validate the impact on how to implement the principles outlined in the Global Compact and facilitate the creation of networks on the issues of best practices in business.

PILOT PROGRAM’S CONCLUSIONS AND RECOMMENDATIONS The dissemination of the Global Compact principles is essential to generating the conditions for the creation of fairer markets, and therefore large companies have a responsibility to provide this information to SMEs. It is necessary to assemble models for collaborative work between academia

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and the private sector to impact and truly transform corporate culture, thus achieving mutually beneficial relationships. Transforming the conditions of the environment based on desire and willingness is possible. Evidence of this is the work of the various stakeholders in this pilot program, which despite facing adverse conditions within the environment in the areas of business ethics, corruption, and human, labor, and environmental rights have put all their efforts into taking steps forward, making a commitment to their own development and sustainability in the city of Medellin, which represents an action that contributes to the transformation of MSMEs, making it possible to make a difference through the adoption of practices for compliance with the Global Compact. In addition, seen from the perspective of the university activities, this pilot program follows the guidelines and six principles of the UN Principles of Responsible Management Education (PRME) Program. In this sense students of the International Business Program get to know the reality of local firms regarding aspects of human rights, labor security, environmental aspects, and anticorruption measurements. These aspects covered by the Global Compact constitute at the same time the spirit of the UN PRME Program where business schools embrace the challenge of those aspects in the education field in order to impact the manager’s way of thinking in the future.

SUGGESTIONS FOR FUTURE PROGRAMS
Need to schedule more time with students to give a better understanding of the Global Compact implementation road map in each SME organization.
It would be important to develop an interactive guide or road map on how to accomplish the 10 principles of Global Compact, localized specially for Colombian SME companies.
Receive more information about how to prepare management reports that must be produced when a company joins the Global Compact.
Send bulletins on progress made by companies, in order to motivate the rest to become more involved.
Small workshops to clarify certain issues, in order to establish the necessary disciplines.
Provide continuity and permanence over time.

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Universidad Externado de Colombia. (2014, July 25). Retrieved from http://administracion.uexternado.edu.co/es/facultad/rs/primerosPasos.htm Renouard, C., & Lado, H. (2012). CSR and inequality in the Niger Delta (Nigeria). Corporate Governance, 12, 472
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39. Swift, T., & Zadek, S. (2002). Corporate responsibility and the competitiveness of nations and communities. Copenhagen: The Copenhagen Centre, Accountability, Institute of Social and Ethical Accountability. The´rien, J.-P., & Pouliot, V. (2006). The Global Compact: Shifting the politics of international development? Global Governance, 12, 55
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Consultores en Gestio´n Social y Ambiental. (2014, June 19). Retrieved from http:// zeiki.co/

ABOUT THE EDITORS Maria Alejandra Gonzalez-Perez (PhD, MBS, Psy) is Full Professor of Management at Universidad EAFIT (Colombia). Maria Alejandra is the coordinator of the Colombian universities in the virtual institute of the United Nations Conference for Trade and Development (UNCTAD); Distinguished Fellow of the Association of Certified Commercial Diplomats; and Editor-in-Chief of the business journal AD-minister. Dr. Gonzalez-Perez holds a PhD in International Business and Corporate Social Responsibility, and a Master’s degree in Business Studies in Industrial Relations and Human Resources Management from the National University of Ireland, Galway. She also did postdoctoral research at the Community Knowledge Initiative (CKI) in NUI Galway. Prof. GonzalezPerez is the past Head of the Department of International Business (2009
2013) and former Director of the International Studies Research Group (2008
2013) at Universidad EAFIT (Colombia). Email: [email protected] Liam Leonard (PhD) is the former President of the Sociology Association of Ireland. He was the senior academic and taught modules on Human Rights, Sociology, Criminology, Professional Development and Equality & Diversity on the Irish National Prison Officer Training Programme. The author/editor of over 15 books and numerous journal articles, he is Senior Editor of the Ecopolitics Book Series, the Advances in Sustainability and Environmental Justice Book Series (both with Emerald, UK) and Founding Editor of CRIMSOC: Journal of Social Criminology. Dr. Leonard has edited the 2011 Irish issue of the Prison Journal, as well as special issues of Environmental Politics and the Irish Journal of Sociology and the Criminology issue of the Irish Journal of Applied Social Studies. Dr. Leonard was awarded the Sage Publishing Research Excellence Award in New York as well as the Irish NAIRTL Research & Teaching Award in 2012, and has 10 years experience as an academic and lecturer in the National University of Ireland and the Institute of Technology sector. Now resident in Orange County, California, he is an

