An Organizational Ethical Dilemma of NIKE - Essay Example

?PART I: AN ORGANIZATIONAL ETHICAL DILEMMA This ethical dilemma is about a well known athletic footwear and apparel brand, Nike, a multinational corporation, established in 1964 in Beaverton, USA. The brand has come across a crisis last year 1998, scores of pressure groups protested against Nike’s labor practices in overseas factories. Many other factors also accompanied and the company performance gone to worst. This damaged the company image and the company sales slipped down. This was a threat to the investors, employees and a concern for other stakeholders. ETHICAL DECISION MAKING STEPS KEY FACTS The key facts are that Nike’s supply chain has flaws in contract negotiations and supplier oversight. The company’s dispersed nature of operations has created opportunities as well as posed challenges to the corporate reputation, to the brand and most importantly to the stakeholders at large (Keller, 1998). The dilemma that arose from Nike’s internationally disbanded manufacturing factories mainly focus on the poor labor practices, child labor, unsafe and inhumane working environment, discriminating wages, environmental hazardous operations and processes etc. All of these issues point towards Nike’s unconcerned social and corporate behavior. This indicates the absence of business ethics at Nike. 1. Nike was negligent towards its own factories and their practices. 2. There was neither established labor employment and working standards nor a code of ethics for conducting business overseas. 3. Nike not only failed to control overseas production activities but it was also failed to provide and maintain compliance of its international operations with the law. Key Ethical Issue The ethical issues at Nike points out the company’s irresponsible business conduct towards its major stakeholders. The employees at Nike’s outsourced Asian factories were confronted with bad working conditions which were not only unsafe but also immoral and unethical to a great extent. HUMAN RIGHTS ISSUE: These factories were using child labor, withholding due wages, extended working hours, harmful working conditions, no health and environmental concerns. All of this was done to keep the operating cost of Nike products as low as possible which was the primary goal of Nike’s production outsourcing. The company was only focusing its own management interest for low cost and profitability; and on the other hand it was ignoring even the basic rights and interests of rest of all its stakeholders. The internal customers i.e. the employees of Nike were confronted with malpractices and substandard working conditions. The company is so irresponsibly uninformed and unconcerned about what is going on in the overseas factories (DeTienne, and Lewis, 2005). Moreover, the company is pioneering the consumer market for its competitive products across the globe but it has no intentions or motivations to serve labor market the same leader’s way. It shows that the company was more concerned about cash inflow resources than about cash outflow sources. ENVIRONMENTAL ISSUE Nike’s environment unfriendly business practices were responsible for deteriorating surroundings in the localities where Nike’s apparel and textile industries were established. Nike was not taking any notice of these environmental losses to the local community (DeTienne, and Lewis, 2005). In this way Nike became critics’ prime target for unethical business attitude. Relevant Individuals and Groups (Stakeholders) Are Affected By the Dilemma? The main victims of Nike’s unethical business conduct were its own employees. Generally called as human assets; employees were being exploited by Nike. The customers and the consumers were also affected by Nike’s unethical practices, because they had trusted Nike products and the brand has established deep consumer connections (Williams, 2006). The consumer confidence over Nike was shattered. There was disappointment and distrust in consumer imagery for Nike. The community at large was also influenced by the negative externalities of Nike. The company’s environment unfriendly business practices were responsible for deteriorating surroundings in the localities where Nike’s apparel and textile industries were established. Nike was not taking any notice of these environmental losses to the local community. Thus, it was exhibiting an irresponsible corporate demeanor. Investors and owners, again Nike’s major internal stakeholders had been disappointed by exhibiting unfair employer behavior and so, the damage to the investors’ trust resulted in 50% loss in stock prices and revenues of the company. POSSIBLE CONSEQUENCES OF SPECIFIC AND ALTERNATIVE ACTIONS (RESPONSES) Ethically all organizations are required to promote such commercial behavior to competitors; which is deemed responsible, respectable and which is socially and environmentally beneficial. But Nike had also surfaced means for unfair business practices for getting edge over competition (DeTienne, and Lewis, 2005). The company depicted a brutal picture of its internal affairs which born negative impacts on the many stake holders of Nike. The response from the media, law and regulatory authority, consumers, labor rights organizations would be much severe that Nike would be band across borders, retailers would refuse to carry the existing lots of the brand, suppliers would rebuff to provide material to Nike production houses, consumers would totally boycott purchasing Nike, media would refuse to promote or defend the brand, labor unions would increase pressure on regulatory authorities to enlist the company