Business Ethical Audit Report: case of Nike - Essay Example

? Business Ethical Audit Report Contents Introduction 3 2 Company profile 3 3 Main ethical dilemmas 4 3 External analysis 4 3.2 Internal analysis6 4 Evaluation of the current ethical dilemmas and ethical theories 7 5 Best ethical practices and values of the organisation 10 6 Conclusion 11 7 Recommendations 11 8 Reference 12 1 Introduction Business ethics is the ethical principles that should be maintained by a company. The company has to maintain the work ethics properly. There are some laws and companies are bound to maintain those. The companies have to make sure that no fraudulent is taken place in the organization and the reports (financial and non-financial) should be transparent as these are used by the stakeholders of the company. The company has to make sure that the human resources of the company are maintained effectively and the dignity of the company employees is maintained properly. There are many companies in the world who are not maintaining the ethics properly and as a result they are criticized throughout the world. A company which is not maintaining the business ethics properly they are opposed by the human rights commission or the local political bodies, also the employees get demoralised as they are not treated properly, as well as the operating efficiency of the employees decrease. There are three normative theories that exist currently which focuses on the human life aspects related to the business relationships. The paper is an attempt to focus on the area of business ethics with the live example of the practices of Nike where the human resource policy is under question. 2 Company profile Nike Inc is a publicly traded company based in United States. It is the major supplier of apparel and sports shoes, along with this is a large supplier of sports equipment. The company is the market leader of the industry. The company is a fortune 500 company. There are four main subsidiaries of Nike. These are Umbro, Cole Haan, Coverse Inc, Hurley International. There are more than 30000 people are working with Nike at present. The multinational company is doing business in 45 countries and the manufacturing factories are mainly located mainly in Asia (Nike, 2010, p.4-7). In Asia they can get the low cost labours, as a result their operating cost getting lower and they can generate more profit. For the unethical business practices of Nike they are criticised throughout the world. Apart from the criticisms Nike is a company which has competency in innovations. With the innovative process of production, marketing process the company becomes the market leader of the industry in which they operate. 3 Main ethical dilemmas Nike is not maintaining the business ethics in its operations. Nike used to manufacture the products in the third world countries where they can get the low cost labours. They are paying much low wages to the workers than the standard; also they are forcing the labours to work overtime as well as they are employing the child labours. For these unethical practices Nike is facing many lawsuits throughout the world by the Human Rights Commission and other local government bodies. 3.1 External analysis For doing the external analysis of a company PESTLE analysis is an important tool which is widely used by the analysts. The pestle analysis of Nike is as follows Political factors: Nike is a company whose area of business is worldwide. So it has to face different political conditions throughout the world. The main area of operation of Nike is U.S.A. and the euro zone. Inside Euro Zone it is easier for the company to do trade as there is no need to consider the exchange rates as the currency is common there. There are also the pressure groups who are trying to ban the methods of manufacturing Nike use. As Nike is not use effectively the work force of the country so they are facing political pressure throughout the world. Economical Factors: As Nike is the company doing the business worldwide, they have to face different economic conditions throughout the world. Different exchange rates exist in the countries; there are also different tax rules and regulations in the country. Nike has to adjust with these different conditions. Also they get the chance to work in the trade free zones of some countries (as they are the leading market share holder in the industry) for decreasing the unemployment problem of the country. As the company is paying a minimal wages to the labours the operations of Nike is not a kind of boost for the domestic economy and they may face some opposition from the local government. Social Factor: As Nike a multinational company they have to consider the social factors for doing business. There is different type of customers throughout the world whose culture is different, also there are religious restrictions. The unethical business process of Nike is not approved in many countries as this result in social problem, so the company is facing oppose from the human rights commissions throughout the world. Technological Factors: There are new advances in the machinery which is not using by Nike. They can use the modern technology which would in turn help the workers of Nike throughout the world. The problem of overtime work can be solved by using the modern machineries and thus they can improve their reputation. Environmental Factors: Nike is trying to solve the detrimental effect on the environment caused by the production. It has been found by the researchers that in Thailand the workers are not working in suitable working condition. Different chemicals which are bad for human health are generated from the manufacturing. This causes problems of inhalation and dermal exposure. Nike should look after the problems causing to the workers as well as the detrimental effect to the environment. Legal Factors: On the basis of contractual relationships with the workers and the working conditions given to them Nike is involved to various legal proceedings throughout the world (Nike, 2010, p.51). The human rights commission and some local governing bodies have sued Nike in the ethical grounds. There are also some legal proceedings of Nike related to the trademarks issues. 