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Adjunct Associate Professor with the Department of Sociology & Anthropology at West Virginia University; Lecturer in Sociology and Criminal Justice, California State University, Fullerton, United States and a Research Fellow with WVU’s Center for the Study of Violence and Conflict Resolution. Email: [email protected]

ABOUT THE CONTRIBUTORS Anthony F. Buono is Professor of Management and Sociology and founding coordinator of the Alliance for Ethics and Social Responsibility at Bentley University, which he directed from 2003 through 2013. He is also a former Chair of Bentley’s Management Department. Tony’s interests include organizational change, inter-organizational strategies, management consulting, and ethics and corporate social responsibility. He has written or edited 17 books including The Human Side of Mergers and Acquisitions (1989, 2003), A Primer on Organizational Behavior (7th ed., 2008), and, most recently, Facilitating the Socio-Economic Approach to Management (Information Age Publishing, 2013). His articles and book review essays have appeared in numerous journals, including Academy of Management Learning & Education, Across the Board, Administrative Science Quarterly, and Human Relations. Tony holds a BS in Business Administration from the University of Maryland, and an MA and PhD with a concentration in Industrial and Organizational Sociology from Boston College. Email: [email protected] Sergio Castrillo´n-Orrego besides his PhD in Administration from HECMontreal, he earned a Master’s Degree in Intercultural Management from ICHEC-Bruxelles, and a Master in Political Science, from Universidad de Antioquia. He is currently the Director of the BA on Business Management at EAFIT University, with around 2,700 enrolled students. His research and teaching focus on Business Ethics, and the philosophy and practice of Management Education. Having had the chance to live in the United States, Japan, Belgium, Canada, and his native Colombia, he strives to foster cosmopolitan thinking, intercultural tolerance, and personal reflexivity. His quest for learning and a balanced life is nurtured by his two girls and the love of his wife and enlarged family. His daily administration of academic life is enriched by offering integral advice to students, teaching and writing, some of which has been materialized in diverse types of publications. Email: [email protected] Harish C. Chandan is Professor of Business at Argosy University, Atlanta. He was interim chair of the business program in 2011. He received 219

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President’s award for excellence in teaching in 2007, 2008, and 2009. His teaching philosophy is grounded in the learner needs and life-long learning. His research interests include research methods, leadership, marketing, and organizational behavior. He has published 20 peer-reviewed articles in business journals and six chapters in business reference books. Dr. Chandan has presented conference papers at Academy of Management, International Academy of Business and Management, Southeast Association of Information Systems, and Academy of International Business. Prior to joining Argosy, Dr. Chandan managed optical fiber and cable product qualification laboratories for Lucent Technologies, Bell Laboratories. During his career with Lucent, he had 40 technical publications, a chapter in a book, and five patents in the area of optical fiber reliability. Email: hchandan@ argosy.edu Maria dels A`ngelsDası´ Coscollar (PhD) is Associate Professor at the Faculty of Economics of the University of Valencia (Spain). Her current research is focused on international strategy, knowledge management on multinational corporations, organizational ambidexterity, and corporate social responsibility. She has published in International Business Review, Innovar, Economia Industrial among other journals and has co-authored books on Management and International Strategy. She is member of European International Business Academy (EIBA) and Academy of International Business (AIB). Dr. Dası´ Coscollar teaches International Business strategy and Cross-cultural management at PhD, Master, and Degree level. She has been visiting scholar at Copenhagen Business School (CBS) in Denmark, Ecole de Management de Lyon (France), and Universidad Central Lisandro Alvarado (Venezuela). Email: [email protected] Alice de Jonge is a senior lecturer in Law at the Department of Business Law and Taxation, Monash University. She coordinates and lectures in the post-graduate units International Law and Policy and Comparative Business Law in Asia. She is the author of two books
Transnational Corporations and International Law: Accountability in the Global Business Environment (Edward Elgar, 2011) and Corporate Governance and China’s H-Share Market (Edward Elgar, 2008)
as well as various book chapters and journal articles. Email: [email protected] Juan Carlos Diaz Vasquez (PhD) He studied Translation studies (English, French, and Spanish) at the University of Antioquia in Colombia. He participated in research projects relating to lexicography and terminology management in Austria and Germany. He wrote his PhD thesis in

