Tag Archives: social contract

“Only real markets have social licence”

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Mark Carney’s speech at the Bank of England’s Open Forum 2015 today

This morning in London, Mark Carney reflected on the progress the Bank of England, and other Central Banks across the G20, have made in reforming financial markets. When using the term “social licence” he is clear that he means legitimacy in the eyes of society – NGOs, trade unions and the wider public. “Finance”, he claims. “must become a true profession… only a third of people believe that markets operate in the interests of society” Drawing on his Mansion House speech earlier in the year, Carney is robust in stating that we “must end this tide of ethical drift”. Misconduct must be met with real (and large) penalties and governments must uphold the highest standards of accountability. Fine words, but words which must be matched by action.

What has already been achieved?

Financial markets are growing. Within the G20, there are now $75 trillion assets under management. Banks must be more resilient because they can no longer rely on the state – in the future private financial institutions must be allowed to fail. Robust market infrastructure is a public good.

In the UK, for example, there has been progress since 2008. Liquid assets of banks increased four times in the UK, the system is more robust. George Osborne, UK Chancellor of the Exchequer, followed Carney in detailing how bad things were in 2008. “For too long too many financial benchmarks were rigged by insiders, banks claimed to be adequately capitalised when they were not, it is now – seven years after the financial crash – that we can be honest about its causes and effects.” Banking regulation is now back in the hands of the financial regulator and UK banks are “much safer”.

What more needs to be done?

It is clear that there is much more work ahead if the UK is indeed to become the financial technology (“FinTech”) centre of the world. London-based financial markets are already six times greater than UK GDP and this is set to grow to fifteen times. This disparity represents a power gradient. How does UK society really feel that it benefits from hosting such vast revenue flows? This question is also one that all Central Banks across the G20 must be prepared to answer.

What is stopping markets from being truly sustainable and benefitting society as a whole? This needs to be the real benchmark for our work ahead across the whole G20. Both Carney and Osborne claim that FinTech will enable greater transparency and accountability. This remains an open question, in particular because of concerns over privacy and encryption that the UK is currently dealing with in other legislation. Another unanswered question is the cultural change needed in the City of London for public trust to be restored. Most people joined the financial sector when the incentives were very different and most of them are still there – very few have been penalised. How will we know that the cultural shift has been achieved? I hope we will hear more from Messrs Carney and Osborne on this issue over the months ahead. Perhaps the creation of a global corporate human rights benchmark for the world’s 500 largest companies will be part of the solution.

The 2015 Nobel Peace Prize: A triumph for the multi-stakeholder approach

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Yesterday in Oslo, the Nobel Committee announced the winner of the 2015 Nobel Peace Prize – the “National Dialogue Quartet” of Tunisia. This sends a powerful message to us all.

This year’s winners of the Nobel Peace Prize – to be honoured in Oslo on 10 December – are not well known, outside of Tunisia that is. Last year’s winners – Malala Yousafzai and Kailash Satyarthi were less surprising: Malala’s win was much anticipated and Kailash’s longstanding work on child labour well known. Previous winners, such as the European Union, Barack Obama. Al Gore or Martti Ahtisaari, need little introduction. Some of names rumoured for the 2015 prize had included Angela Merkel, Pope Francis, Edward Snowden or the organization Médecins Sans Frontières – all would have been worthy winners.

The Nobel Committee put a lot of thought into their decision. It does not just honour the outstanding work of individual(s) or organization(s) but also sends a message about where they think the world is going and essential components for maintaining peace, developing democracy and respecting human rights. The decision to give the 2015 Prize to Tunisian organizations will have been much debated and well thought through. It does indeed make a lot of sense.

Some have hailed the victory of the “National Dialogue Quartet” as a recognition of the bravery of those who fought the Arab Spring and Tunisia which started the wave of popular uprising and arguably has managed the process best (when compared with Egypt, Libya or Syria few would argue this point). Explicitly, the Nobel Committee recognises the Quartet’s “contribution to the building of a pluralistic democracy in Tunisia in the wake of the Jasmine Revolution of 2011”. In particular, it is because the main business, trade union, legal and civil society umbrellas of the country have stood together and were key in safeguarding the democratization process as well as the development of a “vibrant civil society with demands for the respect for basic human rights”. Critical has been the Quartet’s ability to mediate complex dilemmas from the time of the revolution to democratic elections last year. This, despite the attack on tourists by jihadists on two occasions, the second earlier this year in Sousse resulted in the death of 38 people.

