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UN Performance Problems UN Management Accountability Struggles Where is the Rule of Law? Inadequate UN Oversight Recent Developments
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The UN barons and diplomats have traditionally been contemptuous of
business firms as mere "tradesmen," as evidenced by their annoyance at the
idea that UN system organizations should adopt a "businesslike approach."
However, the new title of the UN system coordinating body, composed of the
heads of the organizations, was recently changed from the Advisory
Committee on Coordination (ACC) to the "Chief Executives Board for
Coordination" (CEB), and all the changes in management being forced by a
very competitive global economy and modern computerized management systems
are gradually changing this overall attitude. Among the most
enthusiastic UN supporters, the change is coming more slowly: some of them
were distraught when Secretary-General Annan launched his "Global Compact"
to urge corporations toward more moral behavior, for fear that the
association would contaminate the UN. This moral superciliousness, in
light of the UN's own ongoing mismanagement, abuses, waste, and fraud
problems, is discussed further in the Recent Developments
section of this archive under Other Major
Problems. The corporate
world has indeed entered into a period of severe scandals, beginning in
the United States, but spreading strongly to Europe since late 2003, and
very much present in other
regions of the world as well. As discussed in the introduction
to the UN Management Accountability
Struggles In fact, the
private sector has much to teach the UN. For one thing, the organizational
governance issues are increasingly similar, if one substitutes "Board of
Directors" for the international organizations' "governing bodies." Equally important, however, is the
fact that the egregious private sector abuses are at least being countered
by vigorous press coverage, many initiatives during the past decade to
enhance corporate oversight and good governance, and above all, the rule
of law.
These efforts
provide many important and useful benchmarks and examples for the dawdling
and unaccountable UN in matters of governance, performance, transparency,
accountability, oversight, and the rule of law. In fact, there are some
rather significant similarities between the UN, as it presently operates
its global activities, and the centerpiece of the new corporate scandals
-- Enron -- that are explored
much further in the subsection on The UN, Alone and
Unaccountable subsection of this
archive. One point, above
all, cannot be stressed enough in differentiating the international versus
these public and private groups: the rule of law. As discussed throughout the rest
of this archive, management accountability in the UN is very weak, or
almost nonexistent. In the
private sector, however, an extremely potent and painful element --
"prosecutorial integrity"
-- exists.
Quite unlike the
immunity and impunity enjoyed by UN senior officials, chief executives and
other top managers in the private sector (and senior officials in national
governments) can and are sent to court in both civil and criminal
trials. They also can be, and
are being, sentenced to prison. Such firm sanctions and application of the
rule of law are obviously a very powerful encouragement to much more
careful management decision-making and diligence. IO Watch will develop
the extensive accountability and oversight initiatives in the private
sector further in the future (in the context of the major corporate
scandals which may well continue on for quite some time). For the moment, the
following quotes introduce the similarity of public and private sector
accountability and transparency issues. They also indicate the extensive
efforts which the corporate sector, and its very active watchdogs, are
taking (or being forced to take under
the rule of law, especially
as emerging in 2005) to strengthen oversight and governance, and to
suppress scandalous management behavior.
"
serious ethical issues face
public officials at the highest levels of our national government that
have a lot in common with the critical issues facing corporate executives.
The interaction of the [dynamic
traits of] effective leadership
and the pressure of complex decisions in
the face of limited information
creates similar ethical dilemmas for
corporate leaders and high public officials. In both sectors, the temptations
to shade the truth or minimize the risks are greatest when the stakes are
highest. Moreover, if some
highly placed individuals yield to these temptations, the credibility of
the whole sector is at stake.
Legislators, regulators, and
market participants are working hard to tighten and clarify the accounting
rules, improve corporate governance, and find ways of holding executives
and board members, especially audit committees, personally responsible for
the veracity of their information.
[I believe] that the answer in
[both sectors lies in [continuing dynamic leadership while] requiring more information and
asking more probing and skeptical questions.
A far more thorough job must be
done by independent analysts, the press, and an increasingly well-informed
public. In other words, we
all have to take on this problem." Alice M. Rivlin, "Greed, ethics, and public policy," Public Integrity, vol. 5, no. 4, 2003, pp. 347-354 [348, 351, 353.] [Note:
the author is a distinguished policy analyst, with much experience in both
the public and private sectors, who also held top management and
analytical positions in the US government.]
