Daniel Millsap MBA School Research
NIKE'S GLOBAL CORPORATE RESPONSIBILITY
The purpose of this report is to analyze Nike Inc. in terms of its global social and ethical responsibilities. Nike’s practices will be viewed in light of what is expected of it from various stakeholder groups. Questions that will be addressed in the report are: Is it Nike’s responsibility to determine labor practices in other countries and in subcontractor factories or is it the job of the subcontractor? Should Nike pay a different wage than it already pays? Recommendations will be given at the end of the report.
Companies do not operate within a vacuum. The public closely scrutinizes their actions and it is the public that keeps a business alive by demanding that company’s products. In order to stay in business, a company must not only provide the public with goods and services, but must do so in a way that does not violate the public’s interpretation of right and wrong. If a company violates the ethical principles of its buyers, it may find that the demand for their products will diminish because certain stakeholders actively avoid products that, in their view, have been produced in an unethical manner. Unfortunately for companies, stakeholder interests do not always coincide. What is perfectly acceptable in one country may be frowned upon, or even against the law, in another. How can a company satisfy such a diverse range of opinions and demands? What are its ultimate obligations and to which group?
Shortly after completing his MBA at Stanford University, Phil Knight, a former University of Oregon track athlete, and his former track coach Bill Bowerman, decided to put to use their firsthand knowledge of track and field. Between the two, the company, then known as Blue Ribbon Sports, was founded in 1963 based on $1000 and a handshake. It was not until 1978 that the name was changed to Nike. Knight and Bowerman initially began by importing and distributing Japanese shoes at track meets out of Knight’s car and it was not until 1971 that the first shoe carrying Nike’s famous “swoosh” design appeared in the form of a soccer shoe. In 1988, Nike took on “the now-famous slogan ‘just do it’ for a 1988 Nike ad campaign, which was chosen by Advertising Age as one of the top five ad slogans of the 20th century, and the campaign has been enshrined in the Smithsonian Institute” (Nike Inc. 2007).
Nike’s mission is
to bring inspiration and innovation to every athlete in the world (The Nike mission, 2007). Nike uses famous athletes, visual imagery and music to inspire the viewer and appeal to his/her emotions. Nike is innovative, creating shoes based upon engineered designs that vary depending on the sport. For example, basketball shoes are sturdy around the ankle to prevent ankle injuries in a sport known for rapid changes in direction, whereas running shoes are designed to be as light as possible in order to allow the runner to conserve as much energy as possible.
Nike’s competitors are Reebok, Adidas, and Puma. Nike is a “marketing oriented company” (Lawrence & Weber p.510). It seeks out endorsements from famous athletes, and its ads can be seen in print, online, and on television. A reading of Nike’s SEC filing in 2004 showed that its endorsements were “worth $1.7 billion” while, in comparison, Reebok’s endorsements were “worth $200.5 million” according to its 2004 10-k filing (CNN/Money, 2004).
The controversy stems from two main issues: labor conditions and wages.
The smell of complex polymers, the hot ovens, and the clanging of the steel molds resulted in a working environment that was loud and hot and had high concentrations of chemical fumes (Lawrence & Weber p. 512). Some workers refused to wear their protective gear because it would make it even hotter on the factory floor. In other areas of the factory, strict quotas put a lot of pressure on workers to produce as many shoes as physically possible. Supposedly, supervisors who were unable to communicate their demands due to language barriers would resort to hitting workers or making them stand outside in the dry heat if they were caught not working hard enough or talking too much.
Compared to US shoe industry wages which were around $8 an hour in the early 1990’s, workers in Nike’s Asian factories were making
around $1 per day(Lawrence & Weber p.511). In addition, Nike came under pressure when it was rumored that it employed child labor in its factories. As a result, certain groups formed in protest and called for bans on Nike’s products. The
Made in the U.S.A. Foundation, a group backed by American unions, used a million-dollar ad budget to urge consumers to send their (Lawrence & Weber p.513). Clearly, Nike’s actions were not in alignment with US stakeholder expectations.
old, dirty, smelly, worn-out Nikes to Phil Knight in protest of Nike’s Asian manufacturing practices
Labor laws and practices vary from one country to another. In outsourcing its labor, Nike employed subcontractors that had their own rules and regulations pertaining to labor laws. As mentioned before, foreign factory workers’ wages were a major source of controversy within the US because they were seen as being too low; however, “although entry-level wages averaged only $1.50 per day, many workers viewed factory jobs as better than their other options” (Lawrence & Weber p.513). In fact, wages were above the norm in factory workers’ countries. A factory worker’s annual salary was around $550 whereas the national average was $250. Thus, a factory worker’s salary was 220% the national average. In addition to varying standards of compensation, countries do not always share the same labor laws and practices. While the minimum working age is 14 in the U.S., it may differ in other countries. For example, according to the U.S Department of Labor’s bureau of international labor affairs, in Indonesia “the actual legal working age remains 12 years” (U.S. Department of Labor, 2007). Though seen as atrocious in the United States, in other countries it may be necessary for members of a family to contribute to their family’s needs by working at the earliest age possible.
