Can the U.N’s Global Compact Initiative Teach Good Corporate Behavior?

Can the United Nations teach good corporate behavior? That’s the mission of a fast-growing UN initiative called the Global Compact – run out of the Secretary-General’s executive office by an outfit that flunks most basic tests of good governance.

Called the Office of the Global Compact, this operation is housed on the 18th floor of the U.N.’s landmark Manhattan headquarters, and reports directly to Secretary-General Ban Ki-Moon. Its goal is promoting more virtuous behavior on the part of private business, and just last week it hosted what its own brochure described as an “historic” two-day corporate jamboree at the UN’s palatial offices in Geneva.

At this “private, invitation-only event,” more than 600 top corporate executives from around the globe were given special access to high-ranked politicians and U.N. bureaucrats, with even more “exclusive” VIP access granted to those willing to underwrite the gala dinner, lunches and coffee breaks.

The gathering was chaired by Secretary General Ban himself, who hailed the enterprise as a “remarkable” means of “collective solution-finding” to promote “inclusive” global markets.

In effect, this is the United Nations, Corporate Division, 21st Century style, where “public-private partnerships” and networking under the U.N. umbrella replace principles such as private competition in the marketplace. In this realm, conflicts of interest may count for nothing, as the Global Compact doesn’t mind holding out an open hand for financial contributions – voluntary, of course — from the same corporate volunteers whose good behavior it purports to be guiding.

Meanwhile, the Office of the Global Compact itself is a den of financial murk and administrative slop.

Launched in 2000 as a pet project of former Secretary-General Kofi Annan, the Global Compact has been picking up steam for some time – organizing conferences, recruiting members, rattling the cup for donations and cranking out huge stacks of glossy pamphlets and reports.

At its inception, the Compact had just 47 corporate members and a seed donation of $20,000. Today it has more than 4,000 members, a budget of millions, and at last week’s grand gathering was pulling in sponsorship money from such financial giants as the French oil company, Total; Swiss Banks UBS and Credit-Suisse; and Big Philanthropy in the form of Ted Turner’s U.N. Foundation.

If you prefer not to give money, the Compact also accepts donations in kind. At a curtain-raiser press conference for its Geneva hoopla, held in the briefing room of the U.N.’s New York headquarters last month, the Compact rolled out laudatory market studies prepared and presented by high-end consulting and investment firms McKinsey & Company and Goldman Sachs, at no cost to the U.N.

In exchange for corporate adherence, the Global Compact offers something that usually money can’t buy: a benign testimonial that its members are associated with international sweetness and light. There are also such perks as enhanced access on occasion to the inner chambers and public platforms of the world’s leading multilateral institution.

As the Compact itself puts it—interestingly enough, on the web site of the United Nations’ Procurement Division, which is aimed at U.N. suppliers—the Global Compact is the U.N.’s official meeting ground for “international corporate citizenship,” which coordinates its activities with half a dozen UN agencies around the world.

In that role, the Global Compact office tries to persuade private companies, as well as labor and “civil society” groups, to sign on to 10 U.N.-endorsed “principles.” Nine of these involve pledges of support for the politically-freighted U.N. agenda on human rights, labor, and environmental policy. The tenth principle, anti-corruption, was added by Annan a few years into the project, as an afterthought.

The Global Compact’s aim, according to material on its web site, is to spread its 10 principles around the globe, and “catalyse actions in support of these goals.” But if its own operations are any indicator, the Compact has yet to absorb the non-U.N. principle that good housekeeping begins at home.

To be fair, the executive irector of the Global Compact, Georg Kell, was willing upon request to provide a copy of a recent U.N. internal audit report covering his office. A bespectacled and earnest German, in his early 50s, Kell handed it over with the words, “We have nothing to hide.”

The contents of the document, however, suggest he has plenty to explain. Dated Nov. 9, 2006, the audit report depicts the Global Compact Office as operating without appropriate U.N. authority, in violation of normal best practices, and in many cases of the UN’s own rules, for hiring, record-keeping, fund-raising and financial disclosure. Nor are there many signs that the Compact intends to mend its ways.

It turns out that the Global Compact has been operating — for seven years now — without any formal mandate from the U.N.’s legislative governing body, the General Assembly—which is the only place where all 192 U.N. members have a say.

In the November report, the U.N.’s own internal auditors mused upon the hazy status of the Global Compact, which is formally described in U.N. parlance as an ill-defined “initiative,” and recommended that the body be submitted to the General Assembly “to fully legitimize the role, function and structure of the Office.”