"Almost every year, it seems, some
scandal envelops a Fortune 500 company and causes a new spasm of public
distrust of big corporations.
Lately, however, corporate America
seems to be doing more than just paying lip service to standards of
management behavior.
a growing number of big companies are enacting
strict ethical guidelines and backing them up with internal mechanisms to
enforce them.
The corporate title of ethics
officer,
almost unknown a decade ago, has become
[more familiar.] The Ethics Officer Association
says membership has soared to 706 today from 12 in 1992.
Nobody doubts that the companies
[act] partly to polish their image.
But the commitment goes deeper than that for a very practical
reason
: taking a strong ethical stand helps shield senior officers from
legal troubles. First came [the US Justice
Department's sentencing guidelines in 1991] which, in effect promised more
lenient treatment for convicted corporate executives if their companies
had established good-citizenship ethics programs. Then in 1995, the Delaware Court
of Chancery warned that
corporate directors could be held personally liable for subordinates'
wrongdoing if they had failed to establish programs to ensure compliance
with the law." Amy
Zipkin, "Management: Big corporations are getting religion on ethics,"
New York Times, October 18, 2000.
"The Enron-Andersen debacle has
cast an unforgiving light on corporate bookkeeping, but the growing demand
for accountability could extend far beyond financial statements.
Pressure
is pushing more companies, particularly multinational ones, to
report their nonfinancial performance, detailing the impact of their
businesses on the environment and human rights.
A handful of companies like Royal
Dutch Shell
and Ford Motor, have been producing sustainability reports
since the middle to late 1990's.
A Web site that tracks social reporting,
CorporateRegister.com ,
counts 487 sustainability reports published last year, up from 194
in 1995 and 7 in 1990.
(Social reports of all kinds, including environmental and safety,
number in the thousands.) In another sign that social
reporting is growing, some large accounting firms are jumping in, looking
to expand their auditing and consulting services. Only 40 per cent of social reports
are now audited.
Indeed, social reporting
is
becoming more serious. The
Global Reporting Initiative drafted guidelines a few years ago, and 100
big companies are following them.
In Europe, some countries -- the Netherlands, Denmark, Norway and
France -- require some sort of social reporting.
" Amy Cortese, "The new accountability: Tracking the social costs," New York Times, March 24, 2002. "Stupefying, is it not, how
selfish behavior in the executive suite continues even as managers claim
to care deeply about corporate governance
issues. But
a new study by
GovernanceMetrics International, an independent corporate governance
ratings agency in New York,
confirms a correlation between corporate
performance and an attention to governance. The firm studied companies in the
Standard & Poors 500-stock index
[where] the average decline of a
stock for the three years ending March 20, 2003 was 2.3
percent. [However, It] found that
the
five companies earning the firm's highest score rose 23.1 on average over
[those] three years
The top [rated] 15 companies averaged total returns
of 3.4 percent and the bottom 50 [rated] companies fell on average 11.1
percent in the last three years. To identify good governance
citizens, [the firm] takes roughly 600 measures. These include a company's labor
practices, environmental activities, workplace safety approach and
litigation history. The firm also
checks for independence among a
company's board members
GovernanceMetrics is tough to
please. As of March, the firm
had given only five companies its highest rating,
10." Gretchen Morgenson, "Good governance: Good business,"
International Herald Tribune, April 29, 2003.
"Like 2002 and 2001 before it,
2003 has been a year in which scandals have dominated the business
headlines.
On top of this
were trials, and talk of still more trials, of errant executives
[which
are far from over.] Some corporate crook may be busy
at this very moment fiddling figures. But if he is, he is more likely to
be caught earlier. There are
many signs of improvement, and those most clearly visible are at the top
of the corporate tree. Chief
executives
with their imperial swagger
have learnt the hard way that,
to avoid humiliation, they need to be on their best behaviour, and they
have spent the past two years cleaning house. Crucial, too, has been the recent
focus of managers, investors, regulators, and politicians on improving
corporate governance. This
has been faster and more thorough in America than in Europe, though there
has certainly been significant progress in many continental countries.
