Submission date: BUS5AFS: Accounting and Finance for Sustainability Value Chains

Hand in at your seminar class, SEMESTER 1 2015

Teaching Week 7 April 22-24. REPORT/ESSAY ASSIGNMENT (Group)
No late submissions accepted. ASSIGNMENT COVER SHEET and FEEDBACK TO STUDENTS

Group member: Student Name (as per enrolment) Student Identification Number
1 Thi Hao Ngo 18211861
2 Mihir Parmatman Upadhye 18217131
3 Harmeet Singh Raipur 18355318
4 Rezwanur Rob 17606480
5 Mitul Prakashchandra Tamakuwala 18374451

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Mark out of 30:

Introduction
“When did globalization start?” It’s not an easy question to be addressed precisely. However,

“globalization has become the buzzword for the last two decades”. (The Economist, 2013). Thanks to

globalization, the world’s economy has developed dramatically, but it also brings along a set of

problems that businesses are exposed to, such as supply chain dilemma, human rights violation, poor

working conditions and environmental degradation. According to Georg Kell, Executive Director of

United Nations Global Compact, “business has the choice to be either part of the solution or to be

seen as part of the problem”. (Bloomberg Business, 2014). This essay will provide an insight about

Global Compact, the issues relating to the supply chains of multinational corporations and human

rights violation occurring in businesses worldwide.

Global Compact and its impact on multinational corporations (MNCs)

“I propose that you, the business leaders gathered in Davos, and we, the United Nations, initiate a

global compact of shared values and principles, which will give a human face to the global market.”

Former Secretary-General Kofi Annan at the World Economic Forum in Davos

31 January 1999

(United Nations, 1999)

After this proposal from Kofi Annan, the Global Compact was officially launched in 2000 and has

become the world’s largest voluntary corporate responsibility initiative designed to encourage

businesses to act as socially responsible members of the international community by aligning their

operation and strategies with Global Compact’s ten universally accepted principles regarding human

rights, labour rights, environment and anti-corruption. . The Global compact being accepted in an

international level, delegates in this course can feel confident that they are following the guide that

are universally accepted, supported and endorsed. The Global Compact is emphasized to bring about

corporate change to help the method of communication between different groups which would bring

about a positive change. The Compact has set up international standards and laws that can help to

globally govern companies, especially multinational enterprises.

The rise of the global economy and the rapid development of multinational corporations have

brought about huge challenges in governance. For example, many companies choose to set up their

production networks in the countries where the minimum wage, taxes and working condition

standards are lowest to maximize their profit. As a result, many developing countries have set the

minimum wage level to be unrealistically low to attract foreign investment. Hence, the multinational

enterprises have provoked considerable debate around the conflicting issues of “efficiency” and

“fairness” and the balance between economic growth and social injustice. (Human Rights Quarterly,

2003). The Compact has been acting as a global governing actor to provide guidance and engage

transnational enterprises to adapt its ten principles into the corporation’s operation to ensure the

human rights and labour rights are fulfilled.

Corporate social responsibility and human rights

There is a classic expression by Davis and Frederik (1984) regarding corporate social responsibility

that is: “In the long-run, the greatness of the business as an institution may depend as much on its

heart as on its brain.” Human rights are frequently communicated and ensured by law, in the

manifestations of bargains, standard worldwide law, general standards and different wellsprings of

global law. To help company to be fully social responsible and respect human rights, besides the

Global Compact, the United Nations has developed the “Protect, Respect and Remedy” framework

which could be used by companies as a part of their operational manual, consisting of three main

points:

• The State duty to protect human rights

• The corporate responsibility to respect human rights

• The need for greater access to remedy for victims of business-related abuse.

(Office of the High Commissioner for Human Rights, 2012)

The businesses should go beyond profit maximization to fulfil the aspirations of a wide range of

stakeholders including shareholders, customers, suppliers, employees, governments at various levels,

community organizations and including the United Nations which represents 191 countries. By doing

this, the company will develop sustainably in the long term. (Competition Forum Vol. 8(2), 2010)

It’s a fact that most of the big MNCs buy from developing countries where the manufacturing is done

by workers whose rights are ignored in significant ways. Workers are exposed to risky chemicals or

dangerous working conditions, who were forced to work overtime, or who were prevented to

negotiate changes in such conditions. Most of the workers in these countries are hired because of

cheap labour rates. But sometimes as seen in Apple’s Broken Promises, workers were paid around

$300 a month in Shanghai (one of the costliest cities in the world) where the average minimum wage

is $794. They are not given enough training, and made to work overtime giving rise to stress, mental

health problems and even suicides. Not only do unfairly treated workers usually end up making poor-

quality goods, but companies that aren’t careful with this situation are playing with fire in terms of

their reputation. MNC’s should be accountable for these conditions and should provide desirable

working conditions for the employees. Firstly they should be ensure that no child labour is involved

in their operations, working hours should be fair, and all overtime work should be voluntary. Second,

respect for human rights leads to social and economic development. Fair work is critical in

underpinning of social stability. Businesses that respect labour rights put more money in the hands of

workers, helping them to educate their children and in turn live healthier lives.

The company is solely responsible to look after its supply chain management. If we take an example

of Apple Incorporation, the overall belief of the public is that Apple is a well renowned company

because of its great product portfolio. But the inside story of Apple’s supply chain management

shows the different side of the story. Pegatron, a manufacturer of Apple products in China doesn’t

follow the rules and regulations of Labor laws. They always pay less and give plenty of work loads

to their workers. The detail of on-record is totally different from their off-record. The workers are

forced to work for more than 16 hours per day. But the company shows only 12 hours on paper. And

this is against the labor norms. The hostel rooms of their workers are small and narrow. Despite of

many complains, the company showed no improvement and due to that many workers died in the
factory. Workers go to sleep in front of the running machine and people exhausted on their work. To

improve this, the company should investigate and send internal auditors to clear the hectic situation.

The company should focus more on the workers safety and should give proper training on disaster

management.

Nowadays big corporation have stopped following the corrupt policy of child policy in supply chain.

Earlier, there were more than 12 million child labours working for big corporation worldwide. But

the figure is going down because the transparency in the corporations. Companies are respecting and

following the Global Child Labor Practice. 80% company supports the protection of internationally

proclaimed human rights and they make sure that they do not abuse the complicit in human rights.

Payment inequality is decreasing to a long extend. Business needs stable and predictable

environment to invest and many governments are helping these organizations to give proper and

suitable environment. Government is rewarding companies who follows and support Human rights

Policy.

Many big and small organizations have started endorsing the global compact guiding principles.

The company is respecting and supporting human rights and faces the challenge of areas of corporate

sustainability because in part human rights have traditionally been the concern of states reaction to

CIA report. The Human Rights and Business Dilemmas Forum enables businesses and stakeholders

to explore such challenges in an interactive way in the context of approximately 25 human rights and

business themes.

Conclusion

In today's world, where big corporations are trying to build an image as community givers, analysing

outsourcing that abuses workers and employs children should be one of the first steps in promoting

social welfare. Such actions will inevitably result in higher costs to the companies, which in turn will

be transferred to the consumers. I think this is a small price to pay compared with the greater good

that will result. After 15 years of operation, the global compact has achieved its main purpose of
integrating human rights and ensuring good working conditions are in place for the efficient and

ethical running of the companies.