Business Ethic and Nike Company - Essay Example

Introduction The rapid technological breakthroughs in recent decades saw the world expanding and collapsing at the same time. It expanded to accommodate globalization while it contracted in the sense of removing geographical barriers as the evolution of communication framework connected the virtual world. These advancements particularly benefitted the way people conducted business and facilitated commerce. However, in the midst of the seeming limitless capabilities of businesses in this information and communications era, the world economy faltered and headed towards a deep financial turmoil. Loveleena Rajeev (2009) supposed that “the lack of business ethics in the market, is the reason the world economy is presently in crisis”. Ethics, in its simplest definition is the perception of right and wrong. Our urbane and civilized world is anchored in ethical values, where without it, the society will be in chaos and disarray (Smith & Smith, 2009). It follows that business ethics “are moral values and principles, that determine our conduct in the business world” which refer to all aspects and phases in commerce (Rajeev, 2009). In a sense, it should not have been a contentious matter as the conduct of business is simply about delivering and/or exchanging advantages with the firm making profits from it, however, the emergence of “greed has led the present business scenario towards unethical business practices, legal complications and general mistrust (Rajeev, 2009)” The need for ethical behaviour especially in business leapt from this mire of distrust. Thus the framework of ethical business practices outlines “a code of conduct that facilitates, if not encourages, public confidence in their products and services (Smith & Smith, 2009). This structure provides guiding principles in getting through ethical dilemma posed in the conduct of business to encourage fair practices and unbiased results, always putting the best interest of the concerned sectors in mind. Company Spotlight One such company which found itself in the middle of an ethical scandal is one of the world’s largest shoe manufacturers, Nike, Inc. The controversy was nicknamed Nike’s sweatshop as it pertained to the offshore production houses of the company which was alleged to have poor labour practices and exploitation of manpower. Nike was born from the coming together of Phil Knight and Bill Bowerman which in its early stages imported sports shoes from Japan. In two decades, this shoe manufacturer was able to conquer about half of the world market after it started distributing to South America and Europe. Nothing has changed much with the production process in Nike except that in recent years, it had more than 700 factories with approximately 550,000 employees in over 50 countries (Murphy & Mathew, 2001) in third party manufacturers’ capabilities. Despite the vastness of their employment and suppliers network, they stated in their corporate governance guidelines that they employ a unified code of ethics to be followed not only by their employees but also by their suppliers. It included among others the command to their manufacturers to “respect the rights of their employees and to provide them with a safe and healthy work environment (Nikebiz website). Nike’s goal in the set up of its working conditions and exercise of labour practices was to make a positive impact on the lives of their workers all over the world (Murphy & Mathew, 2001). Sweatshop Scandal The controversy started in early 1990’s when Harper, an American magazine exposed a story comparing the take home pay of a Nike manufacturing site worker in Indonesia with the professional fee that Michael Jordan gets in endorsing the brand. The story exploded worldwide as different news agencies picked up on it which aroused the attention especially those who were highly critical of what they term as the sweatshop labour conditions of factories and manufacturing plant (Murphy & Mathew, 2001). The uproar further escalated when the public felt that despite the call for action, Nike had been indifferent to the protests. Although from the Nike’s insider story, they claimed that even before the relentless criticisms, they have set as part of their corporate governance a code of conduct mandated even to their suppliers and third party manufacturers. However, the report stated that the code was implemented only in mid 90’s (Murphy & Mathew, 2001). Despite this claim, critics of the sweatshops still clamoured for Nike’s appropriate action in the early 2000’s. They claimed that even if Mr Knight, Nike’s CEO and founder proclaimed in 1998 the company’s promises to revamped their labour practices, they still did not see the changes as they ask for more than what Nike has promised. Some of Mr Knight’s promises included that Nike factories would strictly comply with the U.S. Occupational Safety and Health Administrations (OSHA) standards in indoor air quality (as Nike factories workers were alleged to be exposed to toxic fumes) and would not employ child labourers (Connor, 2001). The critics of Nike believed that in order to make the grade in ethical practices, the company must also upgrade remuneration to a decent level while working within reasonable maximum working hours. They claimed that workers sweat it out for more than 70 hours a week for just $1.25 daily wage, an amount that could barely cover the living expense of the worker much less support the entire family. They also declared that despite Nike’s contentions that their factories offer safe and ideal working conditions and environment, the company’s indifference to request to be more transparent regarding such issues might prove the firm’s claim to be otherwise (Connor, 2001). Ethical Issue Milieu What has caused this debacle in the conduct of global business of a multinational company? Understanding the situation of the company as well as the clamour of groups and individuals who accused Nike of unethical behaviour starts from considering the environment from where this ethical debate emerged from. Globalization has changed the way the world conducts business as all economies join together in one international market erasing all geographic boundaries and economic transaction barriers. Because of this, it seemed that the playing field evened out and business clambered for strategies to stay on top. To survive in the highly competitive business environment developed by globalization, outsourcing becomes one of the leading business