Nike Ethical Dilemmas - Report Example

Nike Ethical Dilemmas Ethical Audit Report Table of Contents Nike Ethical Dilemmas 1 Ethical Audit Report 1 Table of Contents 1 Executive summary 2 Purpose of the Report 2 A Snapshot of Nike’s Business Ethics 3 Ethical Dilemma’s Facing Nike 4 Nike’s Best Ethical Practices 7 Conclusion 9 References 9 Executive summary As globalalisation increases the scope of the Multinational Companies (MNCs) to penetrate the market both for cost effective labour and markets also has far reaching consequences. The question of business ethics and social responsibilities also extend to the suppliers, contractors and the work force that encompasses these new areas of operation and therefore it is imperative for companies to formulate their corporate strategies keeping in mind their competitive advantage. Nike had its share of problems when globalization first emerged when its business strategies with regard to the poor conditions of the work force in the sweatshops in Asian countries was questioned. Today with a new business strategy in place Nike hopes to deal with its obligations to its vast global labour force, the natural environment and also its bottom line. “Nike’s vision for Sustainable Business and Innovation is clear: to help NIKE, Inc. and its consumers thrive in a sustainable economy where people, profit and planet are in balance.” (NIKE, Inc.CRS Report 2007-09) Purpose of the Report This report will discuss some of the ethical dilemmas that have plagued Nike and how the corporate footwear and apparel leader has changed its business policy to change its working environment in response to the vast fall in brand image following the reports of the conditions of its Asian workers. “Ongoing commitment can derive from either economic self-interest (i.e., a solid business case) or from ethical grounding (i.e., the moral impor­tance of sustainable development). Oftentimes, of course, both of these apply” (Amato et al 2009 p -11). Keeping in mind that looking after the community and the people as well as the environment will lead to long term financial gains has prompted Nike to lay emphasis on Corporate Social Responsibility and so as industry leaders Nike can help to “change the behaviors and expectations of those who work in the industry through influencing policy and encouraging collaboration between civil society, industry and government” (Nike Inc.) A Snapshot of Nike’s Business Ethics Ethical auditing is a fairly new process which can be used to measure an organization value base which could be either internal or external. Ethical auditing is value based and incorporates either a stake holder or an environmental scanning approach process. Once the process is in place then transparency and accountability are apparent and it then it can successfully be used to meet the ethical objectives that the organization has set for itself. In a landmark speech at the national Press Club in 1998, following adverse media attention the then Nike CEO Phil Knight accepted corporate responsibility for labour practices followed by its suppliers and laid down six initiatives which formed the basis for Nike’s commitment to ethical practices. They increased the minimum age of the footwear factory workers to 18 and for lighter work in the apparel and accessories manufacturing to 16. The indoor air quality of all footwear factories was to conform to US standards To expand education facilities for footwear workers up to high school level Nike would provide funding for research for issued related global manufacturing processes and for independent monitoring of factories. NGO’s and educational institutions were to have a bigger role in monitoring Nike factories and making their reports public. Providing micro-financing to families in Asia who were actively involved in the manufacturing process for Nike. Building on the foundation laid by Knight Nike has now developed an efficient system monitoring and remedying. Health practices, safety audits, factory inspections and training and awareness initiatives have become a part of its CSR. “In September 2001 Knight and Nike’s Board of Directors created a Corporate Responsibility Committee of the Board. The committee’s responsibility is to review, report and make recommendations to the full board regarding Nike’s alignment with corporate responsibility commitments. Issues to be addressed include labor compliance initiatives, environmental practices, community affairs programs, human resources, diversity issues, and philanthropic efforts. These structural changes in the governance of Nike provide evidence of positive ethical deviance at the company level” (Arnold & Hartman, p23-24) Nike has shown the way forward and “hopefully its future monitoring data will also set new standards. While the reporting of monitoring data has come a long way in a few short years, it still has a long way to go” (Jackson 2007) Ethical Dilemma’s Facing Nike In 1997, the Vietnam Labour Watch (VLW) accused Nike of violating numerous labor laws of that country. According to the report, Nike did not pay the minimum wages, did not provide proper working conditions, did not take adequate health and safety measures. and neither did it act on reports of child labour and sexual harassment in its factories. Nike stated that their Code of Conduct has been in place since 1991 which states their values, intensions and expectations which should act as a guide to decision making in all their product facilities. Nike has directed all its contract factories to make the Code of Conduct as visible as possible by posting it in the local language. When Nike began to globalise they felt no need to be accountable for the actions of their contractors as it