Nike. Ethical Audit Report - Essay Example

? Business Ethics Ethical audit report case study: Nike This paper concentrates on analyzing the business ethics of Nike by making use of data collected from Nike on a global basis. In the global market place companies like Nike are expected to set a global standard. The company Nike faces ethical dilemmas in relation to advertising and employee work standards adopted especially in Asia. Also the ethical implications related to the disclosure method adopted by Nike related to its Corporate Social Responsibility (CSR) stature is discussed in detail. The company Nike has responded in a professional manner to the many labor issues it has faced over a span of the past 10 years. A detailed audit related to the ethics of the business and possible changes which can make the company Nike a better workplace are dealt with in this paper. Introduction Nike created a code of conduct related to work place ethics after it was seriously allegated of making women and children work under hazardous conditions with minimum wages especially in developing countries like China. Nike is a leading marketer of athletic apparel and shoes and it has its operations and sales outlets spread across the globe. Nike is not involved in the actual manufacturing of its products; rather the company is involved in designing the products marketed by it. Nike makes use of workers on a contract basis for the purpose of manufacturing in nearly 600 factories which are scattered across the globe and employs almost 800,000 people (CSR Report, Nike, pg.25). With such a huge work force the company faces issues related to ethics at work place and as the company is globally accredited it also faces Corporate Social Responsibility related ethical dilemmas. Corporate companies have to follow a responsible path and make sure the way with which they act and take their business ahead is within the permissible limits of ethics. In the year 2004 Nike released its Corporate Social Responsibilities report, first of its kind in accordance with the Global Reporting Indicators (GRI). The mission of GRI deals with developing, publicizing sustainability guidelines and global responsibility. GRI is process oriented and the indicators can be made use of while reporting environmental, economic and social aspects related to products, services and activities of the company. In this research paper these GRI indicators will be applied to perform the ethical social audit of the company Nike. As at present there is no strong code of conduct present to enforce labor standards on an international basis as many countries especially developing ones have limited ability in relation to enforcing labor laws (Cohen, Sabel, 2006). There were only 24,291 direct employees at Nike during the year 1990 who worked in the United States and the major work force in manufacturing factories of Nike was from developing countries on a contract basis. Nike has been criticized for the ethics of the company when it comes to outsourcing. In many of its factories across the globe the problems of low wages, human rights and poor working conditions were prevalent. Though the management at Nike did not accept responsibility for such poor work conditions at first, during the year 1992 a well formulated code of conduct in relation to the labor, health and environmental standards was observed and followed by Nike. The minimum age for labors was increased to 18 years and all the footwear suppliers were insisted to adopt the United States Occupational and Safety Health Administration (OSHA) standards at work place. To deal with labor practices issues Nike created the Nike Environmental Action Team (NEAT) in the year 2000. There are more than 100 corporate responsibility managers at work in Nike at present and there are over 1000 production managers working across the globe. An ethics audit deals with the manner in which the ethical practices and procedures adopted by a company can be assessed. On a professional basis the ethical standards have moved from being comprehensive to being more detailed. Due to the increasing need to adopt global ethical standards given the current globalization trends at work place ethical policies and procedures have to be adopted by companies. The purpose of conducting an ethics audit is to identify ethical issues in the company settings, review and access the currently used work practices at the company, design a strategy in case modifications are necessary in relation to currently adopted practices, monitor the strategy adopted on a continuous basis (Fredric, 2007). Business ethics deals with a study of business situations, activities and decisions where addressing of issues both right and wrong are done (Andrew, Dirk, 2010). Through the Nike case study a company which has seen both the benefits and risks in relation to globalization ethical issues can be examined. In this paper an examination of the ethical related issues is done and possible solutions to ethical issues are offered in relation to the Nike Company. Main Ethical Dilemmas Faced The company Nike faces ethical issues related to the following areas owing to its globalization. The factors related to globalization which were the main reasons behind the success of Nike also lead to many issues in relation to its operations. The company took advantage of outsourcing opportunities available on a global scale and the production cost of products was lowered. The savings from such low cost productions were made use of in making innovative designs and in their marketing campaigns. Many critics have suggested that Nike make all its factory locations known to public and inspections related to working conditions be done by third parties at Nike factories across the globe. Work force related issues form the major portion amongst the main ethical related issues faced by Nike. Over the duration of the past 10 years Nike has been criticized due to the low wages and poor working conditions faced by workers