amongst most unwanted employers list and international trade laws might forbade Nike’s trade across countries. All of these pressure groups might impose excessive demands and force the legal authorities to take action against Nike’s unethical actions as this behavior identifies the unacceptable irresponsible corporate structure of the company. The Relevant Obligations From Your Analysis Of The Dilemma Nike had lost itself in the myopia of globalization. It only sought to take advantage of cheap labor and overlooked the responsibilities that come along with the globalization of operations. Nike must have shown the corporate respect for rules and should have exposed sincerity towards international labor. The company must have abided itself by both local and international laws in holistic manner. It must proactively respond to the legislations posed by the industry to safeguard the interest of all of its stakeholders. The business behavior of Nike must have kept at heart the goal of maintaining both consumers’ and community trust; and have taken severe counteractions against the factories that were responsible for labor exploitation and malpractice. Nike must have shown vigilant and proactive business behavior to watch out all possibilities that might put the stakeholders’ interest at stake (Peters, 1967). Besides introducing audits and transparency of operations the company must have made improvements in its human resource management system to ensure that all employees’ issues are handled professionally. The company must have regarded the environmental and local communities’ interest earlier. The damage to the environment by Nike apparel manufacturing unit must have given proper attention. The company must allocate resources to deploy plants that reduce waste production and abridge lethal chemical emission that has negative impacts on the environment. All this activities must be a part of Nike’s strategy and business ethics; so that the company create value by legitimate means for its stakeholders and restore its reputation. Community Standards Of Integrity Provide You With Guidance The media, labor activist groups, NGOs and even customers of Nike all protested against the company’s unfair labor and detrimental environment business practices. All the broadcast, print, and electronic media supports labor and condemn Nike for its unethical conduct. Labor activist groups also highlighted the details of the poor working conditions and discrimination prevailed in Nike factories located in 3rd world countries. NGOs also supported the cause and took measures to make general public aware of the malpractices and unconcerned attitude of Nike towards its valuable employees and their rights. When customers were acknowledged of these brutal facts, they boycott the brand. On the other hand, the investors restrained themselves from investing into a company whose moral values are so declined that it cannot safeguard its own employees which is deemed an asset for the company. The reaction of all the community members mounted severe pressure over the corporation and this compelled them to take actions and remedial measures to safeguard employees, secure environment and develop core business values around ethical foundations. The guidance from Nike incident was that the community played a strong role not only in safeguarding employees’ right but also it gave Nike a vision for developing a strong brand. It made the company realize that businesses are accountable to public and are responsible for eco-social welfare. Possible Creative Alternate Actions Nike should first transform the organization from top-bottom to develop customer oriented and ethics driven corporate culture. All the strategies must focus the stakeholder value requirements and those value opportunities are pursued for which Nike can leverage its competencies ethically. The company must execute control programs to track whether the strategies are implemented as expected and where the performance of the Nike is not aligned with the plans and ethical norms. Frequent audits are required to gauge the performance of the Nike’s strategic plans. These audits must identify all possible areas of improvement across all the department of accounting and finance, human resource management, marketing, technology and ethics. Nike is recommended to outsource its auditing to any 3rd party audit firm, so that the results obtained are not biased. Positioning of the brand should be done both at corporate level as well as individual level. However, Corporate Social Responsibility must be emphasized at corporate level branding. Product, pricing, promotional and placement strategies must be build around lucrative but ethical norms and emphasis should be given to genuine means for achieving desired end outcomes. Nike should establish relationship based integrated management systems to form collaborations with channel members and all stakeholders, so that all the components share same set of values and deliver one consistent message about Nike. Finally Nike must conduct marketing research to determine the effectiveness of the positioning, segmentation, promotional and also to measure the level of customer satisfaction and attitudinal change about Nike as an ethical corporation. “Gut” Tell WHAT Is The Right Thing To Do The right thing to do always come after the right thing to think i.e. one can only do right when he thinks right. Rightness of any business entity is justified by a company’s vision towards its internal customers i.e. employees, investors, suppliers; and its external customers i.e. end user consumers, media, community, government