was not the practice in their domestic business operations as legal systems were clearly in place. However the attraction for the Asian factories was lower cost structure. Originally the concept of contracted factory workers were not considered a part of their system in the apparel and footwear industry and so the corporations were not duty bound to look into their problems. Nike defended its stand by stating that it was only outsourcing its work and that the contractors in that country were responsible and not Nike. Nike had obviously failed to do an environmental scan for soon the problem was heightened. The Nike sweatshop labour case became intensive and generated all kinds of controversy on business ethical practices. While Nike was making billions the workforce that made the profits was working in some really poor conditions according to American standards. The Nike contractor factories were placed in Asia and South America fulfilling its mission of being a global company. They were strategically located in places where raw material and cheap labour was easily available. These could have proven to be beneficial but for the environmental analysis factors that came into play involving three aspects of its workforce, child labour, lower wages to women workers and the poor working conditions forcing workers to accept poor conditions because of their poverty. “As a result, protestors of globalization and human rights activists criticized Nike for taking advantage of the workers overseas and placing them in a destructive working environment” (Phoenix Business). Nike suffering losses through bad publicity had to act immediately to revamp its image and it began to work towards corporate social responsibility. Nike had not realized how important ethical practices and neither did it imagine that the American public would expect it to adhere to ethical practices that involve another country. "There is clear evidence that a good reputation gains a company more customers, better employees, more investors, improved access to credit, and greater credibility with government” (Nelson 1996, p47). According to Crane & Matten (2007) social accounting was earlier modeled on stakeholder’s satisfaction and the surveys were hardly helpful in pinpointing any malaise. It is because of the pressure from media and pressure groups that prompts companies firms to develop a CSR practice which leads to an evaluation of the conditions in their supply chain. It helps them to identify risks throughout their operating environments and is also the key that will indicate potential problems like the kind of audit that is needed in the overseas factories. “Some years ago, CSR had narrower and more well-defined limits, whereas today any company may in principle be associated with the violation of human rights as supplier and customer actions are increasingly seen as a corporate responsibility by stakeholders. Any contemporary company may in fact encounter legitimacy problems at some point” (Morsing and Schultz, 2006, p332). In September 2001 Knight and Nike’s Board of Directors created a Corporate Responsibility Committee of the Board. The committee’s responsibility is to review, report and make recommendations to the full board regarding Nike’s alignment with labor compliance initiatives, environmental practices, community affairs programs, human resources, diversity issues, and philanthropic efforts. ( Arnold & Hartman p23-24)). Seeing the wisdom of having a Corporate Social Responsibility practice in place Nike soon developed a social accounting practice and the first report was given out by the company in 2005 According to a report by Martin Hickman in The Independent Nike had a turnover of £7 billion in 2006 and was rated the second lowest where ethical practices were concerned. the chief grouse being that it paid no attention to workers’ conditions. Many charitable organizations accused the clothing giant of using factories that pay workers a few pence a day in countries that are dictatorial but paid millions of pounds in endorsements to sports stars. Nike published an audit of its 700 factories and Nike’s Europe head stated "There have been problems... and one of our weaknesses was that we thought we could sort these out. on our own." The Labour Rights and Sportswear production group found that Nike’s initiatives had reduced the number of football shoes that made in Asian countries that were not allowed to join a trade union to 38% from 52% in 1998 showing its willingness to work with Fair Labour Organisations that support trade unions. Globalisation and diversification are the main drivers for a retail industry. According to Arnold and Hartman unless MNCs exercised moral authority the conditions were likely to remain the same The apparel and footwear supply chain systems involves a network of relationships among diverse stakeholders such as the MNCs, contractors, factory workers, non-governmental organizations, governments, and consumers. Each of these entities contributes to shaping the social-political and economic environments in which the MNCs operate, and helps define the boundaries within which the MNCs consider and reach decisions regarding the labor challenges they face. Nike also took it upon itself to deviate into better ethical practices as it makes a difference to the bottom line in the final run. Nike’s Best Ethical Practices “Written codes of conduct that are comprehensive and clear are now seen as an essential element of good governance and ethics for all organizations” (Edge 2005) Nike has set up a Code of Conduct which is applicable to its own employees and also to its suppliers. They have asked the contractors to make the Code highly visible and to translate it