No chance. The Global Compact Office rejected the recommendation, arguing in a written response to the auditors that heads of state had already endorsed the Compact, and that obtaining General Assembly formal approval was something to be handled only in a “gradual manner.” In other words, the U.N.’s legislature was not to be trusted with any say until the new institution had enjoyed years to entrench itself.

The auditors also expressed concern that out of 29 workers in the Global Compact office as of March, 2006, only one was a regular member of the staff. The other 28 were consultants, or temporary contractors. In 13 cases more closely examined, all appeared to have been hired with only vague job descriptions, with no records on file of “credential verification” and “no competitive selection process.” There were extensions of consulting jobs “without proper justification” – in four cases “beyond the maximum allowed duration.”

(Responding to these criticisms, Kell’s Global Compact Office told the auditors that many of the correct procedures had been followed, but conceded “they were not appropriately documented.”)

Moreover, the Global Compact’s income – which by now amounts to some untold millions in cash and in-kind contributions every year — mixes government and private contributions in a manner both complex and opaque. The U.N.’s auditors noted that the Office “does not disclose in detail its fundraising activities and results in the annual business plan and end-of-year reports.”

Staple funding for the Compact does not come from the regular U.N. budget, but has been provided to date almost exclusively by European member states via a secretive mechanism known as a U.N. trust fund, in this case set up in 2001. Trust funds are voluntary donor mechanisms that are not subject to the same public scrutiny as the regular U.N. budget. According to Global Compact staffers, the expected working budget for their office in 2007 is roughly $3.6 million, up from $2.9 million last year. The top three contributors to that slice of the Compact’s support are Switzerland, Sweden and Norway,

But that is well short of the Compact’s real income. The Global Compact also accepts substantial in-kind donations from the private sector, and has been somewhat cavalier about including such items in its books. U.N. auditors reported in 2006 that for 2002-2003, the Compact accepted $4.5 million worth of in-kind donations from such high-end firms as SAP Germany, PricewaterhouseCoopers, and McKinsey and Co., for services such as web site development and impact studies, but “these donations were not disclosed in the financial statements for the corresponding periods.”

In that same report, auditors spelled out that under U.N. regulations, “in-kind contributions must be given an estimated monetary value by the implementing office at the time they are received.” But when queried by email last month about the value of more recent in-kind donations, such as the study prepared by Goldman Sachs and presented last month as a major feature of the Global Compact briefing in the U.N. Secretariat’s press room, Global Compact chief Kell demurred.

“I can’t give you a costing on the value of in-kind contributions we receive from business, as we have never costed it,” he said, adding that such work was “surely expensive.”

A Goldman Sachs spokesman, contacted by phone with a question about the value of the study, offered “no comment.” The Goldman Sachs officer who prepared and presented the study, Anthony Ling, was one of three corporate executives appointed at last week’s Geneva meeting to the Compact’s advisory board.

Cash contributions to the Compact from the private sector are similarly opaque. They arrive these days via a tax-exempt foundation – the Foundation for the Global Compact – which was registered in April, 2006 in New York State, and authorized by the Global Compact to raise money on its behalf. .

If that sounds like U.N. fund-raising as usual, in the style of, say, UNICEF, it is not. UNICEF’s mission is to deliver relief. Setting up a dedicated pipeline to deliver private money directly to a corporate networking operation inside the Secretary-General’s office raises more complicated issues.

In pondering the donation pipeline, the U.N.’s auditors described the setup as “an innovative approach for the U.N.” But they were troubled by the prospect of a private fund-raising operation linked directly to the public institution of the Secretary-General’s office. In the audit report, they explained that their office “believes that the relationship between the Foundation and the Office [of the Global Compact] is closer than what is described by the Global Compact.” They also called it “the first time that this kind of fund-raising initiative directly related to the U.N. Secretariat and substantially relevant to a specific trust fund takes place… .”

In delivering their analysis, the auditors again urged that the Global Compact seek a formal mandate from the General Assembly, as a form of “best practice” and to “enhance transparency.” Leaving the matter unresolved, the Global Compact Office once again refused — arguing that the Foundation was “a non-U.N. entity, independent from the U.N., without any U.N. status.”

But it’s easy to see why the auditors might be concerned about drawing a line. Currently the affairs of the Foundation for the Global Compact are handled by four board members and one staffer, with no independent office phone number, and a Grand Central Station post office box for an address.

The lone staffer who has been with the Foundation since its inception in April, 2006, Karen Newman, was working concurrently until this May on U.N. premises with a U.N. phone number, and U.N. email address. Asked about this by Fox News, Newman replied in an email that she has never been employed on the staff of the U.N., but had been working for a privately funded agency with offices inside the U.N., the Hospitality Committee for the United Nations.

