Nike Ethical Audit Issue - Report Example

Nike Ethical Dilemma xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Instructor xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Executive summary Increasing global economic challenges are presenting businessmen with the task of exploring better practices and values to ensure that their businesses remain sustainable. These opportunities are known as business ethics and they basically refer to the codes of conducts applied on day-to-day activities of a business. On the other hand, ethical dilemmas are problems faced by organizations in their efforts to apply business ethics. Many of the American companies with overseas operations are constantly involved in ethical dilemmas. Nike Limited is one good example of a company that has had numerous ethical dilemmas in the past. This report will seek to identify some of the ethical dilemmas experienced in Nike and some reactive actions taken towards the dilemmas. It will further outline key aspects that can be applied by organizations to ensure they are ethically upright in order to remain competitive. Table of Contents Executive summary 1 Table of Contents 2 1.0 Introduction 3 2.0 Nike ethical dilemmas 4 3.0 Relative importance of Nike’s ethical dilemma 7 4.0 How Nike Deal With Ethical Dilemmas 7 5.0 Organization ethical best practices and values 10 6.0 Recommendations 12 7.0 Conclusion 13 References 14 1.0 Introduction Generally, ethics is a philosophical term that refers to the rightness or wrongness of an action and also refers to whether the intentions of the actions are good or bad. Therefore, business ethics can be defined as the codes of conduct that business professional apply in their business activities. There has been great misinterpretation of the term as many people refer it as the lawfulness of an action. However, a legal issue does not necessarily mean it is ethical since ethics is based on consequences that result from the action. Ethics of any given company is determined by the extent to which the decisions made and actions taken by the management affect employees, suppliers, customers and other stakeholders. Many United States companies with overseas operations such as Apple, Walmart, Amazon and Nike are faced with a major setback involving organizational ethics. Nike’s ethical dilemma issues have dominated the media in the recent years which has adversely affected the image of the company. These issues range from corporate issues, child labor, employee’s exploitation and legal matters. Nike is indeed a major contributor to the world’s economy but its reputation has adversely its credibility in the eyes of its customers. This report will take an in-depth analysis of the ethical issues underpinning Nike and some of the actions being taken to deal with them. It will further propose strategies that companies can use to ensure appropriate business ethics. 2.0 Nike ethical dilemmas The onset of ethical dilemma at Nike began when it ventured into traditional advertising methods amidst criticism by activists. According to social corporate responsibility, traditional advertising ethics are insufficient since they present conflicting issues between roles of the company and those of corporate customers. It advocates that matter relating to corporate customers should be highly considered since they the ones who represent the needs of the society. Boggan (2001) argue that interests of corporate customers should always have precedence whether they have financial value or not. Traditionally, companies could use deceitful information to advertize their products so as to attract customers. Customers become frustrated ones the products they have bought do not meet with their expectations as demonstrated in adverts. Although advertising is fundamental in maintaining competitiveness it should it be genuine. Federwisch (2011) states that integrity, ethical uprightness and positive public image can still be maintained even when a company discloses less attractive but genuine information about itself to the public. Another serious ethical concern arose when Nike decided to advertise itself as Good Corporation while its public perception was already damaged. According to Hill (2009), marketing good corporate conduct is much more important and brings better results than marketing the products. She further argues that customers would be easily persuaded to buy products from a corporately responsible company as opposed to one with good product advertising but questionable corporate conduct. In the stand points of philosophers and ethical experts, Nike used its code of conduct to gain publicity and create an image for itself rather than using it as a workplace utility. Codes can act as a company’s ethical strong point if they are enforced and availed to employees. A survey conducted on BATA and Nike companies in Indonesia, indicated excessive exploitation of Nike employees in terms of abusive management practices, compulsory overtimes and inadequate wages. BATA employees who were interviewed for purposes of comparison showed a lot of satisfaction in their workplace. Employees of Nike on the other hand said that they were still subject to unreasonable punishments and excessive verbal abuse from their managers whenever they failed to meet targets. These completely inhuman punishments included running around the factory, pulling of ears, cutting of wages and beating of buttocks. Additionally, these workers work under extreme pressure since they have to meet the laid down targets within a set time. They were forced to work extra hours with no extra payments and were denied annual leaves or any other permission. This raised conflicts between the company and human rights activists who argued that high productivity is directly proportional employee satisfaction. It was also quite notable that Nike had contracted fewer employees in many of its plants which amounted to increased pressure. Another significant ethical issue raised by employees is that of inadequate wages. Although the company has made efforts of increasing workers salaries to above the legal minimum, the figures are still very low to sustain an individual especially in the current situation of global recession. Besides that, there were very minimal wage increments such that wages paid to an employee who has worked 15 years for Nike differ very little from that of a newly recruited employee. Hill (2009) states that, good wage packages for employees serve as motivation towards a highly productive firm. Working conditions of Nike companies are substandard which risks the lives of employees. Employees have constantly raised complains on lack of drinking water, excessively heated working rooms, lack of medical facilities, lack of workers transport facilities and inactive social security systems. A Korean subcontractor of Nike revealed that Nike was contracting underage employees. This was a significantly ethical issue that served as a major setback for Nike. Hill (2009) explains that Nike continually engaged in child labor by employing children as young as 13 years and forcing them to work for long hours. In addition to overworking them, the children receive much less pay compared to their adult counterparts with wages as low as 10 cents per hour. According to human rights, every child has a right to education which was denied to the children working in Nike factories. Besides this, they are exposed to dangerous chemicals such as carcinogens harmful to their health. 