So congratulations to the Tunisian General Labour Union (Union Générale Tunisienne du Travail), the Tunisian Confederation of Industry, Trade and Handicrafts (Union Tunisienne de l’Industrie, du Commerce et de l’Artisanat), Tunisian Human Rights League (La Ligue Tunisienne pour la Défense des Droits de l’Homme) and the Tunisian Order of Lawyers (Ordre National des Avocats de Tunisie). And congratulations to what this represents – that multi-stakeholder approaches can really deliver results even in the most pressing of circumstances. It is a reminder that the social contract in most of our societies is no longer an issue for governments alone, as my hero Thomas Paine once said (in 1777) ”Those who expect to reap the blessings of freedom, must undergo the fatigues of supporting it.”

This is unlikely to be the last time that the Nobel Committee recognises the role of non-state actors as key defenders of peace and democracy. In fact, the social licence of all actors is becoming a material concern for us all. As with the recognition of Kailash Satyarthi last year – the world is changing – business can have an increasing impact – for better and for worse. Last month, world leaders called on business to provide $1-4 trillion of annual investment needed to reach the 2015-30 Sustainable Development Goals. The 2014 and 2015 decisions of the Nobel Committee reminds us that the accountability of non-state actors, as well as that of government itself, is a complex issue and that each must hold the other to account; and that both most be accountable to society itself.

How David Cameron learned about refugees

What difference a day makes…

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Two days ago, I watched the UK Prime Minister speak on national television explaining why the UK could not accept any more Syrian refugees. He looked uncomfortable when saying it, not making eye contact with the camera.

Like many British people, I got a little angry about this. My grandmother had taken in a destitute Hungarian refugee in 1956, she had little but had taken him into her home. Surely if the government was not willing to do anything itself, it could at least get out of the way and let the British people step in, as they had in 1956.

So I wrote this letter to The (London) Times newspaper. Surprisingly it was published, perhaps signalling that even conservative newspapers such as The Times were sensing that the government needed a powerful message – a reminder of some moral sense.

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The front page of the Times yesterday, and most other UK newspapers that day, was the shocking image of the little drowned boy Aylan Kurdi. One of those historic images that changes the tide of events.

Partly because of what my grandmother did and other refugees I knew in my early life, I spent most of my 20s and early 30s working on refugee settlement issues in Europe before moving into other areas of human rights.  By lunchtime yesterday, I was with two colleagues reflecting that, as with John Major on Bosnia in 1993, something would need to change quickly in government thinking. At 6pm yesterday, there were the first television reports of some announcement from 10 Downing Street which came this morning.

Most of the details about how the UK will respond have yet to be released. It will be in the single digit thousands (at least initially), refugees for resettlement nominated by UNHCR from the immediate vicinity of Syria itself. There are many unknown answers to complex questions still ahead, but the outpouring of letters and social media throughout the UK today reminds us that there is still a basic humanity underpinning the social contract that all democratic governments must service. They do indeed need social licence.

I end with two of today’s letters in The Times responding to my own and reflecting why ordinary British people  feel compelled to act. I hope that when it matters, a British Prime Minister will not forget this again. My deepest respects to the father of the Kurdi family and all asylum-seekers and refugees wherever they may be – the dispossessed and the desperate but also those closest to the dignity of life itself.

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δημοκρατία: Democracy remains a Greek word

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Are referenda back in fashion?

The quip or blunder about whether or not the French know the meaning of the word “entrepreneur” is often attributed to George W. Bush (like so much else). By comparison, there can be less ambiguity about whether “democracy” is still a Greek word – especially after the result of last Sunday’s referendum.  European heads of state will meet tomorrow (12 July) in Brussels to negotiate over whether Greece remains in the Eurozone. Last Sunday’s referendum gave the Greek Prime Minister, Alexis Tsipras, the political capital he needed to gain the backing of the Greek parliament last night – having delivered a decisive “No” (60%) to the previous terms from Eurozone. 12 hours ago, the Athens Parliament gave Tsipras the authority to negotiate a new bailout by 250 votes to 32. Such a mandate would have been inconceivable only a week ago.