True, there remain reasons to fear
that governance standards may, as ever, become too relaxed
But for the
time being, there seem to be plenty of corporate watchdogs alert enough to
catch most miscreants."
"Another scandalous year. Yet, despite the headlines, things are looking up in the boardroom," The Economist, December 20th, 2003. "
The issue of prison time for
our era's famous white-collar criminals is finally advancing, you might
say, from the theoretical to the concrete.
Lea Fastow [of Enron] asked to
serve her one-year sentence at a minimum security camp but instead was
scheduled for
the Federal
Detention Center in Houston, where she'll spend her days alongside various
killers, crack dealers, and thugs.
[Eric Stein, 45] knew he might get
caught
but he and his associates thought if they limited the [fraud
size]
any eventual prison sentence would be minimal and they'd spend
[it]
'someplace elegant where we'd play golf and go swimming.' But they were
mistaken. Instead of a wrist slap, Stein got
an eight-year sentence and soon learned Club Fed no longer exists.
The grim reality of prison life
for today's white-collar criminal -- the utter absence of
privacy, the body-cavity strip searches, standing in line 90 minutes, much
of it outdoors in any weather, to get unspeakable food -- is definitely worse than they or
the public expect. Stein's message to the outside
world is simple. 'If you are
considering committing a financial crime, do not do
it.'" Geoffrey Colvin, "White-collar crooks have no idea what they're in for", Fortune International, July 26, 2004, p. 30.
The financial sector is being
increasingly scrutinized for its rule in funding projects associated with
human rights abuses
The issue is rising on the
corporate agenda although there is little consensus on how the risks can
be managed, the report, by F&C Asset Management and KPMG,
said. Nine institutions took part in the
survey, which identified concerns including employee rights, staff
security, litigation, loan default and risks to reputation. We are concerned about the
reputational risks lenders may incur through their association with
controversial clients and projects
said Karina Litvack, head of
governance and socially responsible investment at F&C Asset
Management.
in the United States,
international financial services institutions have been taken to court
over their alleged past roles in the former apartheid regime in South
Africa. The report said that companies
should develop a comprehensive human rights policy, communicate it to
staff and investors and ensure that senior executives are accountable for
enforcement. Briefcase: Rights become a corporate issue, Reuters,
International Herald Tribune, October 30-31,
2004. [Note: Would that the UN Secretariat could be as straightforward in this central matter!] "As companies increasingly
recognize that good corporate governance can enhance their reputations and
reduce business and legal risks, there is also a growing interest in
indices and standards that measure best practice which investors can use
and trust. This report looks
at the new FTSE/ISS index which aims to calculate which markets have the
most well-governed companies. The key
issues: §
US: The
struggle to control corporate America can be viewed as a battle between
the private and public sector -- and between the regulators and the
regulated. §
Europe:
Auditors are a major line of defense. §
Asia:
Scandal has put the spotlight on
deficiencies. §
Corporate responsibility: effective boards and well-managed
companies go beyond mere box-ticking to face key issues that influence the
heart of corporate culture." "At a glance" summary of a special report by the Financial Times (UK), "Focus on fresh ways to measure best practice that investors can use and trust", December 15, 2004, 4 pp. [Note:
the full Special Report is also on
FT.com at www.ft.com/corpgov2004
.] "
[Experts say that] an intensifying battle [has emerged] over
efforts to revamp corporate governance. It is one that pits influential
members of the business community
against institutional investors
pushing for greater power over the direction of troubled companies.
None of this means that corporate America will be returning to the
complacency of the pre-Enron days. And indeed, the criminal and civil
pursuits of corporate wrongdoing continue at a breakneck
pace. The Justice Department's corporate fraud task force, formed
in
the immediate aftermath of the WorldCom debacle, has racked up an
impressive series of victories.
By June 2004, the latest period for which full statistics are
available, the task force had obtained more than 500 corporate fraud
convictions or guilty pleas and charged more than 900 defendants,
including more than 60 top corporate officers, with various types of
fraud. During that same time
period, the [Securities and Exchange Commission] filed almost 600 separate
civil enforcement actions involving financial fraud or
reporting. As the big fraud trials unfold over the coming months, public anger
may build as the excesses of the bubble years
are again trotted
out." Kurt Eichenwald, "Pendulum
is swinging back in U.S. corporate crackdown", International Herald
Tribune, January 15-16, 2005.