legislations. A company that is sensitive for both internal and external customers always gives priority and value to the interest of these respective groups and so cautiously makes moves towards desired targets. Such a company focuses on most rightful means to get to the desired ends; hence it eliminates all those short cuts and risky practices that could harm the mutual interest shared by the stakeholders of a corporation. The idea for doing business should be facilitating rather than mere competing or fostering rivalry. Fair practices lead to fair business and help establish a friendly economic and social environment for trade. Therefore, the right thing to do is to have goodwill, concern and value for others in the market. FINALE: In my point of view, Nike responded promptly but yet inappropriately to the ethical crisis. Nike’s first and foremost reaction to this issue was reputation management instead of widespread global adaption of fair practices. All the remedial measures it took identified themselves as damage-overcome tactics. These actions lack strategic direction i.e. all of these measures of introducing audit tools and transparency practices etc all directed towards employees’ issue. Transparency measures were focused around media criticism and not around its own investors and other value chain members. Moreover, implementation of CSR was limited and insufficient to cater the challenges posed by its vast global supply chain (Williams). In short, Nike’s counter-actions must be directed to reach one goal that should be value creation for all of its stakeholders. Because it was not just about the company’s business it transcend beyond Nike’s interest to the interest of a diverse set of stakeholders. PART II: ANALYSIS OF ETHICAL DILEMMA ABSTRACT In October 1982, 7 Americans died in Chicago after using Tylenol. The reason was Extra-Strength Tylenol was tampered with cyanide, this leads to decline in sales. The threat to J&J was to tackle the situation in responsible manner that will secure both the consumers trust as well as the brand itself. J&J took several measures to respond to this ethical dilemma. And eventually by February 1983, Tylenol strived to successfully recapture the market share to almost 37 percent, the brand once again worth $1 billion. This paper contains the analysis of the ethical quandary that Johnson & Johnson came across with. The research document begins with an elaboration of ethical decision making steps undertaken by the company. It also identifies the reader with the most significant points of this ethical issue. The paper outlines those ethical approaches J&J used to tackle the critical dilemma that had posed severe threat to the brand and had transcend to disparaging corporate reputation. As you proceed through the document you will find the analysis of the situation. Finally the paper ends with the researcher’s point of view and argument over the counter-strategy of Johnson and Johnson. ETHICAL DECISION MAKING STEPS The Key Facts The fact was that a well known corporate and consumer brand was confronted with an unexpected crisis. The Tylenol brand for pain reliever category was tampered with cyanide poison. It was found that the medicine had been tampered by some outsider; a deranged person, who was not the company’s employee. The repercussion of this crisis over Johnson & Johnson and the brand Tylenol were severe and significant to the management because this could seriously damage the company reputation and may result in consumer distrust, violence or some severe legal action against the brand (Bauman, 2000). Key Ethical Issue  The main ethical issue was surrounding Johnson & Johnson was that about 7-8 people died in Chicago after taking Tylenol Extra Strength capsules. These capsules had known to have cyanide poison in them. The issue was considerably severe as it involves death of trustworthy consumers of J&J. The company was victimized to criticism, by the pressure groups in media and community, about its packaging and distribution practices and quality control systems and standards etc. The company’s reputation was at stake. Relevant Individuals And Groups (Stakeholders) Are Affected By The Dilemma Consumers were primarily affected by the incident. The situation was worst in Chicago as the crisis was initiated there and the tampering case was also found to be restricted to that area. Besides those who lost their lives, the consumers’ confidence and trust over the company and the brand was shaken brutally. Medical services and health community groups like doctors, pharmacy services etc which recommended or sold Tylenol pain relievers were also affected by the incident. Above and beyond the consumers, there were Johnson & Johnson’s supply chain members; responsible for Tylenol distribution across the country were also influenced by this dilemma of tampering medicines. Moreover, the employees, the management of J&J, board of directors, Food and Drug Association, investors etc were also amongst the affected parties of the dilemma. Possible consequences of specific and alternative actions (responses) The possible consequences of the responses of Johnson and Johnson to the dilemma could be worst and may lead to long-term cost of irreparable trust and un-restorable reputation. An important consideration for the company was whether it has sufficient goodwill amongst the stakeholders to support J&J’s counter-action and counter strategies to thrive out of this crisis (Ferrell, Fraedrich, & Ferrell, 2012). The company should have promptly responded to the situation than the way it actually did. It would have monitored the