05/17/2010 05:12 am ET | Updated May 25, 2011

The Real Significance of the UN Global Compact

The United Nations Global Compact was launched in 2000 by Kofi Anan as a platform to promote greater corporate responsibility around the world -- ten guiding principles for corporations covering human rights, the environment and corruption. The Compact now includes over 7,000 companies from 130 countries. U.S. businesses have been slower to get on-board than most countries as many U.S. executives see the UN Global Compact as just another set of sustainability guidelines crafted by governments or activists to induce greater "corporate social responsibility." This view, however, misreads the real significance of the UN Global Compact.

The UN Global Compact is a revolution in global governance. Our modern system of international law began in 17th century Europe with the Treaty of Westphalia, which ended the Thirty Years' War, Europe's bloody conflict between Protestants and Catholics. But beyond quelling a religious war, Westphalia is best known for creating the idea -- and legal reality -- of the sovereign state. With the signing of the treaty, the political geography of Europe changed from the messy "boundaries" of the Holy Roman Empire to the more recognizable "borders" of autonomous European countries.

What's important is that Westphalia created the modern system of international law, which, as the name implies, recognizes the "nation" as the only player in international policy making. Only national governments are invited to nation state confabs like the G20 to set international goals like peace and economic prosperity. However, in the 300 or so years since Westphalia, things have changed a lot. There is a new player on the global scene that rivals the nation state in economic terms, and it is the modern corporation.

The Modern Corporation

The first multinational corporation, the Dutch East India Company, was created around the time of Westphalia, but at the time was completely dependent on the sovereign state to do business. A July 2005 article in Fortune Magazine illustrates how much things have changed since then. When Fortune compiled a list of the 150 biggest economic entities on the planet, only 55 were nation states. Wal-Mart and Shell were bigger than Norway, Saudi Arabia and Indonesia. Beyond economic power, corporations had the added advantage of being able to coordinate enterprises that span the globe, largely unobstructed by national borders.

The UN Global Compact is revolutionary because it recognizes this reality. The Compact's Ten Principles are pulled directly from international laws like the UN Declaration on Human Rights and the UN Convention Against Corruption. These laws were created for nations by nations. But, in effect, the UN Global Compact asks businesses to sign onto international law. It is an implicit recognition that corporations are now major players in globalization and that the international community's common goals cannot be fulfilled without the active participation of global businesses.

This is more than a curiosity for students of international relations. Companies that sign onto the UN Global Compact become peers in the process of creating a peaceful and secure global economy. It evokes a higher purpose to global business. While it is still the responsibility of executives to make a profit, which means creating value in excess of the resources borrowed, it requires doing so in new ways.

Critiques say the Compact is insignificant because it is just words on paper. Diplomatic words on paper never stopped nation states from going to war or exploiting others for economic gain, so why should the UN Global Compact be any different? But corporate commitments are different in that they are watched by activists and bloggers, and also shareholders and customers. This means they are treated with significant respect by executives and may explain the reticence of U.S. companies to sign on. Recent U.S. signatories to the UN Global Compact include Cisco, Coke, DuPont, Ford, Intel, Nike and Starbucks. Their CEOs have made the calculation that succeeding in global business requires becoming a contributor to global governance. That is a pretty substantial outcome for the UN Global Compact to simply be words on paper.