It is still anyones guess whether tomorrow will see the emergence of any new bailout offer between the Eurozone and Greece, or even whether it is in either’s interests to do so. But the referendum has unquestionably given Tsipras much greater authority – strengthening his social contract with the Greek people. The referendum was a gamble, but clearly one worth taking whatever the outcome of the bailout negotiations and Greece’s future in the Eurozone or even European Union. A deal that Tsipras could never have sold back at home would have been in no one’s interests, so the referendum is actually in the interests of his country’s creditors too – even if they did not express this sentiment at the time.

There have been plenty of other referenda in Europe over recent years, one of the most recent, before the Greek vote, being Scotland’s 2014 vote on whether it remained part of the United Kingdom (the Catalonian unofficial referendum a few months later was not recognised by the Madrid government). Recently the UK Government has confirmed that another referendum will be held in the next two years, this time about the UK’s ongoing membership of the European Union. Previously, Scandinavian countries have had referenda about whether or not to join the European Union (EU), and Ireland, France and the Netherlands have also held referenda on specific EU treaty requirements. Sometimes referenda have led to de facto changes in international boundaries – such as those in Kosovo in 1991 or Crimea in 2014 – or to legitimise existing territorial claims – such as in the Falkland Islands in 2013. In countries where referenda are a regular occurrence, such as Switzerland, they seem to be becoming more frequent with up to 10 a year now; likewise in many US states such as California and Arizona.

There are two schools of thought. Those following the social contract theories of Locke or Rousseau tend to see them as a valuable extension of democracy – in fact Rousseau’s ideal “Republic” would have a referendum on every issue (each of us would be so well informed that we could vote before coffee each morning). Others despise them, such as the former British politician and European Commissioner, Chris Patten, who stated in an interview:

“I think referendums are awful. The late and great Julian Critchley used to say that, not very surprisingly, they were the favourite form of plebiscitary democracy of Mussolini and Hitler. They undermine Westminster. What they ensure, as we saw in the last election, is if you have a referendum on an issue politicians during an election campaign say oh we’re not going to talk about that, we don’t need to talk about that, that’s all for the referendum. So during the last election campaign the Euro was hardly debated. I think referendums are fundamentally anti-democratic in our system and I wouldn’t have anything to do with them. On the whole, governments only concede them when governments are weak.”

It should be noted that Chris Patten was also Britain’s last Governor to Hong Kong which was returned to China in 1997 – without a referendum. One can expect him to have strong feelings on the subject, as do many residents in Hong Kong to this day as it happens (as demonstrated during the 2014 protests). It is true that referenda have been the ally of despots to legitimise their annexation of territory but perhaps there is now more evidence, over recent years, that referenda are becoming part of the social licence of democratically elected and accountable governments – winning an election every four or five years is essential but not always sufficient when it comes to major issues of identity or self-determination. The important caveat, and it is an important one, is that law matters and when referenda run against the fundamental values of a nation, then constitutional courts can override such popular expression – as we have seen in the USA on the issue of gay marriage.

So, referenda are no silver bullet, but perhaps they are making a come back as an essential addition to the legitimacy of governments. Perhaps Rousseau was right all along.

A naïve wish for 2015

 

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Radically transparent supply chains

Once upon a time, in a far away land, the people decided to find out who made all the wonderful things that appeared in the town shop every morning…

As we approach 2015 there is perhaps a small opportunity for some wishful thinking upon a star. The coming year looks like being a tough one. Whilst we might expect good news on US-Iranian relations, tensions between the West and Russia could well deepen and extremists of various kinds are likely to inflict more horrors on the innocent, as recently took place in Pakistan. Europe looks like it will continue its walk towards increasing populism and xenophobia. We can only hope that enough multilateralism will prevail for forthcoming agreements on Climate Change and the Sustainable Development Goals. But what on business and human rights?

We all wish there will not be another incident of the scale of the Rana Plaza factory collapse in Bangladesh (which killed over 1,100 in April 2013) or the Turkish mine disaster (which killed over 300 in May 2014). Globalisation has lifted millions, if not billions, out of abject poverty over the past thirty years but it has also widened national inequalities and increased the power of non-state actors such as business. We can and should work for stronger laws, stronger enforcement and greater accountability but will it be enough? The social contract that binds our societies is shifting and national governments are struggling to keep up with the demands of communities and the wider population.