3.2 Internal analysis The internal analysis of a company means to analyze the strengths, weakness, opportunities and threats of the company. This SWOT analysis tool is widely accepted by the analysts for analyze a company. The SWOT analysis of Nike is as follows Strength: The biggest strength of Nike is that its innovation. When the competitors are taking the traditional paths for business then Nike is doing the marketing, the productions in some different way. The apparel, athletic shoes and sports equipment manufacture doesn’t have any factories. There is no cost associated with building and the labours directly. The main strength of the company is that they can manufacture the highest quality product in a low cost as the labour cost is minimal. Weakness: The operation of Nike is worldwide which means they have to depend on the world economy and the economy of the countries differently. The different economic conditions and changes would affect them. Nike makes most of the profit from the footwear business, but there offered product range is wide. The biggest weakness of Nike is there adherence to business ethics. They used to outsource the manufacturing to other countries where they can get low cost labours. They also use the child labour which is illegal and unethical Not only they pay much less money than the standard but also the labours have to do work overtime. For this they have to face many criticisms throughout the world also the legal proceedings. Opportunity: The reputation of Nike is not good over the world. Through some reports the fact is clear that Nike is not maintaining the business ethics properly so there may be a chance that the customers would not use the products of Nike on moral ground. So there is an opportunity for Nike management to improve the reputation of the company by stopping these practices like using child labours, paying minimum wages to the labours and violate the overtime laws. Along with this the company can broaden the retail stores worldwide. Threat: The industry in which Nike does business the apparel sector and the sports shoe sector is very competitive. The threat for the company will arise if the competitors would choose to use the low cost labours but providing more money than Nike, also maintain the business ethics and then they would be able to capture the market share of Nike. 4 Evaluation of the current ethical dilemmas and ethical theories In the previous section the current ethical dilemmas have been studied in detail with the help of external analysis and internal analysis. In order to assess and evaluate the current ethical dilemmas, the different theories of ethics have been discussed in detail. The word ethics came from Greek word ethos which means morals. Morals can be described as the opinions or the decisions as per which the person decides upon what is right for him or not. Morals act as the basis for deciding which guides the acts of the individuals. Hence ethics can be described as the norms or the value which act as the guiding principal of human actions. Ethical theories can be classified under two broad heads that is the ethical theories of conduct and ethical theories of character. Theories of conduct highlights the various types of conduct which should be done in other words the ethical practices related to the actions. On the other hand the ethical theory of character describes the type of person that one should be. There are two main approaches among the ethical theories of conduct they are consequentialism theory of ethics which is also known as Utilitarianism theory of ethics and the other one Deontology theory of ethics also known as Kantianism theory. The ethical theory of character was propagated by the great philosopher Aristotle, thus this theory is also known as Aritotalianism theory of ethics (Trinity University, 2001). As per the Utilitarianism theory of ethics the deciding variable of conduct is situational in other words what is right or wrong depends upon the situations and there is no fixed rule which can be followed while deciding oh the right ethical conduct. The appropriate ethical conduct depends upon the consequence of the action in other words if the action generates maximum good results or minimum bad results then it can be considered as ethical. As per this theory the action which provided maximum happiness is considered to be ethically right. As a result this theory is also known as Consequentialism. As per the theory the catalyst of judging the ethical conduct is the degree of happiness which one will achieve at the end of the activity. The utilitarian can also be classified into two types that is Act Utilitarianism and the other one is the Rule Utilitarianism. As per the act Utilitarianism the rules can be broken in order to achieve maximum benefits or happiness which is the catalyst of ethical behaviour and as per rule Utilitarianism the rule should be followed so that happiness can be achieved in the long run. On the other hand deontological theory specifies that the conduct of the individuals should be ruled as per the rules and guidelines. Whatever is the consequence of the conduct but the action must be done as per the laid down rules and regulations. The basic premise of this theory is that rules and regulations can’t be broken and the basis of deciding what is right and wrong, ethical and non ethical are the moral values. The act which is morally right should be considered ethical whereas the acts which are not morally incorrect should be considered unethical. The main proponent of this theory is Immanuel Kant. Immanuel Kant propagated that acts which are morally praiseworthy and fulfils the obligations are ethical. As per