"The conviction of Bernard Ebbers
[chief executive
of WorldCom] is bad news for more than just Ebbers and his family.
Legal experts said
the government has shown
that juries are willing to hold top officers of major corporations -- who
rarely are involved in the nitty-gritty of daily operations -- accountable
for wrongdoing, even if the proof rests largely with the testimony of a
single cooperating witness.
'People at the top are not going to be able to
just blame the underlings when a fraud occurs', said
a former Federal
prosecutor
In each case, the chief executives have argued
that they had no intent to commit any crimes, that they had relied on the
assurances of managers who worked for them and of the professional
advisers, such as lawyers and accountants, that their actions were
legal.
[Ironically,]
chief executives [had argued]
that
the success of the company could not have happened without their
hard-driving involvement.
'It obviously proved very difficult to accept
that someone
[so highly paid] could simultaneously not be held
responsible for the vast wrongdoing in the culture', said [another] former
federal prosecutor." Kurt Eichenwald, "Ebbers case bodes ill for other
chiefs", International Herald Tribune, March 16, 2005.
"[A jury
has found former WorldCom boss
Bernie Ebbers]
guilty of fraud, conspiracy and filing false documents
[in]
an $11 billion accounting fraud
The conviction
[is]
the most significant
yet in America's latest crusade against corporate crime
An initial bout of post-Enron public fury had
died down
[but] WorldCom
convinc[ed] the American public that Enron
was not a solitary event
Most experts expect [Mr. Ebbers] to receive a
20-to-25 year jail sentence.
[He]
had argued that, although a massive
fraud took place, it was masterminded by
[his] chief financial officer,
and that he was unaware of it.
This was dubbed the 'aw, shucks' defense by prosecutors, who argued
that he feigned ignorance
. The verdict will encourage prosecutors in
upcoming trials of other senior businessmen.
In future, American bosses should assume that
they could be sent to jail for large-scale frauds perpetrated at their
firms, even if there is no paper trail or smoking gun memo linking them
directly to wrongdoing.
Working as a bus driver in Manhattan may be much less well paid,
but it also now looks a lot less risky." "WorldCom's cowboy bites the dust", The Economist, March 19th, 2005.
"
After the collapse of Enron and other
companies
corporations and their boards are adopting zero-tolerance
policies and increasingly holding their employees to lofty standards of
business and personal behavior. The result is a wave of abrupt firings as
corporations move to stop perceived breaches of ethics by their employees
that could result in law enforcement action, or public relations
disasters.
The seemingly frantic reach for the moral high
ground is driven as much by self-interest as by any attempt at
righteousness, now that boards and chief executives have seen how public
scandals can torpedo stock prices, alienate customers and end
careers. 'There is a new kind of puritanism' said
Marjorie Kelly, the editor of Business Ethics magazine, replacing
what Kelly said was an era of 'arrogance and ignorance, an attitude that
boys will be boys.'
The reaction has been most severe on Wall Street, where investment
banks, mutual funds and insurers have felt the sting of legal prosecution
for ethical lapses most acutely." Landon Thomas Jr., "Nervous about ethics, firms are
fast to fire", International Herald Tribune, March 30,
2005. [Note: IO Watch finds nothing "frantic" in the
situation at the UN, where, other than some crowded press conferences, the
senior "old boys" of the Secretariat
continue quietly and calmly on with "business as usual" -- lots of
talk (though none whatsoever from the General Assembly) and
no legal action.]]
"BP sacked 252 people last year as part of a
drive by the world's second biggest oil company to weed out bribery and
corruption. In its annual report on environmental
sustainability, social responsibility and corporate governance, the
company blamed the 50 percent yearly rise in sackings for 'unethical
behaviour' on theft, fraud and harassment. Lord Browne, chief executive said 'Human
ingenuity will always find something to get up to. It is our job to track it
down.' BP has established a new team to govern legal
compliance and business ethics across the group after the spate of
high-profile scandals over the past few years. It said in the report:
'Very clear rules on
business relationships are essential when there is any scope for bribery
or fraud in dealing with suppliers or governments.