There perhaps has not been a time in history when democracy has been so widespread but also so undervalued. There are also signs that some governments want businesses to play an increasing role in the social contract itself, be it in terms of internet governance, on the one hand, or public-private partnerships to realise the Sustainable Development Goals, on the other. Given it will take years, if not decades, to respond adequately to these changing power dynamics, what are the essential steps we take in the meantime?

Greater transparency is clearly an essential step and this will not be news to any reader. Over the past ten years, there have been a range of important initiatives between governments, business and civil society on issues such as extractive sector revenue and tax, conflict minerals, timber or even the social audits of ICT, apparel or food companies. But we have a problem. These important initiatives, or laws that mandate transparency, operate outside of wider public awareness or scrutiny. And this lack of public interest limits the political prioritisation given to human rights by governments, the responsiveness of business and the resources available to NGOs.

Fundamentally, there is a lack of sufficient incentives within most value chains for lasting systemic change. For example, this week’s BBC Panorama undertook another documentary on a leading brand, this time Apple, and allegations of the abuse of migrant temporary workers in the supply chain including excessive overtime. In previous years it has been other brands with allegations of  child labour and so on. The issues raised are very serious but they are often, but not always,  systemic in nature. If you might think that such media attention would lead to changes in consumer behavior, well think again. The BBC journalist fronting the documentary on Apple admitted at the start of the piece how much he loved the product, as do I, and many people I know. Just looking at the number of iPhones and Macbooks evident at the recent United Nations Annual Forum on Business and Human Rights – that says it all – we all love to buy quality brands if we can afford to, perhaps feeling that even experts do not have the knowledge they need to make consumer choices either way.  Let me be clear – we don’t yet have the objective benchmarks to make such a decision about any ICT company and this is part of the problem and well as the frustration every time such a documentary is made.

If companies do change, and some are making big efforts, it is not driven by consumer behaviour or investors at the moment. Just think how much more we could achieve if we brought consumers and investors with us!

There are clearly not enough incentives and disincentives in the system for fundamental change. Law should provide more of these – particularly laws that capture the “submerged” actors who are not brought into the debate by public or political commentary. Conflict mineral legislation is one example of this and we can hope in 2015 to see more binding law relating to modern day slavery and the incorporation of the 2014 ILO Forced Labour Protocol into national legal regimes. And, yes, there might well be a case for a binding international treaty on business and human rights (more on this in 2015). But it would indeed be naïve to think that law alone will really drive the behavioural change we need amongst consumers and investors.

Also needed are market-based drivers. That is why many of us think that the public ranking of companies performance against human rights benchmarks is critical and we have recently launched a broad-based initiative to achieve this over the years ahead. Investors have a critical role to play: few companies will want to be bottom of their sector’s league table in terms of their human rights impacts. But consumers are also a critical factor that can no longer be over-looked.

So here are two radical fairytale endings.

The first possible ending: imagine that we in our fairytale town and when we go to the large furniture store (well known for its wonderful flat-packs) and you have the chance of interacting with a human being at the other end of the value chain. Through the magic of information technology and an image projected onto a screen, you would be able to pose questions to a worker representative at that week’s featured supplier on the other side of the planet and ask whatever question you liked (through an interpreter) about working conditions, the worker’s concerns and aspirations. Within the next ten years, one of the major retail brands will do this and, by doing so, begin to change the whole dynamics of corporate responsibility. It is nonsensical that consumers currently carry no responsibility for their own purchasing behaviour, this can and will change if consumers are given an opportunity to engage in the “kingdom of the supply chain” as Auret Van Heerden once called it.

A second possible ending: imagine a chain of fairytale theme parks in major cities such as Los Angeles, Orlando, Paris, Tokyo and so on and who currently spend many millions of dollars on supply chain auditing for the soft toys and other items sold therein. Imagine that they decided that supply chain auditing alone was never going to end the eternal risk of being caught out should some wicked goblin decide to scrutinise the supply chain with the hope of finding something, anything, that might embarrass the magic kingdom. Given that the theme parks touch hundreds of millions of people at some point of their lives, then they have an unrivalled opportunity to bring visitors into some state of awareness about supply chain conditions. Imagine that in every theme park there is a “supply chain interactive museum”, full of wondrous information about the real world.