in factories particularly those in developing countries like Indonesia, china etc. The dominant issues in its many outsourced factories were underpaid employee issues in Indonesia, child labor related issues in Cambodia and Pakistan, Working conditions related issues in Vietnam and China. The image of the company was tarnished when such reports got out and the company at first declined to take responsibility stating that they were not direct workers of the company and the issues rested with the countries where the employees worked at. The Nike products were accused to be manufactured by adopting unethical work place practices like overtime work in a forced manner, low slave wages given to employees and abuse meted out to employees in an arbitrary manner (Phil Knight, 1998). In the year 1990 there were six factories in Indonesia and more than 25,000 workers were employed by Nike on a contract basis at the factories. In most factories even the minimum daily wage was no paid to the worker which was 2,100 rupiah during that time. Four of the factories were under Korean suppliers and the wages given by them was insufficient for running a family. Also the North Korean workers were found to be abusive towards the workers. The issue was publicized by leading publications like the New York Times, the economist and rolling stone during the year 1994. Nike at first did not take up any responsibility for such poor wage conditions in existence in Indonesia but by 1999 the company strived to increase the wages for the workers to 231,000 rupiah which was within the legal wage amount. Almost 70% of soccer balls were manufactured from Pakistan in the Sialkot area and the products were of a very high quality. Home work and subcontracting the work are common in this area and in the year 1996 child labor issues were exposed by Life magazine. An article which included a picture of a twelve year old boy stitching a foot ball sparked criticism on a global scale against the work practices adopted by Nike. Nike responded by saying that is was already working with its suppliers in regards to the system of homework based foot ball manufacture and centralizing its soccer ball production to stitching centers. But this incident was devastating for the brand image Nike had set. Nike also insisted that any employee found making use of child labor will have to pay for the educational fee of the child until he/she comes to working age, pay the wages for the child even after removal of the child from the working premises. But even after taking many measures to curb child labor in Pakistan the issue still prevails as child labor though has been removed from industrial areas is still in existence in remote areas in Pakistan. In the year 1997, Ernst and Young audit was commissioned by Nike in the Tea Kwang Vina Company which had contracted its manufacturing operations from Nike. Serious health and safety related issues were reported from the plant. Concentration of Toluene a chemical which has the capacity to cause damage to liver, damage to kidney, skin and eye irritations and central nervous system depression was found to exceed between six to 177 times the acceptable limits. The report also dealt in detail with the diseases affecting skin, respiratory system and heart due to the unchecked release of harmful chemicals and presence of excessive dust. Personal protective equipment was not provided to the employees and proper code of work conduct was not adopted at the company’s contactor factory. The companies’ responses to all the above said three issues are central to the ethical workings of the company. The honesty of the company about the environmental standards, wages and labor related issues will determine the ethical aspect of the Nike Company. There are numerous events reported by the press apart from the above mentioned and most of them were negative articles about work practices adopted at Nike manufacturing plants. These events turned out to make Nike an easy target for anti-sweatshop and anti-globalization movements across the globe. The labor and environmental problems thus became a major problem for the company Nike. There was pressure from many activist groups and many universities stopped buying from Nike. The good image that the company had earned over the years was tarnished and the company Nike was forced to adopt new work place practices. Implementation of work place ethics became a necessity to overcome such ethical issues. Evaluation of dilemmas The meaning of right and wrong morally is different from the right and wrong practices which must be adopted on a commercial basis. Business ethics is not constrained to commercial businesses alone but also are related to pressure groups, non- profit organizations, government organizations, charities and other such organizations. Business ethics deals with issues that are not covered by the law alone and where there is no clear cut definition of right and wrong available (Andrew, Dirk, pg 6). Conflicting values are dealt with in business ethics and it is considered to be the gray area of business. In order to implement ethics into business systemization and rationalization of morality and its conducts are required. Ethical theories are the outcome of the modifications made to the rules followed by a company to suit with the right procedures to be adopted in an ethical manner. Owing to the current trend of the media to keep in place the ethical practices of a company by making malpractices public it become necessary to make use of appropriate ethical practices. In order to conduct an ethical audit in a global company like Nike it is necessary that the following method be adopted. Regulation, completions and completion related to the ethics of the Nike Company can be confirmed by making use of appropriate audit procedures. The concept of auditing the ethics of a company emerged from broader social responsibilities of companies in relation to work force management, environmental aspects and