3.0 Relative importance of Nike’s ethical dilemma It is quite evidence that ethical dilemma that have been experienced by Nike have relevant importance especially in the development of ethical operation within the company. Hill (2009) maintains that, it is from these dilemmas the company was able to realize it success was not purely based on ethical background. Being an global entity, Nike needed to realize that successful operation not only reflect on good revenue collection but on the ethical way being used for this revenue collection. From the bad image that the company experienced during its ethical dilemma, the company was able to realize it mistake and it come transparent to the general public to explain the other side of the bad media publicity. By so doing, the company was able to re-establish its global image and loyalty from its customers and employees (Hill 2009). 4.0 How Nike Deal With Ethical Dilemmas In the case of Nike, ethical theories will be widely useful in analyzing the various ethical dilemmas. These theories will be used to emphasis different views such as predicting Nikes outcome so as to come up with an ethically correct decision. It is quite evidence that Nike need to overcome its ethical issues through the use of ethical theory. Hill (2009) maintains that, the best ethical theory that can be used to solve Nikes ethical issues is utilitarianism. Utilitarianism is important for this case since it will enable Nike management predict consequence of an action involved in the above outline ethical dilemma. Nike should realize that a decision the yield most benefit to more employees is the choice that is considered to be ethically correct. This is perceived to be important since the theory will assist Nike compare similar predicted solutions and use these predictions to make a choice that will be beneficial to more individuals (Hill 2009). Clearly, it is good that Nike was providing jobs which are beneficial to more individuals that through the utilitarianism theory this is considered ethically correct since most people are benefiting from. However, paying them $1.60 a day within their factory in Vietnam whereas a living wage is $3 in a day is not ethically correct (Byrum 2003). Through this theory, Nike could have avoided this ethical dilemma by paying each personnel an average same to the living wage of this same country so that the employee can in turn be able to purchase basic items. Here, Nike management would have utilized act utilitarianism as a way of performing various acts that will benefit most people regardless of organizational and societal constraints. For Vietnam people living wage is a cultural expectation of every employee which Nike did not meet. Significantly, Nike decision to use public relation campaign to boost its sordid social image is considerably entrenched within the above ethical issues. For the PR campaign to be considered correct with main focus on utilitarianism theory, Nike supposedly would have reconcile its use of commodities advertising techniques with a clearly need for impartial or complete information to explain both side of the ethical dilemmas. Byrum (2003) maintains that, for the benefit of most individual in this case the government, employees and stakeholders Nike PR campaign should not only have been used to motivate desire for revenue but rather largely promoting greater transparency. It is quite evidence that the company requires to forthright with the greater public and it should be used in other method to disclose their side of the accused ethical dilemmas apart from advertising that will create a conducive optimal discussion. These other methods can be CSR in auditing and accounting which will be used to provide transparent information to the public (Byrum 2003). (Gelb & Strawser 2001) asserts that, utilitarianism calls for Nike to develop creativeness in its response towards its ethical dilemmas. Nike should ensure that normal working conditions have been put in place to ensure that there are good results both in term of produce and ethics. For instance, there were reports that workers suffered from breathing and skin problems due to using dangerous chemicals without using protective gears could be avoided (Gelb and Strawser 2001). Proper working condition would have made employees receive privileges and rights which according to utilitarianism which is beneficial to bigger public of Nike Company. Nike could have engaged in providing incentives for those workers who would engage in overtime. By so doing, it is quite evidence Nike will be effectively dealing with their ethical dilemmas while in the same time maintaining their outputs and growth as an organization (Gelb and Strawser 2001.). Although Nike admitted that it was engaged in child labor, its imposition of strict conditions on the age of individuals being recruited by contract factories abroad is a good move according to the theory. For Nike to be considered as a company which is interested in corporate responsibility it is important to engage honestly with child labor critics and especially human right community. Avoiding child labor will enable Nike to acquire mature decision making although executive reasoning which in return will ensure that there is development of sufficient control within the company over seven hundred supply chains. This will enable the company change its strategic and operational plans in order to ensure Nike remain appease and successful labor and civil rights unions (Gelb and Strawser 2001). 