Nike was understandably concerned as groups began to form and protest against its perceived errors. ‘”When we started Nike,’ Knight later commented, ‘it never occurred to us that we should dictate what their factories should look like’” (Lawrence & Weber p.514). In response to outside pressure, or of its own accord, Nike began to implement certain tools into its overseas environment in order to lessen the potential threats to its viability. According to its website, Nike states: “We’ve evolved how we frame, define and approach corporate responsibility” (Nikesapproach, 2007). “What we’ve learned, after nearly a decade, is that monitoring alone hasn’t solved the problems” (Workers-factories, 2007). Nike has set a goal of zero excessive overtime in its factories by the year 2011. It also set a goal of allowing 100% of workers to express opinions through surveys. To monitor progress, Nike designed its own auditing tools “to help provide further transparency and insight” in how its contract factories are run within other countries in terms of working hours, wages, leadership standards, and working conditions (Audit_tools, 2007).
Although Nike may have little control over other nations’ labor practices, it should strive to ensure safe working conditions. Engineers should try to use chemicals that are safer for both humans and the environment when possible, and proper ventilation systems should be installed inside of factories to ensure that workers are able to breathe fresh air and work in cooler environments. Nike should hire independent inspectors to ensure compliance with local rules and regulations. Upon discovering a violation, sub contractors should be given a warning and a chance to rectify the situation. Should violations continue after the warning, Nike should cease doing business with that particular subcontractor and choose another one instead.
Labor laws should be dealt with on the local level. Not every country follows the same rules and regulations concerning labor and hiring practices and not every country has the same views on what constitutes childhood and what a child should and should not experience at a certain age.
In conclusion, rules, regulations, and societal standards within other countries are sometimes different from those found within the United States. Does this mean that companies should attempt to recreate the US environment in countries that it does business in? Absolutely not. US companies should strive to abide by that country’s rules, regulations AND societal standards. Does this mean that, by operating within these standards, stakeholders within the United States will be understanding and supportive? Unfortunately, the answer is “not necessarily.” Nike did no wrong in that it was not in violation of local rules and regulations; however, it could have prevented some of the stakeholder backlash by being more proactive in certain ways. For example, it could have voluntarily installed certain equipment into foreign factories at its expense, which would have made for a better working environment. Knowing that certain chemicals are not good for the health, Nike could have provided certain measures to purify the air and could have used less harmful chemicals in the production of their products. In terms of wages, Nike acted correctly in not trying to raise wages too much above the standard. An attempt to do so might have caused potentially unwanted attention from the local government, which would not want to be seen as being unable to provide for its own people.
CNN/Money. (2004, August 2).Nike Endorsements up to $1.7B. Retrieved October 28, 2007, from http://money.cnn.com/2004/08/02/news/fortune500/nike_endorsements/
Lawrence, Anne, T., Weber, James. (2008). Business & Society: Stake-holders, Ethics, Public Policy (12th ed.). New York: McGraw-Hill.
Nike. (2007). Audit Tools. Retrieved October 28, 2007, from http://www.nike.com/nikebiz/nikeresponsibility/#workers-factories/audit_tools
Nike. (2007). Nike’s Approach. Retrieved October 28, 2007, from http://www.nike.com/nikebiz/nikeresponsibility/#nikesapproach/main
Nike. (2007). Workers/Factories. Retrieved October 28, 2007, from http://www.nike.com/nikebiz/nikeresponsibility/ - workers-factories/main
Nike. (2007). Nike Foundation. Retrieved October 28, 2007, from http://www.nike.com/nikebiz/nikefoundation/home.jhtml
Nike. (2007). The Nike Mission. Retrieved October 28, 2007, from http://www.nike.com/nikebiz/nikebiz.jhtml?page=4
U.S. Department of Labor Bureau of International Labor Affairs. (2007, October 28). Indonesia. Retrieved October 28, 2007, from http://www.dol.gov/ilab/media/reports/iclp/sweat/indonesia.htm
Wikipedia. (2007). Nike Inc. Retrieved October 28, 2007, from http://en.wikipedia.org/wiki/Nike%2C_Inc