him the acts should not be aimed only satisfying oneself but should be aimed at fulfilment of the moral duties which will generate praise. John Rawl also propagated that the actions should be such which does not violet the rights and liberties of individuals. Thus maximisation of pleasure should not be the aim of anyone’s action. Another ethical principle which needs to be discussed in order to understand the ethical behaviour and dilemmas of Nike is ‘Cultural Relativism’. As per this theory the moral acts or codes differ from culture to culture therefore there is no such universal moral value which can be considered for all cultures. The business activities of Nike in South East Asia have created a lot of ethical dilemmas in terms of wage rates, employment conditions, working hours etc. If the theory of cultural relativism is considered then it can be said that Nike has practised its activities as per the cultural norms and general practices of that place. But if the other ethical theories especially the theory of Kant and Deontology is considered then it can be said that there must be some specific and universal rules for maximum working hours, minimum rate of wages and working condition which should be internationally recognised and should be globally accepted. As per the theories some basic rules cannot be deviate from region to region on the basis of different cultures. In this regard Nike has partially followed the theory of cultural relativism and the theory of Deontology by dividing the labour practices in to two parts, one which is universal to all the regions like the labour practices related to corporal punishment which is treated as a wrong practice globally and the wages and the other related practices varies from country to country. Among all, the main ethical dilemma of Nike for which it has been also criticised is unequal treatment of its employees globally. As per the theory of Kant, Nike should not compare the labour practices with that of the other companies operating in that particular country but it should formulate its policies in such a way that it itself become a standard for other companies in other words it should itself set highest standard of ethics. Nike has made improvement in its labour practices but the ethical standards should be more improved (Kocher, 1998). 5 Best ethical practices and values of the organisation In the previous section the main and most important ethical theories have been discussed. Like every other theory, theories of ethics has also its limitations like in case of the theory of Utilitarianism, the consequences related to the future are only considered but the past actions are not considered at all. Again the theory of cultural relativism cannot be applied to each and every situation. More over in this competitive environment companies cannot also afford to follow all the rules, regulations and other obligations every time without thinking and evaluating about the consequences of that action. Hence a single theory of ethics cannot be practiced by the company. Thus the best ethical practices and the values of the organisation would be a right mix of all the theories. Every company should take care of its stakeholders who include its employees, shareholders, investors, society, environment etc. As the organisation is utilising the scare resources theory it should earn returns on the amount utilized by them for which the company might have to mould and mend some of the rules and policies. Thus the theory of utilitarianism can be applied to that extent till it is not negatively affecting others. The organisation should also have some universal standard policies which should be applied to all its branches and subsidiaries in important humanitarian areas like working hours, labour welfare programmes, working conditions, medical benefits, pension schemes etc. This will also help the company to achieve a brand name. Thus to an extent the theory of deontology should also be practised. Thus the best ethical practices and values of the organisation area mix of all the ethical theories which will be beneficial for both the company and its stakeholders. 6 Conclusion After analysing each and every aspect of the ethical practices and relevance of the theories of ethics it can be concluded that the companies should adapt such policies and measures which will not only benefit them but will also promote the welfare of all the stakeholders who are related to the activities of the companies in other words ethical practices cannot be compromised for individual gains and thus the ethical practices should be evaluated from time to time in order to identify and correct5 the ethical dilemmas. 7 Recommendations In recent years the ethical practices of Nike has been questioned by various sources particularly about policies regarding the employee welfare such as the working hours, working condition, wage rate, minimum age of the worker etc which hugely varies from country to country. The labour practices of Nike in Southeast Asian countries have been particularly criticised as the practices differs a lot with that of its American branches. Thus Nike should first of all amend its labour practices which need not to be that of the standard of USA but should be humane in nature and should be at par with the highest standard of ethics in that country in which it is operating. This will enable the company to answer its critics. 8 Reference Kocher, C. (1998). Ethics and Nike: What do the Great Ones Say. [Online]. Available at: http://www.unc.edu/~andrewsr/ints092/kocher.html. [Accessed on: December 15, 2011]. Nike. (2010). Annual Report. [Pdf]. Available at: http://media.corporate-ir.net/media_files/IROL/10/100529/nike-ar-20100804/docs/NIKE_2010_10-K.pdf. [Accessed on: December 16, 2011]. Trinity University. (2001). Ethical Theories Compared. [Online]. Available at: http://www.trinity.edu/cbrown/intro/ethical_theories.html. [Accessed on: December 15, 2011]. Read More