into the local language. This helps to maintain standards. Nike has also put up an independent inspection team to monitor its CSR in its contract factories all over the globe In their FY05/06 report, Nike set targets relating to excessive overtime and freedom of association. They set up targets that would ensure that their suppliers managed their human resources in a better way. Gail Dutton reporter for Ethisphere, spoke to Caitlin Morris Nike’s Director of Compliance Integration and Collaboration who said that when they go for inspections to the contract factories the suppliers are hostile but then through dialogue they are able to come to an understanding. Nike understands the constraints on the suppliers and the suppliers have begun to understand Nike’s need to have ethical practices in place and has now become a part of the business practice. Excessive over time is a major problem throughout the apparel industry. Nike’s audit found the reasons for excessively long work hours among its suppliers were poor application of local laws, flawed factory management approaches and upstream business processes that caused extra work. Nike CEO Mark Parker considers this issue so important that he is chairing Nike’s Overtime Task Force himself and has tied CSR objectives to employee reviews. (Dutton 2008) Michael Connor reporting in the magazine Business Ethics says that the publication of latest 2009 CSR report by Nike has brought into focus the issue of environmental sustainability and Nike report that they aim for “reaching a closed-loop business model where the goal is to achieve zero waste in the supply chain and have products and materials that can be continuously reused  – no pre- or post-consumer waste.” “What’s most interesting about the report, though, is that you can see Nike grappling, in public, with some tough choices.  The narrative demonstrates what can happen when a company begins reporting regularly and in-depth, and with an apparent commitment to intellectual honesty, about core issues” (Connor 2010) Conclusion Labor and human rights continue to be the major concerns at Nike because these can disrupt the supply chain of its main products apparel, footwear and sports equipment and its dream of taking sports to the world can be dented. Macro-environmental scanning has now become a necessity for Nike as it is through regular monitoring and encouraging remedial measures in its overseas contract factories, that are latent in root causes, will the company be able to grow out of its present deterioration in brand image. “We call this approach responsible competitiveness, and it has been an area of evolution at Nike for the last three years. It is based on our belief that: i. We need to go beyond issues and understand root causes. ii. We need to aim for systemic change, not just the resolution of incidents. iii. We need to foster systemic change by building responsible competitiveness into our entire business model and enabling a win-win for workers’ rights, and for growth and profitability across our supply chain. (Nike Inc CR report 2009, p34) References Arnold DG and Hartman LP (n.d) Beyond Sweatshops: Positive deviancy and Global Labor Practices [online] available at http://www.positivedeviance.org/pdf/research/ArnoldHartmanPositiveDeviance[1].pdf accessed on 8, November 2011. Crane A & Matten D (2007) Business Ethics. Second Edition. Oxford University Press. Connor M (2010) Nike: Corporate Responsibility at a “Tipping Point”January 24, 2010 in Business Ethics [online] available at http://business-ethics.com/2010/01/24/2154-nike-corporate-responsibility-at-a-tipping-point/ accessed on 8, November 2011. D’Amato A, Henderson S & Sue Florence S (2009) Corporate Social Responsibility and Sustainable Business: A Guide to leadership tasks and Center for Creative Leadership [online] available at http://www.ccl.org/leadership/pdf/research/CorporateSocialResponsibility.pdf accessed on 8, November 2011. Dutton G (2008) How Nike is Changing The World, One Factory At a Time Ethisphere March 26, 2008 [online] available at http://ethisphere.com/how-nike-is-changing-the-world-one-factory-at-a-time/ accessed on 8, November 2011. Edge B (2005) Foreword: Restoring public trust in Ethics and Auditing Tom Campbell and Keith Houghton (Editors) ANU E press Australia [online] available at http://epress.anu.edu.au/ethics_auditing/pdf/prelims.pdf accessed on 8, November 2011. Hickman M (2006), The Ethics Audit from The Independent June 8, 2006 [online] available at http://www.independent.co.uk/environment/the-ethics-audit-2006-481531.html, accessed on 8, November 2011. Jackson R Improving (2007) Labor Standards - The Importance of A Long-Term Relationship in Ethical Corporation Magazine 10, November 07 [online] available at http://www.ethicsworld.org/ethicsandemployees/viewsandanalysis.php accessed on 8, November, 2011. Morsing M and Schultz M (2006) Corporate social responsibility communication: stakeholder information, response and involvement strategies. Business Ethics: A European Review Volume 15 Number 4 October 2006 [online] available at http://majkenschultz.com/articles/BEER_460.PDF, accessed on 8, November 2011. Nelson J (1996) Business as Partners in Development: Creating Wealth for Countries,Companies and Communities (London: The Prince of Wales Business Leaders Forum, 1996, p. 47.) NIKE, Inc. Corporate Responsibility Report FY07-09 (p22- [online] available at http://www.nikebiz.com/crreport/content/pdf/documents/en-US/full-report.pdf. accessed on 8, November 2011. Phoenix Business (n.d) Nike Global Business and Challenges 96 [online] available at http://phoenixbusiness.hubpages.com/hub/Nike-Global-Business-and-Challenges accessed on 8, November 2011. Read More

