Corporate Governance and Social Responsibility - Essay Example

0 Introduction Corporate governance and corporate social responsibility (CSR) have emerged as important variables that influence the behavior of organizations today. The reason for this is the growing interest entailed in the growth of consumer activism. The purpose of this report is to outline the reason for such increase in interest and how Nike has been affected in the process in its strategies and the way the company is perceived by the public. The report provides an overview of corporate governance and corporate social responsibility. Then, a discussion of the controversies that affected Nike will follow in the context of corporate governance and CSR. The preceding section will list the corporate governance and CSR practices within the organization including the impact of such measures for Nike today. 2.0 Company Overview Nike is the leading sports footwear and apparel manufacturer throughout the world. It has more than 30 years of experience in developing high performance and innovative shoes. In recent market reports, Nike holds at least 30 percent market share, a comfortable lead from its closest rival, the German brand Adidas. (Van Riper 2008) Nike as a brand is the strongest among its competitors. This has been achieved through years of careful brand promotions that have exposed Nike to the widest possible population and earned it as one of the American icons next to Coca-cola, IBM, Microsoft, Walt Disney, among others. Nike in its overall organizational strategy – from product development to sales and promotions – is unique in comparison with all the rest of the major players in the footwear and related industries. If one examines its strategy, the company focuses much on brand-building recruiting the best athletes in every sport to endorse its brands and reinforce the image it has carefully cultivated throughout the years. Nike’s history, however, is not written with success stories exclusively. The fact is that it is punctuated with several controversies involving unethical practices. The following cases are some examples: Nike was widely criticized back in the 1990s after a series of news reports aired in CBS recounted the unfair conditions and practices of the company’s manufacturing facilities in Vietnam and Indonesia. The report cited the payment of below minimum wage to its employees; charges of employee physical abuse; and, the forced running of laps by employees who wore nonregulation shoes. (Jackson, Sawyer and Jenkins, p. 17) The child labor controversy in Pakistan and other third world countries. Nike was sued for false advertising in a California court after Marc Kasky accused the company of issuing false and misleading statements, prompting a protracted and yet unresolved debate about whether Nike’s campaign of press releases, advertisements, and other promotional measures to defend its business practices constitute free speech or commercial information. (L’Etang & Peiczka, p. 56) The manner by which Nike sought to quell these controversies underscored how they value their reputation and how unethical practices could severely impact their market performance. Crucial to the measures taken by the organization to deal with the above crises was the adoption of corporate social responsibility practices. Writing about this development in 2001 for The Independent, Steve Boggan (2001) reported, “Nike attempted to present itself to its shareholders in its first "corporate responsibility report" as a touchy-feely entity established by "skinny runners" and employing young executives who worried about the environment and the level of wages it paid.” 3.0 Corporate social responsibility The old adage stating that the only business of business organizations is business is thought to be outdated and no longer applicable today. In the current global scenario, explained Fernando (2009), competition is more cutthroat, requiring corporations “to pause and ponder upon the impact of their business on the global community in general and their key stakeholders in particular” and that “in a world where corporate image means everything,” business houses are forced to do everything to communicate positive image and reputation. (Fernando, p. xxii) It is for this reason why it is already a norm for corporations to establish themselves as responsible members of the community by being involved in social welfare initiatives. Corporate social responsibility came to refer to those corporate activities that are beneficial to society and by implication mitigate or make-up for unethical practices or anti-social activities that they have been charged committing. (Fernando, p. xxii) CSR is considered to be a component or a dependent of corporate governance since it cannot be effective once the latter fails. Howard Bowen, considered the father of CSR, explained that it is imperative for business men to take responsibility for the system of free enterprise and act thereafter in order for the system to flourish. (Akerstrom 2009, p. 2) Several academics tried to demonstrate the framework of CSR. One of these is A.B. Caroll who posited the so-called Pyramid of Corporate Social Responsibility (see Fig. 1). A more detailed depiction was demonstrated by Fernando’s model that underscored how CSR becomes a crucial component of an organization’s business operations and strategy (see Fig. 2). He explained that the substance of such model and the many definitions put forward by experts can be summed up by the following propositions: i. It is an attempt made by companies to be voluntarily responsible to ethical and social considerations. ii. It is not legal binding for the company, unlike corporate accountability. iii. The responsibility to follow such policies in decision-making and to pursue measures and initiatives that are congruent to the ideals and values of our society. iv. The set of obligations has to project, enhance, and otherwise work to the betterment of the society in which it