provision of quality products to consumers. An ethical social audit can be defined as process of accessing and reporting performance of the business in relation to the legal, economic, ethical and philanthropic requirements of the stakeholders of a company (John, Linda, 2011, pg.243). Ethical issues which have to be evaluated are related to community issue, environmental issues staff issues and economic development related issues. The procedures adopted while making an ethics auditing is in similar lines to those done while undertaking a financial auditing. Ethics auditing can be conducted by a person outside the company. Ethics auditing is not concerned with the regulation of the company or the money flow related factors of the organization under consideration. In order to measure the ethics of a company the following model can be used to make a measure of the integrity of the company (John, Linda, 2011, pg 250); 1. Measure of communication integrity – communication messages and process can be analyzed to know about companies’ compliance with ethical standards. 2. Compliance and ethical integrity – Compliance with the required legal requirements of the industry in the place of operation can be analyzed. 3. Corporate integrity (social and environmental responsibility) – Integrity of the company is measured in terms of the environmental and social factors. 4. Cultural integrity – This is particularly suited for global companies like Nike that require cultural integrity in a large scale owing to the diverse geographic locations in which they operate in. 5. Earnings integrity – Assessment related to the management of corporate earnings are dealt with. 6. Leadership integrity – Leadership strategy adopted by the companies’ employees and complex behavioral aspects related to leadership are assessed. 7. Risk integrity – Information transfer and sharing of private data methods are analyzed. 8. Analysis of stake holders’ perception – After analyzing the integrity of the company, gets the views of stake holders on the above mentioned issues. The heart of ethics audit procedures is in arranging discussions with the staff and analyzing the issues in existence by gathering reports related to the company. The ethical aspects of Nike Company were measured based on the integrity of the company in the means of communication it makes use of and the employment standards it adopts at its work locations and factories spread across the globe. Best practices Owing to the massive pressure on the company to change its employment related procedure especially in manufacturing factories under contract the company has made many amendments to its policies and procedures. Child labor is verified on a periodic basis by Nike managers in all its factories especially at Pakistan at present. Factory locations are disclosed to auditing managers and in high risk locations to maintain the integrity of the company strict rules and regulations are enforced. Keeping in mind the safety concerns of the employees appropriate protection equipment are provided to all employees operating under hazardous conditions. The OSHA standard has now been implemented globally at all factory locations to ensure health safety of employees. Nike has its own code of conduct formulated by its managers keeping in mind the cultural diversity and the code of conduct is strictly to be followed by all Nike contractors. In order to make needed changes when a requirement crops up Nike adopts proper reporting procedures to ensure ethical issues are taken care of in the earliest time possible. Panel of stakeholders exists within Nike and periodic meetings are scheduled to discuss about possible required updates in order to maintain the ethical integrity of the company. Special teams were formed to keep track of employee work standards by Nike during the year 2004 and there are over 80 managers at work especially to implement ethical working environment at the many manufacturing units of Nike. Recommendations The locations of all the factories of Nike can be disclosed to Non Government Organizations (NGO) which are interested in the welfare of the employees. Ethical audit conducted by such third party non-profit organizations will deal with the issues of prime importance and periodic audits conducted by these third party organizations can help in curbing illegal employment practices adopted by contracting employers. Fair wages can be supplied by Nike as a recommendation to its various factories spread across the globe which are above the basic wage requirements of the country. Adequate employee facilities can be provided by centralizing the factories rather than making use of individual small scale factories. By centralizing the factories it becomes easier for Nike managers to regulate and keep track of employee related issues on a periodic basis. Once issues are identified special teams have to be formed by Nike to deal with the particular situation at hand and the team members have to be direct employees of Nike. By being more communicative with the media and being clear on the employment standards adopted Nike can make sure its integrity is preserved. Also ethical auditing has to be made procedural and periodic to retain the integrity of Nike. References Cohen, Joshua; Sabel, Charles. (2006). “Extra rempublicam nulla justitia?”, in Philosophy & Public Affairs , Vol. 34, No. 2 (Mar.), pp. 147–175. Crane, Andrew. & Matten, Dirk. (2010), Business Ethics 3rd edition, Oxford: OUP Frederic G. Reamer, PhD.(2007) Conducting an Ethics Audit. Social Work Today Vol. 7 No. 1 O.C.Ferrell, John Fraedrich and Linda Ferrell (2011).Business Ethics:Ethical decision making and cases. South western carnage learning centre. Nike 2011, Fy05-05 Corporate Responsibility Report, Innovative for a better world, 2011.availabe at http://www-cs-students.stanford.edu/~silver/gap/pdf/Nike_FY05_06_CR_Report_C.pdf Phil Knight Quoted in “Hitting the Wall: Nike and International Labor Practices,” HBS Case # 9-700-047 Read More