Tuesday, 8 January 2013

Managing the legitimacy commons in transnational governance: Why keeping bad apples, instead of sacking them, can lead to global sustainability

Guest blog by Patrick Haack, postdoctoral researcher at the University of Zurich


In the realm of transnational governance, where public and private actors participate in hybrid policy networks and provide global public goods, the United Nations Global Compact constitutes an organizational collective whose participants involve other organizations such as national governments, civil society organizations and private business firms. These actors jointly promote the alignment of business operations with ten principles in the areas of human rights, labor standards, the environment, and anti-corruption. Launched in 2000 by the then General Secretary Kofi Annan, the Global Compact’s current (as of November 2012) base of 7,071 signatory companies makes it globally the largest of transnational organizations.


Notwithstanding this success, empirical research demonstrates that the adoption of the Compact’s principles, reflected in the extent of their implementation, leaves a lot to be desired (Baumann-Pauly and Scherer, forthcoming). The Compact has been criticized for its lack of criteria that measure performance, monitoring and sanctioning. For instance, in 2008 over 80 civil society organizations blamed the Chinese oil company and Global Compact signatory PetroChina for the “systematic or egregious abuse” of the Compact’s principles (Investors Against Genocide 2009). According to the critics, PetroChina failed to use its financial ties with the Sudanese government in order to promote measures that would end human rights violations in Darfur. Furthermore, they argued that the Compact’s unwillingness to critically engage with PetroChina impaired the integrity and credibility of the transnational organization itself. Thus, the signatory’s perceived disregard of the Compact’s principle 2 in particular, which stipulates that businesses ought to “make sure that they are not complicit in human rights abuses,” aggravated by mass-mediated scandalization, damaged the corporate signatory’s standing and also discredited the Global Compact. This illustrative case reveals that, as an emerging transnational organization, the Global Compact is evaluated in conjunction with its organizational constituents.

The idea that social approval for an overarching entity, such as a transnational organization, can be dissipated and ultimately destroyed by the inconsiderate behaviour of its subunits (Barnett 2006) is a consequence of the so-called “legitimacy commons.” The term describes the idea that legitimacy resembles an intangible, collectively owned, non-rival resource that can be impaired by association. Given that new organizations need to acquire legitimacy in order to secure organizational growth and survival (Aldrich and Fiol 1994), it follows that transnational entities have an interest in “privatizing” the legitimacy commons by actively differentiating themselves from discredited participants and encouraging stakeholders to assess accurately the transnational entities in question.

The Global Compact’s integrity measures provide the possibility to “delist” corporate signatories in cases they misuse the association with the United Nations, fail to comply with the Compact’s reporting requirement, and refuse to engage in dialogue on “credible allegations of systematic or egregious abuse of the Global Compact’s overall aims and principles” (Global Compact 2011). The possibility of delisting notwithstanding, the question arises whether “sacking bad apples” – discredited participants, that is – is a wise tactic for acquiring legitimacy, boosting the image of a sound and valid entity, and ultimately acquiring resources and influence to address global governance gaps. Delisting undoubtedly pleases important stakeholders, and may enhance the short-term image of the transnational organization in their eyes. However, if transnational organizations wish to safeguard their own integrity and bolster their legitimacy, they also need to foster new models of global management, not exclusively based on the pre-eminence of economic factors, and this requires them to exert normative influence.

Efforts to build and consolidate global institutions will only succeed when organizational actors make sense of the disruption of profit-driven routines and habits, and when unfamiliar and incomprehensible practices become meaningful in a way that they create behavioral support and become enacted. Punishing business firms for failing to align their actions with their commitments will hardly help establish global norms of transnational organizing aimed at supporting principles such as those on which the Global Compact is based. In fact, delisting and related measures are more likely to “backfire” and prove detrimental to the cause of global sustainability by alienating business participants and leading to the entrenchment of pre-existing (i.e. profit-oriented) schemata and habits. Attitudinal and behavioral change is more likely to be achieved through persuasion, learning, and dialogue between business firms, governments and civil society organizations. Troubled companies require encouragement and learning opportunities, not social sanctioning.

This leads to a paradox: on the one hand, the association with “bad apples” can endanger the legitimacy of a transnational organization, which necessitates measures to prevent “negative spillover” that could “contaminate” its reputation. On the other hand, the architects of transnational governance want the problematic companies to join the overarching organization, in order to expose and “enlighten” them with the rationale of global sustainability. In an effort to accommodate both the protection of its legitimacy and the provision of learning opportunities, in 2010 the Global Compact introduced a “differentiation framework” with different performance levels designed “to help all companies in the Global Compact improve sustainability performance and disclosure and to give recognition for progress made” (Global Compact 2010). Furthermore, the Global Compact offered a moratorium for delisting companies from non-OECD/G20 countries, given their difficulties to thoroughly report on their implementation efforts.

Such a “soft” and consensual approach is in the best interest of the Global Compact and transnational governance more generally. Increased participation will help transnational organizations enhance their moral and cognitive validity. The manifest ubiquity and proliferation of best-practice examples will make corporate participants increasingly realize the need to honor their promises, divert resources away from more established forms of organizing, and thoroughly implement the principles of sustainability. In contrast, high entry barriers and more rigorous enforcement mechanisms may slow down the institutionalization of global sustainability or limit it to a small number of organizational actors. Thus, “keeping bad apples” and providing them with time and resources to overcome organizational barriers may prove more fruitful than unconditional punishment. Striking the balance between the detrimental consequences of organizational interdependence and the beneficial impact of mutual persuasion and learning will constitute a major challenge to decision and policy-making in transnational governance.



References:
Aldrich, HE & Fiol CM 1994, ‘Fools rush in? The institutional context of industry creation’, Academy of Management Review, vol. 19, no. 4, pp. 645-670.
Barnett, ML 2006, ‘Waves of collectivizing: a dynamic model of competition and cooperation over the life of an industry’, Corporate Reputation Review vol. 8, no. 4, pp. 272-292.
Baumann-Pauly, D & Scherer, AG, ‘The Organizational Implementation of Corporate Citizenship: An Assessment Tool and its Application at UN Global Compact Participants’. Forthcoming in Journal of Business Ethics.
Global Compact 2010, Global Compact introduces differentiation framework, United Nations Global Compact Website, viewed 17 June 2011, http://tinyurl.com/3gqjumd.
Global Compact 2011, Integrity measures, United Nations Global Compact Website, viewed 17 June 2011, http://tinyurl.com/3nqo9eu.
Investors Against Genocide 2009, UNGC and PetroChina sign-on letter–text, viewed 17 June 2011, http://globalcompactcritics.blogspot.ch/2009/01/ngos-to-further-challenge-un-global.html

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