processes, quality control systems, production criteria in close coordination and cooperation with FDA for its pharmaceutical products across the board. relevant obligations from your analysis of the dilemma The company must have focused its business activities around two key areas. Firstly, it should have investigated the operations and procedures in its production and manufacturing facilities with extensive emphasis over quality control and compliance to standards as directed by FDA. Secondly, it must have aimed its resources to integrate the vast and diverse marketing operations, stressing the distribution and packaging practices. community standards of integrity provide you with guidance The role of FDA and the pharmaceutical industry community has made Johnson & Johnson and others in the industry to be more alert and cautious for their production mechanisms, packaging criteria and for continuously upgrading their quality control systems (DeTienne, and Lewis, 2005). The limitations placed by FDA enabled J&J to adhere strictly to the laws and become more vigilant to the possible unanticipated incidents that in any way could harm the consumers, community or other stakeholder interests. “Gut” Tell WHAT Is The Right Thing To Do J&J had made a long way in its attempt to resume consumer trust and corporate reputation. It has exhibited a responsible behavior and did what it could do best at that particular time. However, the dilemma has severe implications for the brand and the company yet it made some way to win consumer loyalty again. But there is much more to do, the company must thrive for future opportunities and take all possible measures to seize them. Because what had happened is history and J&J must now look forward for opportunities and align its resources around ethical orientation (Bayer). MOST SIGNIFICANT POINTS The Tylenol case has serious implication for business community across the world. The lessons arose from this crisis has several diverse dimensions. However, the implications significant to business ethics and code of conduct pertaining to Johnson and Johnson case are detailed below. 1. Goodwill attitude is highly appreciated both in trade and social forum. 2. When confronted with crisis or disaster, a company’s firm reputation amongst stakeholders can save the company from dying and gives edge against the crisis. 3. Addressing the community’s concern should be a firm’s first priority in unexpected catastrophe. As communities include numerous pressure groups that play vital role in deteriorating as well as maintaining company’s reputation during crisis. 4. Every step of value creation (from production idea generation to sale) in business process must be strictly monitored to avoid all possibilities that may lead to severe outcomes. 5. Stakeholder’s interest at each stage of business process must be a company’s core value objective and therefore all the decisions made by the company should entertain stakeholders’ concern. 6. Consumers as well as the community at large trusts and supports only that company which seems to be loyal and dedicated to their interests (Bayer). 7. Chances of recovery and improvement for a company inflate to a great extent; especially when the company and its conduct are under critique’s attack. Because criticism identifies inadequacies of business activities; thereby give companies a chance to improve and recover their grey areas. 8. Companies must be cautious in all business operations from product development, packaging, distribution, promotion till selling of these products because any mishap could possibly disparage the brand image or even the corporate reputation on the whole. 9. The company must prepare itself to tackle crisis and to devise immediate action plans to respond to exigent situations. 10. The Tylenol’s case has identified the significance of crisis management for businesses. It has highlighted the fact that businesses ‘management must develop their skills to effectively, promptly and objectively respond to any crisis situation in the most appropriate manner. It has also acknowledged people about how crisis management enables the mangers to systematically tackle exacerbated situations by using best course of action. 11. Business ethics contribute so much to a company’s reputation. 12. Ethical issues can crop up any time; even from nominal ignorance of business affairs or activities and so, they can possibly harm the goodwill of a company. Therefore a corporate attitude and approach must be stakeholders’ interest oriented. 13. Stakeholders’ stance and contribution is crucial and vital to a firm’s capabilities to respond to unexpected challenges. 14. J&J had developed favorable relationships with its value chain members and its stakeholders; who had supported the company’s efforts in all attempts to restore the community and consumer trust as well as to refurbish the corporate image. 15. J&J did not suspect its employees, production team or its distributors in the phase of investigation for identifying the culprit who was responsible for tampering of Tylenol. This was the trust that Johnson and Johnson had laid over its internal stakeholders. 16. Moreover, to recover high cost of withdrawal of Tylenol from retailers across Chicago, the company did not take any severe measures of downsizing or cutting-down employee salary to compensate expenses. Unlike many other big corporate names, Johnson and Johnson supported its employees even in such a long phase of crisis. 