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specialized translation and terminology at the University of Vienna. Since 2005, he has participated in the annual meetings of ISO/TC 37. He is Professor at the Department of International Business and runs CSR curses in the undergraduate and in the graduate program. He is coordinator of the academic area for Negotiation and Interculturality. He also leads the Program Primeros Pasos at the Universidad EAFIT. Email: jdiazva@eafit. edu.co Consuelo Dolz Dolz (PhD) is Associate Professor at the Faculty of Economics of the University of Valencia (Spain). Her current research is focused on corporate social responsibility, organizational ambidexterity, family firms, and knowledge management. She has also conducted studies on mergers and acquisitions
the integration processes; exploration and exploitation of knowledge. Her research papers have been published in M@n@gement, Management Research, and Innovar, among others. She is also co-author of books on management and mergers and acquisitions. She has participated on several research projects and international conferences: Academy of Management, Iberoamerican Academy of Management and European Academy of Management. Dr. Dolz Dolz teaches Strategic management and management of mergers and acquisitions at Master and Degree level. She has been visiting scholar at Louvain School of Management (Belgium) on several occasions. Email: [email protected] Emel Esen is Assistant Professor in Faculty of Economics and Administrative Sciences. Dr. Emel Esen completed her master’s degree in Human Resources Management of Business Administration Department from Yildiz Technical University. She earned her PhD in Organizational Behavior at Marmara University, Turkey. She is currently research assistant PhD in Yildiz Technical University, Turkey. Her research interests include Positive Organizational Behavior, Business Ethics, Corporate Social Responsibility and Corporate Reputation. E-mail: [email protected], [email protected] Jonas Haertle is Head of the Principles for Responsible Management Education (PRME) Secretariat of the United Nations Global Compact Office. He is responsible for driving the mission of the PRME initiative, to inspire responsible management education, research, and thought leadership globally. He provides global leadership in bringing together good practice in implementing the principles of PRME and the UN Global Compact. Previously, he was the coordinator of the UN Global Compact’s Local Networks in Latin America, Africa, and the Middle East. Prior to joining

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the United Nations, Mr. Haertle worked as a research analyst for the German public broadcasting service Norddeutscher Rundfunk. Mr. Haertle has written and contributed to a number of publications and academic articles on corporate sustainability and responsible management education and he serves on the editorial boards of the Journal of Corporate Citizenship and the Sustainability Accounting, Management and Policy Journal, respectively. He holds a master’s degree in European Studies of Hamburg University in Germany. As a Fulbright scholar, he also attained a MSc degree in Global Affairs from Rutgers University in the United States. Email: [email protected] Georg Kell is the Executive Director of the UN Global Compact, the world’s largest voluntary corporate sustainability initiative with 8,000 corporate participants in 145 countries. A key architect of the Global Compact, he has led the initiative since its founding in 2000, establishing the most widely recognized multi-stakeholder network and action platform to advance responsible business practices. Mr. Kell also oversaw the conception and launch of the Global Compact’s sister initiatives on investment and business education, the Principles for Responsible Investment (PRI) and the Principles for Responsible Management Education (PRME). Mr. Kell started his career as a research fellow in engineering at the renowned Fraunhofer Institute for Production Technology and Innovation in Berlin. He then worked as a financial analyst in various countries in Africa and Asia. He joined the United Nations in 1987, and has been at the leading edge of the organization’s private-sector engagement ever since. A native of Germany, Mr. Kell holds advanced degrees in economics and engineering from the Technical University Berlin. Rudi Kurz graduated in economics and earned his doctoral degree at the University of Tu¨bingen, Germany. He worked for almost 10 years at an independent economic research institute (IAW Tu¨bingen) advising regional and federal governments. He was appointed professor of economics at Pforzheim University in 1988 and served as vice rector and as dean of business school for almost a decade. During his term in office, Pforzheim Business School received initial accreditation from AACSB and signed the UN PRME. Research and publications of Dr. Kurz focus on innovation, economic growth, sustainable development, environmental economics, and management. Email: [email protected] Esmeralda Linares-Navarro (PhD) is Assistant Professor at the Faculty of Economics of the University of Valencia (Spain). She graduated in