BP is introducing a company-wide code of
conduct and measures such as forcing staff to disclose gifts worth more
than $50. Lord Browne did not provide details on the
investigation into last month's explosion at BP's Texas refinery, which
killed 15 people. He said the
tragedy was a 'forcible reminder' that BP needed to 'learn from our
imperfections.'" James Boxell and Fiona Harvey, "BP sacked 252 for
unethical behaviour", Financial Times (UK), April 12,
2005.
Useful Sources (Note: informally
assembled by IO Watch, roughly ranked from "most useful" on down, and
subject to change as new sources are added)
Eichenwald, Kurt, "Ebbers case bodes ill for other chiefs", International Herald Tribune, March 16, 2005. "WorldCom's cowboy bites the dust", The Economist, March 19th, 2005. Thomas, Landon, Jr., "Nervous about ethics, firms are fast to fire", International Herald Tribune, March 30, 2005. Boxell,
James, and Harvey, Fiona, "BP sacked 252 for unethical behaviour",
Financial Times (UK), April 12,
2005.
"The good company: A survey of corporate social responsibility",
The Economist, January 22d, 2005, p. 11 and Special Report, 18
pp. Korten, David C., When corporations rule the world, 2d ed.,
Kumarian, San Francisco, 2001. Pfanner, Eric, "Investor
beware: The next Enron may be lurking in Europe or Japan",
International Herald Tribune, January 26-27,
2002. Lavelle, Louis, "Enron: How
governance rules failed", Business Week Europe, January 21, 2002,
p. 38.
"The twister
hits: Nothing about Enron's demise was surprising, nor is what must be
done", The Economist, January 19th, 2002, pp. 63-65.
McClean, Bethany,
"Why Enron went bust: Start with arrogance. Add greed, deceit
", Fortune
European edition, December 24, 2001, pp.
53-58. "Why a few Enrons
would do Europe good", Business Week Europe, December 24, 2001, p.
18. "Post-Enron
lessons", editorial, The Washington Post, December 5,
2001. "Enron board agreed to fateful moves, inquiry shows", International Herald Tribune, January 22, 2002. "Restoring trust in
corporate America: Why CEO's must speak up: How institutional investors
are pushing reform: Special report", Business Week Europe, June 24,
2002, pp. 37-46. "Mirrors at the funhouse:
Accounting at Enron", International Herald Tribune, December 15,
2001. "Lawyers lining up to
dissect collapse", International Herald Tribune, December 5,
2001. "Q&A: If you violate the
law, you will pay for it", Business Week Europe, December 24, 2001,
p. 35. Sloan, Allen, "The Enron
effect: As the accounting scandal spreads
. Will anything really change?",
Newsweek International, January 28, 2002.
Zipkin, Amy, "Management: Big corporations are getting religion on ethics," New York Times, October 18, 2000. Morgenson, Gretchen, "Good governance: Good business,"
International Herald Tribune, April 29, 2003. Cortese, Amy, "The new accountability: Tracking the social costs,"
New York Times, March 24, 2002. Corporate social responsibility: Partners for Progress, Organisation for Economic Co-operation and Development, vol. 1, no. 1, OECD, Paris, October 2001. "Another scandalous year. Yet, despite the headlines, things are looking up in the boardroom," The Economist, December 20th, 2003. "How banks can do good." International Herald Tribune, November 19, 2003. Geoffrey Cowley, "Bill's biggest bet yet: The richest people on earth have created a fund of more than $24 billion to save the poorest from disease. How much of a difference can Bill and Melinda Gates make?," Newsweek International, February 4, 2002, pp. 29-36. Gereffi, Gary, Garcia- Johnson, Ronie, and Sasser, Erika, "The NGO-Industrial complex", Foreign Policy, July/August 2001, pp. 56-65. Ottaway, Marina, "Reluctant missionaries", Foreign Policy, July/August 2001. "Special Report: In praise of rules: A survey of Asian business", The Economist, April 7th, 2001. Detomasi, David, "International institutions and the case for corporate governance: Toward a distributive governance framework?", Global Governance, 8 (2002), 421-442.
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