Over time, consumer awareness of the complexities of supply chain management would increase and they would begin to ask the right questions of their own buying behaviour, and begin to reward those brands trying to do the right thing. This would save millions if not billions of dollars currently spent on auditing across industries, and instead some of this money into consumer awareness. Auditing would still have an important role to play – but disclosure and reporting would be more meaningful and be much more accessible to the most important stakeholder for any retailer – the consumer (or as we used to call them, the customer).

Sorry for the wishful thinking, but it is that time of year. I hope we will all live happily ever after, or at least until 1 January.

The start: Why The Social License?

I wanted to write a book about the current state of affairs at the business-society interface and wanted a fresh approach – not one following the tramlines of existing ‘corporate social responsibility’  (CSR) thinking or another book on business and human rights, there have been several excellent books already written on the latter (not least by my colleagues at the Institute for Human Rights and Business). I wanted to come to the issues afresh and from first principles as much as possible. I am therefore wholly to blame for the arguments set out in the book and this blog.

The enduring vision I have of why I work in this area is that of the evolution of the marketplace – a point Anita Roddick was lucid on. Several hundred years ago, and still in physical markets in many parts of the world, buyers and sellers operate in close proximity – they know each other, where each other lives and are likely to meet on a weekly or daily basis. There has been and still is, in such market places, a greater sense of interpersonal accountability. This is not to say that there were not long complex supply chains in past ages (obsidian, for example, was traded over thousands of kilometres over thousands of years) and also there were clearly abusive practices such as slave labour, but customers were much more actively involved in making judgements about the quality and reliability of not just the product but also the behaviour of the seller. Contrast this with the world of the past 20 years, where global value chains are hugely complex and where the humans involved (be they workers, investors, customers or consumers)  are very much disempowered in their ability to  influence the way the business of business is conducted.  We need new tools, awareness and laws to bridge this gap which has externalised the true social and environmental cost of production. At a instinctive level, the book is a reaction to the dehumanising effect of much of what we now call the global marketplace.

I was also interested that the term ‘social license to operate’ was emerging in many different places around the world and for different reasons. True, it remains a term still associated mainly with the extractive industries, but it I hear it elsewhere – within constitutional think tanks in Kenya, for example, or US-based beverage  companies. It is an attractive term because it is suggestive of a rationale about why any non-state actor should engage in social issues, particularly why an organisation whose primary stated purpose is not social (i.e. a business) should do so.  Unlike CSR or even human rights, it is an outcome and not just an objective. That said the term ‘social license’ was not clearly defined and was at risk quickly moving into the category of ‘self-declaratory CSR’ – as John Ruggie would call it.

So the book tries to pin down the ‘social licence’ concept and in a way relevant not just to business, but all other types of organisation. The pinning required something of a conceptual framework, more perhaps than a non-academic book should attempt (particularly when written by someone who is very much not an academic).  I had the work of all my colleagues in the business and human rights field as ballast – which reminds us that a human-centric approach must be about impact and impact in human rights terms. And that accountability is about redress and remedy, but it is also about prevention as well as transparency. This I had ‘in my back pocket’ so to speak and those of you that read the book will see it becomes an important feature of the later chapters. But I needed to get there – and particularly for the more skeptical reader who might think that ‘social licence’ sounds nice but is just a fashionable buzz word, and that human rights and business have little to do with each other.  Therefore I evoked the thinking of some of the greatest in making some superficial but important links back to social contract thinking of 200-300 years ago. It is not so easy to dismiss social contract theory as fluff given the influence it had on shaping democracies and ideas of civil society in many parts of the world.

It seems I am one of the first in the world to define social license in social contract terms, and you can judge to what extent I pull this off. The social contract experts who have seen my book have been polite and kind, but I knowingly dip my toe into what are very deep waters. However, there is much of what I seen in the writing of those such as Locke, Hobbes and Rousseau which does resonate with questions about the role of business (and other organisations) in contemporary society. At a minimum, I hope to provoke a reaction from which we all might learn something. And, as my patience with the ‘CSR industry’ is wearing thin, I give us all a good collective kick to do better and too ask the tougher questions about the activities of all of our organisations.

I will not just be blogging to promote this my first book. Rather I wish to develop my own voice and thinking on a range of issues, perhaps resulting in future books perhaps to be written by others. I hope some of you will share this journey through your own comments and writings. The role and legitimacy of non-state organisations in today’s world (be they businesses, NGOs, communities, religious organisations, regional authorities and so on) is one of the most fundamental of our life time and so tough questions need to be asked.