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Management with honors at University of Valencia and she has received several awards for her PhD. Her current research is focused on corporate social responsibility, international strategy, offshoring strategies, and supply chain management. She has published in Journal of Business and Economics Management, Universia Business Review, and Investigaciones Europeas de Direccio´n y Economı´a de la Empresa, among others. She is author of the book La Deslocalizacio´n Industrial en Europa. El feno´meno del Offshoring a ana´lisis published in 2010. She has participated on several research projects and international conferences: Academy of International Business, European International Business Academy, Iberoamerican Academy of Management, and European Academy of Management, among others. Dr. Linares-Navarro teaches International Business and Strategic management at Master and Degree level. She has been visiting scholar at Copenhagen Business School (CBS) in Denmark. Email: [email protected] Carmen-Pilar Martı´ -Ballester is an Associate Professor in the Business Department at the Universitat Auto`noma de Barcelona. Since September 30, 2011, she has been secretary of the Centre for Studies and Research in Humanities, an institution associated to the Universitat Auto`noma de Barcelona. Her research focuses on analyzing the financial and social performance of mutual funds, pension funds, and firms. She also does research into students’ academic performance. Her research papers have been published in Management Decision, Journal of Cleaner Production, Corporate Social Responsibility and Environmental Management, Revista de Estudios de Economı´a, Applied Economics, Educacio´n XX1, and RBGNReview of Business Management, among others. She is a referee for Studies in Higher Education, Applied Economics, Applied Financial Economics, Applied Economics Letters, the European Journal of Operational Research, the Journal of Pension Economics and Finance, and the Journal of Economic Interaction and Coordination, among others. She is a member of Financial Management Association International and the European Accounting Association. Email: [email protected], Carmen [email protected] Margarita Marı´ a Montoya Pela´ez is currently Engineer Supplier Management Professional in the Colombian power generator ISAGEN. She is also Project Management Specialist and graduated as a Food Engineer at the Universidad De La Salle. Email: mmmontoya@isagen. com.co

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Jaime Alberto Ospina Gallo is currently Engineer Supplier Management Coordinator in the Colombian power generator ISAGEN. He is also Certified Entrepreneurship Consultant from the USFC and has a MSc in Marketing from EOI. He also completed a graduate program as Economics Specialst in the Universidad de los Andes (Colombia). He also holds a BSc in Civil Engineering from the Escuela de Ingenierı´ a de Antioquia (EIA). Email: [email protected] Arzu O¨zso¨zgu¨n C¸ali ¸skan is an Associate Professor in Accounting and Finance area of Business Administration Department of Faculty of Economics and Administrative Sciences in Yildiz Technical University, Istanbul, Turkey. She received a BS in Economics Department from Yildiz Technical University, completed her master’s degree in Business Administration Department from Yildiz Technical University. She earned her PhD in Accounting and Finance at Marmara University, Turkey. Her research interests include financial and managerial accounting, corporate social responsibility, sustainability management, and accounting. Email: [email protected], [email protected] W. Travis Selmier II (PhD) is Affliliated Faculty with the Vincent and Elinor Ostrom Workshop in Political Theory and Policy Analysis, Indiana University. Travis worked in international investments for 17 years during which he researched investments, economics and politics of, and traveled to, 60 countries. Among the first foreigners to sit for the Chartered Market Analyst Exam in Japanese, in 1992, he was named to Barrons Top 100 Portfolio Managers list in 1998. He taught as a visiting clinical professor in Finance at IU’s Kelley School of Business from 2008 to 2011 and is presently engaged in research at IU’s Ostrom Workshop. Research interests include language economics, institutional dynamics of international financial markets, property rights of financial goods, East Asian banking and mining CSR. He reads six languages, and won three of America’s top fellowships to study Chinese and Portuguese. His publications appear in Business Horizons, Journal of International Business Studies, Review of International Political Economy, World Economy, and elsewhere. Email: [email protected] Rafael Tamayo-A´lvarez is LL.M. graduate in International Law at Ruprecht-Karls-Universita¨t Heidelberg and Universidad de Chile. He has taught Public International Law and Commercial Diplomacy at Universidad EAFIT, and International Trade Law at Universidad de Bogota´ Jorge Tadeo Lozano. He has also worked for several law firms,

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combining his professional practice with academic activity. Right now he is a full-time PhD student at the Faculty of Law of the Universidad de los Andes, Colombia, where he is conducting a research on the influence of the International Investment Regime over the regulatory power of States, and how this affects policy goals related to sustainable development. Email: [email protected]