5.0 Organization ethical best practices and values Organizational ethics is considered as the mechanisms applied by an organization in responding to external and internal stimulus. An ethical organization is one which upholds ethical values and practices at each and every level of its organization. In such an organization, it is easy to identify elements with probability of going wrong, identify and analyze ethical risks and to create a culture of integrity that is effective. There are various elements of best practice and values required for organizational ethics (Hill 2009). Value statements which go along with organizational concepts are important in maintaining ethical standards. Value statements are developed from past experiences of the organizations. Indeed, many companies put down their goals, visions and strategies in written words but the most difficult aspect is putting them into actions. An organization that is able to practice what has been stipulated in its strategic plan is considered to be ethically responsible and earns the trust of many people (Melden 2008). On the other hand, a code of conduct is an essential tool in ensuring that there is smooth flow of operations in the entire organizational structure. It provides a conceptual framework of policies that should be followed by members of the organizations. For an ethically competent organization, the code of conduct is provided and made known to all employees. It eliminates the element of exploitation since everyone is aware of his role (Melden 2008). However, the code of conduct should be fair to everyone and not biased. According to the principle of justice, any action taken or decision made by management should be fair, justifiable and logical. In that case, the action will be ethically correct. Transparency is another element of best practice for an ethically upright organization. Corporate ethics and values require that management involve other employees in decision making procedures of the organization. This will ensure that all members will be responsible for any ethical dilemma that might come up as described in the deontological theory. It will be easy to identify areas that failed hence ways of correcting them will be easy to find. Management that allows employees to make decisions indeed demonstrates best practice. For employees to be productive, they need to have the confidence to face their employers on matters that are pressing and make suggestions on areas that need improvement (Melden 2008). Effective communication and constant in-training are crucial in ensuring that ethics are upheld in an organization. According to Federwisch (2011), best practice entails communicating company values to all employees both newly recruited and the old ones. Conducting regular training sessions for employees will enable management to meet its objectives. It is also important to have a system that regularly evaluates performance of systems. It should evaluate effectiveness of decisions made in light of values as well as examine values integrated into operations systems. Ideally, an organization should have a committee headed by a senior executive (Melden 2008). Its responsibility is to oversee ethics efforts in the organization. It conducts regular departmental audits and review reports from these departments to determine if ethical values are being followed as expected. Finally, an ethically upright organization is one that reviews its ethical values at regular basis. Federwisch (2011) states that political, economic, social, and technological factors are variable to a company since they keep changing. She further recommends that organizations should change their policies to suit prevailing environmental conditions. 6.0 Recommendations Evidently, there are recommendations needed by Nike for it to be able to answer its critics in future especially in matters of ethical dilemma. This recommendation are very important in ensuring the company is able to retain its global image and continue to enjoy as a market leader in sporting products. Such recommendations include; Nike to establish standardized reporting procedure as a way of avoiding ambiguities of business practices as well as inconsistency reporting to the general public. Standardized reporting ensures that operation within the company especially those of accounting and auditing are transparent which in turn will assist stakeholders and customers categorized information according to their specified criteria (Melden 2008). Nike should engage in Corporate Social Responsibility (CSR) statements which will ensure the public obtain more information with greater confidence. From a utilitarianism theory, this will be ethical because this approach is transparent and less deceptive, here, stake holders will be provided with more information regarding the company (Gelb & Strawser 2001). Nike can establish creative response through creation of good working conditions, issuing workers with protective gear and avoiding child labor. By so doing, the company can develop a full advantage whereby it will be able to attract low cost labor at the same time ensuring that employees rights especially those in developing countries. Nike needs to realize that a company image or reputation is the greatest organizational intangible assets. It is impossible to quantify the value of reputation. It is therefore import for the company to use its company image as a great marketing assert. Thus the company at all time should be at the fore front of protecting its image. It should maintain its reputation especially from all the above ethical dilemmas. 7.0 Conclusion From Nike case, it is quite evident that ethical dilemmas can cause negative implications to an organization image. Not at any time should organization increase their revenue at the expense of their employees’ rights. Organization need to realize that what is beneficial to many individual that is customers, employees, employers, stakeholders and shareholders is considered to be ethically correct. It is important that various ethical theories are used by organization to guide their ethic both moral and business wise. References Boggan, S, 2001, Nike Admits to Mistakes Over Child Labor. Retrieved on 3rd November 2011 from http://www.commondreams.org/headlines01/1020-01.htm Byrum, R, 2003, ‘Nike’s Speech Fight is our own’, Advertising Age, 74(3), 22. Federwisch, A., 2011, Toward an Ethical Culture: Characteristics of an Ethical Organization. Retrieved on 3rd November 2011 from http://www.scu.edu/ethics/practicing/focusareas/business/organization.html Gelb, D. & Strawser, J, 2001, ‘Corporate social responsibility and financial disclosures: An alternative explanation for increased disclosure’, Journal of Business Ethics 33(1), 1-13. Hill, C,2009, International business: competing in the global marketplace. New York:  McGraw-Hill/Irwin. Melden, A, 2008, Ethical theories. S.I: Koebel Press Read More