Ethical auditing is value based and incorporates either a stake holder or an environmental scanning approach process. Once the process is in place then transparency and accountability are apparent and it then it can successfully be used to meet the ethical objectives that the organization has set for itself. In a landmark speech at the national Press Club in 1998, following adverse media attention the then Nike CEO Phil Knight accepted corporate responsibility for labour practices followed by its suppliers and laid down six initiatives which formed the basis for Nike’s commitment to ethical practices.

They increased the minimum age of the footwear factory workers to 18 and for lighter work in the apparel and accessories manufacturing to 16. The indoor air quality of all footwear factories was to conform to US standards To expand education facilities for footwear workers up to high school level Nike would provide funding for research for issued related global manufacturing processes and for independent monitoring of factories. NGO’s and educational institutions were to have a bigger role in monitoring Nike factories and making their reports public.

Providing micro-financing to families in Asia who were actively involved in the manufacturing process for Nike. Building on the foundation laid by Knight Nike has now developed an efficient system monitoring and remedying. Health practices, safety audits, factory inspections and training and awareness initiatives have become a part of its CSR. “In September 2001 Knight and Nike’s Board of Directors created a Corporate Responsibility Committee of the Board. The committee’s responsibility is to review, report and make recommendations to the full board regarding Nike’s alignment with corporate responsibility commitments.

Issues to be addressed include labor compliance initiatives, environmental practices, community affairs programs, human resources, diversity issues, and philanthropic efforts. These structural changes in the governance of Nike provide evidence of positive ethical deviance at the company level” (Arnold & Hartman, p23-24) Nike has shown the way forward and “hopefully its future monitoring data will also set new standards. While the reporting of monitoring data has come a long way in a few short years, it still has a long way to go” (Jackson 2007) Ethical Dilemma’s Facing Nike In 1997, the Vietnam Labour Watch (VLW) accused Nike of violating numerous labor laws of that country.

According to the report, Nike did not pay the minimum wages, did not provide proper working conditions, did not take adequate health and safety measures. and neither did it act on reports of child labour and sexual harassment in its factories. Nike stated that their Code of Conduct has been in place since 1991 which states their values, intensions and expectations which should act as a guide to decision making in all their product facilities. Nike has directed all its contract factories to make the Code of Conduct as visible as possible by posting it in the local language.

When Nike began to globalise they felt no need to be accountable for the actions of their contractors as it was not the practice in their domestic business operations as legal systems were clearly in place. However the attraction for the Asian factories was lower cost structure. Originally the concept of contracted factory workers were not considered a part of their system in the apparel and footwear industry and so the corporations were not duty bound to look into their problems. Nike defended its stand by stating that it was only outsourcing its work and that the contractors in that country were responsible and not Nike.

Nike had obviously failed to do an environmental scan for soon the problem was heightened. The Nike sweatshop labour case became intensive and generated all kinds of controversy on business ethical practices. While Nike was making billions the workforce that made the profits was working in some really poor conditions according to American standards.

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