Things get even more blurred from there on. The Foundation is supposed to keep the U.N. Global Compact Office at arms length from its donors, by doing the private fund-raising on the Compact’s behalf. Nonetheless, it was Kell who on March 13, 2006, announced that the Foundation was being created, with what was apparently a mass-mailed letter addressed to “Dear Global Compact Stakeholder,” over his own signature and on the U.N. letterhead of the “Executive Office of the Secretary-General.” In the letter, Kell wrote: “The Foundation will have various levels of suggested giving, and we hope that your organization will consider contributing.”

How much the Foundation has collected from specific private donors is a mystery. Karen Newman says an audit of the money is now underway, but well over a year after its founding, the Foundation provides no financial information whatsoever on its web site, and there is as yet no listing for it on the Internal Revenue Service web site for tax-exempt organizations.

In response to a recent email query, Newman said the Foundation has raised just over $500,000 in “general contributions,” but there are no public records to confirm this. The chairman of the Foundation’s board, Mark Moody-Stuart, who heads a U.K.-based mining conglomerate, Anglo-American PLC, said in a phone interview that exact amounts donated are kept secret so as not to embarrass the less generous donors.

In an email, he later added that most donations are about $10,000, but individual amounts are not ranked “so that single donors were not seen to be particularly influential.” Global Compact officials, asked how much their office had received altogether via the Foundation, and how much had come from which donors, did not provide this information.

The Foundation does list the names of 41 corporate donors for 2006 and a dozen to date for 2007. Along with such familiar outfits as Volvo and Deutschebank, donors include firms as far flung as Pakistan Refinery Limited, and Fidanque Panama. There is also a Jordanian auditing and consulting firm, Talal Abu-Ghazaleh Organization, named for its chairman, a member of the Global Compact board – who along with receiving a warm welcome from the First Lady of Syria during a business trip last month, gave an interview claiming he was the man who had originally suggested the Compact idea to Kofi Annan.

The lack of transparency extends to what is required of Compact members. All participation in the Global Compact is supposed to be strictly voluntary. But some executives privately grumble that there is a not-so-subtle pressure implied by the Compact’s prominent billing on the U.N. Procurement Division’s web site.

Officially, membership in the Compact is not required for suppliers to win any of the billions worth of contracts filled by the U.N. every year. But the message on the web site is: “The United Nations strongly encourages all vendors to actively participate in the Global Compact.” Any similar wording on a U.S. Government website would undoubtedly ignite an explosion of protest—though the same might not happen, say, in Zimbabwe, or some other country where transparency does not appear to be a cardinal virtue.

What Compact membership really means in practice is an intriguing question. Among the participants at the invitation-only Geneva gathering last week were at least half a dozen companies alleged by the U.N.’s own inquiry into Oil-for-Food to have paid kickbacks to Saddam Hussein’s U.N.-sanctioned regime. Some, such as Denmark’s Novo-Nordisk (which refused to comment), are currently under investigation by national authorities. Others are not.

The current list of Global Compact participants in good standing includes a Russian aviation group, Volga-Dnepr, which was alleged in New York federal court testimony this March to have paid $700,000 in “consulting” fees to a crooked U.N. procurement officer, Alexander Yakovlev, in connection with winning at least 10 U.N. peacekeeping-supply contracts. The government witness was Yakovlev himself, who pled guilty to corruption charges in 2005, and testified this spring at the trial of a former head of the UN budget oversight committee, Vladimir Kuznetsov, who was convicted on charges of laundering some of Yakovlev’s ill-gotten money. Volga-Dnepr did not respond to requests for comment.

Volga-Dnepr has been suspended from the U.N.’s list of authorized vendors—but not from the Compact. The Global Compact’s Georg Kell, asked by phone after the trial why Volga-Dnepr was still a Compact “stakeholder” in good standing, said that the Compact is not in the business of guaranteeing the integrity of its members, but of propagating “universal principles.” He added, “All companies on our list surely have some corrupt practices going on at this time… corruption is everywhere.”

That’s an interesting position for a good-governance “initiative” to hold, though certainly in keeping with the U.N.’s own recently documented behavior. The question is, will the U.N.’s buddying up with business lead to that better world Ban was talking about? Or will it benefit mainly the keepers of the U.N. cash flow and the image-makers of the Compact’s self-interested membership?

Claudia Rosett is journalist-in-residence with the Foundation for the Defense of Democracies.