functions. v. Corporate social responsibility is the overall relationship of the corporate with all its stakeholders. (Fernando 2011, p. 373) 4.0 Corporate social responsibility at Nike With the series of issues questioning the ethics of several of Nike’s business practices (as previously outlined), the Nike brand was seriously endangered. Nike’s sales plummeted while the company’s stocks took a beating as well with the management acknowledging that the poor performance is attributed to its negative image. (Gilliland 2002, p. 134) The company, fearing further consumer backlash settled its legal battle with Kasky, finally agreeing to pay $1.5 million to the Fair Labor Association and $500,000 worth of annual subsidies to small enterprises of employees in Nike’s facilities overseas. (Ferrell, Fraedrich and Ferell, p. 4) Then, a series of reforms were also implemented that transformed the company into being one of the leaders in employment practices. The most important of these is the changes made in the company’s monitoring systems being used in its facilities. Ferrell, Fraedrich and Ferrell reported: 1. There is the establishment and usage of the so-called SHAPE inspection in assessing and evaluating basic compliance to established regulations especially concerning the environment, safety, and health. The body that oversees this task is a full-pledged independent field-based production staff within Nike. 2. Secondly, there is the Management Audit. In this measure, Nike has set-up a body composed highly trained staff that specialize in labor-auditing practices. Otherwise known as M-Audit, it functions as an in-depth inspector, which is primarily tasked to identify problematic areas. 3. Finally, Nike not only adopted a policy of using independent monitoring by the Fair Labor Union within its organization. What is more is that it also actively promotes it within the industry. Furthermore, an evaluation model called balanced scorecard was adopted, designed to assess and, henceforth, maintain its facilities’ compliance with established codes of conduct through a letter grading system. (Ferrell, Fraedrich and Ferrell, p. 416) There are many other initiatives and programs launched since 2002, including those that address issues about environment and organizational transparency, among others, often taking the initiative and trailblazing standards that many other companies in their industry emulated. 5.0 Key drivers and Benefits for Nike The corporate responsibility reforms undertaken in Nike immediately paid off. By 2005, the company was cited as one of the best corporate citizens in Business Ethics magazine’s annual list and went on being selected again the following year. “Nike also made Fortune magazines 100 Best Companies to Work For list for the first time in 2006, coming in at number 100 and has received a perfect score on the Human Rights Campaign Foundation’s Corporate Equality Index two years in a row.” Ferrell, Fraedrich and Ferrell, p. 417) Crucial in the success in the reforms introduced was the changes in the top management of the company as Nike scrambled to emphasize corporate responsibility. In 2004, a new CEO was hired, William Perez, a man known for his expertise in CSR. (Holmes 2004) He was previously credited to have steered S.C. Johnson Spain and Iberia towards environmental and community investment leadership. (HACR 2005) True enough, Perez went on transforming the organization’s bad image into an opportunity for change and competitive advantage. 6.0 Conclusion Nike’s experience is a classic case of organizations that have to learn the hard way – that in order to achieve its corporate objectives today, it is imperative to implement CSR practices and policies. The swift response to the negative publicity brought about by the controversies involving unethical practices was not surprising considering the fact that the Nike specialized in image-building and knows its way around in changing the public’s perception. For other organizations, adapting CSR may be a slow process and, hence, less effective. But, nonetheless, Nike and its failures and successes in the context of CHR and ethical practices should serve as an example that an enterprise is unavoidably woven in the community it is in. It can never separate itself, say, into one independent entity. By contributing to society, it can make up for whatever unethical practice it may have committed and repair eroded image. The society and the consumers today expect a particular set of appropriate standards and conduct from businesses and rewards those deliver on such expectations. 7.0 References Akerstrom, A. (2009). Corporate Governance and Social Responsibility: Johnson & Johnson. Norderstedt: GRIN Verlag. Boggan, S. (2001, October). "Nike admits to mistakes over child labour." The Independent. Retrieved from Carroll, A.B. (1991). "The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders," Business Horizons (July-August 1991) 39-48. Fernando, A.C. (2011). Business Environment. New Delhi: Pearson Education. Fernando, A.C. (2009). Corporate Ethics, Governance, And Social Responsibility: Precepts And Practices. New Delhi: Pearson Education. Gilliland, S. (2002). Emerging perspectives on managing organizational justice. Information Age Publishing. HACR. (2005). "Nike, Inc. Appoints William D. Perez President, Chief Executive Officer, and Director." HACR. Retrieved from Holmes, S. (2004, November). "Nike: Can Perez Fill Knight's Shoes?" Businessweek. Retrieved from Jackson, S., Sawyers, R. and Jenkins, G. (2007). Managerial Accounting: A Focus on Ethical Decision Making. New York: Cengage Learning. L'Etang, J. and Pieczka, M. (2006). Public relations: critical debates and contemporary practice. London: Routledge. Van Riper, T. (2008). “The Olympics: It's About The Shoes." Forbes. Retrieved from [13 Aug. 2010] 8.0 Appendix Fig. 1: Pyramid of Corporate Social Responsibility. (Caroll 1991) Fig. 2: Business in Society in the Context of Social Responsibility (Fernando 2011, p. 371) Read More