17. Johnson and Johnson intellectually and competently made use of both its tangible financial assets and intangible goodwill chattels to handle the crisis situation. ETHICAL APPROACH (consequential, deontological, virtue) The ethical approach that Johnson & Johnson used to tackle Tylenol crisis was Utilitarianism, based on consequential philosophy. According to consequential philosophy any action that bears positive end outcome is considered ethical. Utilitarianism is based on the concept of greatest good for the greatest number. The community pressure groups; customers trust and loyalty were major factors that gave Johnson and Johnson a compelling reason to consider the interests of the company and also the interests of the public at large. Recall the company’s attempt of recollecting Tylenol from distribution channels all over saved the general public at large from further mishaps caused by Tylenol’s tampering. The company also exhibited virtue ethics i.e. it developed a corporate trait of truthfulness and sincerity towards its end consumers and everyone else in the community. This was identified by Johnson & Johnson’s first and foremost attempts were to communicate the incident to the consumers through press releases and media; established complaint registry system and allotted a separate telephone line for the purpose; distributed safe Tylenol tablets and recalled all bottles form the market (Pyrcz, 1993). All of these measures identify that consumer trust was so significant to Johnson and Johnson; as the company had developed a character of a fair business in the industry. The company successfully restored consumer trust and loyalty as JJ’s sincere efforts were admired by the consumers and this is witnessed by the re-acceptance of the brand Tylenol by the consumers (Bayer). ANALYSIS OF DILEMMA JOHNSON & JOHNSON’S POTENCY 1. The customers were loyal with corporate brand and they were moderately loyal to Tylenol brand 2. J&J was enjoying formidable position in the competitive arena. 3. The company had support of its stakeholders and possessed goodwill relationship with suppliers. 4. J&J was financially sound and strong. 5. Production system and process were of high standards. ACHILLES' HEEL 1. The competition was moderately fierce in the competitive arena. 2. J&J needed improvement in their strategic thinking including mission and strategic process. 3. J&J looked-for improvement in marketing management department. 4. J&J required enhancement in human resource management. OPPORTUNITIES 1. Economic conditions apparently seemed appropriate in USA. 2. There was social shift being witnessed in the environment and J&J was aimed to internalize these social shifts. 3. The company J&J was equipped to internalize the legislation along with the articles/ covenants. 4. Government policies were consistent and conducive for pharmaceutical industry. 5. Relatively speaking, J&J was equipped with latest technology. 6. The international strategic issues reflect favorably for changing. PRESSURE 1. The legislations were being passed forcing pharmaceutical companies to accept them and the tendency of passing the legislation is quite frequent. 2. Consumers, community groups and media pressure all mounted requiring Johnson & Johnson’s to answer their doubts and respond swiftly to the crisis. 3. The industry was subjected to rapid technological innovations in the area of manufacturing. DID JOHNSON & JOHNSON WAS RIGHT/WRONG, WHY? GIVE REASON There is always a room for improvement as well as for critique, but the actions undertaken by Johnson & Johnson in such impulsively adverse circumstances were trustworthy and appreciable. Although, slowly but the company responded appropriately to the unexpected situation and it took effective remedial actions to acknowledge the reality of the situation to the consumers. Instead of going defensive it took full responsibility of the condition and devise strategy to tackle the crisis at hand. Johnson and Johnson not only recognized but also protected their social responsibility. Hence, it successfully restored the most precious public's trust that was laid over the company as well the brand Tylenol (Trevino, & Nelson, 2010). What company did was consistent and effective for defense of human dignity, consumer faith, community commitment and the relevant interests of other stakeholders. The company didn’t give priority to their interest and without giving undue consideration to cost and expenses they put forth the concern of general public and consumers. Johnson and Johnson exhibited responsible and appropriate ethical behavior which was consistent with the company’s image and reputation; and was also essential not only for its survival but this ethical conduct took the company to prosperity in the business world. References Bauman, Z. (2000). Postmodern Ethics. Australia: Blackwell. Bayer, R. Ethical Reasoning in Business. Religion & Liberty, 12 (1). Retreived 12 March, 2012 from DeTienne, K. and Lewis, L. (2005). The Pragmatic and Ethical Barriers to Corporate Social Responsibility Disclosure: The Nike Case. Journal Of Business Ethics, 60 (4), 359 – 376. Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2012). Business Ethics: Ethical Decision Making and Cases. 9th edn. USA: Erin Joyner. Keller, K.L. (1998). Strategic Brand Management: Building, Measuring, and Managing Brand Equity. New Yersey: Prentice Hall. Peters, R.S. (1967). Ethics and Education. Atlanta: Scott, Foresman. Pyrcz, G. (1993). The Ethics of Authenticity. Canadian Journal of Political Science, 26, 603-604. Trevino, L.K., & Nelson, K.A. (2010). Managing Business Ethics. USA: George Hoffman. Williams, B. (2006). Ethics and the Limits of Philosophy. Abingdon: Routledge. Williams, K. Leadership Values and Ethical Reasoning. Read More