strategies. Outsourcing is “the hiring of nonemployees or foreign employees to do jobs that domestic employees would otherwise do (McGee, 2005)” It is often argued that globalisation of production means that the developing world is highly vulnerable to decisions in the developed world to shift production contracts from country to country in the search for ever cheaper labour rates and poorer conditions. This is the so-called race to the bottom. (Murphy & Mathew, 2001) As the footwear industry is labour intensive, companies needed to seek cheaper labour cost to sustain their businesses afloat especially as they are also hounded by rising imports which as it was already claimed 90 % of the market share. “There are many manual steps involved in the assembly process of shoes and no amount of technological innovations of the manufacturing process can narrow the gap in labour costs between the United States and the developing countries (Footwear Industry, 2008)”. Outsourcing, as it is has been already the subject of many criticisms. The nature of outsourcing-taking away domestic jobs and offering it to foreign counterparts is viewed as unethical in its own right. Especially in the US, they complained that outsourcing takes away the job for the Americans leaving them at a disadvantaged position of possible job shortage within their territories while the companies have moved their factories and sought manpower elsewhere in the globe (Footwear Industry, 2008). Outsourcing without a doubt is good for business. It drives down labour cost and consequently cut down operational costs. This could provide the strategic edge that the company is seeking for in the highly competitive globalized environment. It also provides the companies access to competent manpower and allow them to possibly concentrate on their core competencies, thereby making them more efficient (Rajeev, 2009). However, the major benefit of outsourcing, which is lower cost, might undermine its benefits in the long run. The human costs of outsourcing will rebound as one of the greatest disadvantage as the employee sheds off benefits and suffer cutbacks in wages to retain their own competitive advantage in the labour force (Breslin, 1999). The ethical dilemma in outsourcing is compounded by the alleged exploitation of multinational companies in developed countries of the manpower in developing countries. Many have espoused previously that globalization would propel the shifts in income distribution and would promote economic equality especially between the developed and the developing countries. As the increased exposure to international market forces adds to the labour market risk inherent to economic growth, developing countries are faced more and more often with the question of providing labour market protections, especially to the most vulnerable segments of the population. (Boeri et al, 2008) There had been other claims and evidences of the reality of poor labour practices in off shore factories or outsourced production. Apple for one admitted such scenario in its production house in China (Multinationals admit, 2009) while other companies including one of the world’s largest beverage manufacturer, Coca Cola, were also involved in same predicaments (US: Coke to Examine, 2005). Analysis Ethical gap In these issues, the ethical gap appeared with more faces than the companies are trying to face and handle at present. Outsourcing might have its share of advantages however there are evidences that in the long run, it could only be viewed as one with too many ugly heads threatening the rights and privileges of the labour force, both the ones deprived of the job opportunity at the onset and the recipient of the job after transplanting the workplaces, both real and virtual. For the ones who lost the job opportunities, work might be scarcer with increased number of workforce fighting off for the remaining jobs. In the end, it could lead to higher unemployment rate or oversupply of employees thus leading them to go for lower pay and decreased benefits, following the law of supply and demand. For the recipient country of the outsourced jobs, the threat would be another country or another area poorer than the others willing to offer cheaper labour costs just to ensure that they provide jobs for their citizens. The race to the bottom ensues with the labour force bearing the brunt of the effects of globalization. The labour force, which might include minors, could be willing victims as their primary focus is on the tiny window of benefit that was accorded to them-having a job. They might never complain about the poor working conditions or the harsh rules that cripple their employee’s rights. They could never see beyond the meagre daily wage that somehow sustains them even if doing inhumane working hours. They could only be thankful for outsourcing as it provided jobs for them. The multinational companies capitalized on this ignorance and simple-mindedness and harnessed them completely to their benefit. They banked on their upper hand that they could transfer their business to another country with probably cheaper labour cost than the previous and with workers who will welcome them with open arms in gratitude for the favour of providing jobs for them. The manpower could not complain lest they stand to be the one on the losing ground. Ethical standpoint Machiavelli espoused that the end justify the means and Kantian ethics principle talked about treating people as ends themselves and not as merely means. This had been supported by many societal systems, government and culture however, the issue about outsourcing would prove guilty of going against these ethical perspective. Breslin (1999) provided a vivid example of this when he illustrated that in the example of companies hoping to harness the advantages of reduced costs in their bid for increased profitability (the ends), they leverage outsourcing (the means). It also goes against Stuart and Mill’s utilitarian concept of capitalizing on the advantages for the majority or the greatest happiness principle. The labour force who suffered the greatest setbacks is still the majority when compared with the interest of the few companies. In the final analysis, the end might justify the means despite possible lack of acknowledgement from the companies that indeed, people were used as they raced towards their goals. Also, only the few benefits while the bigger part become mere victims of globalization and business competition. Implications on Corporate Governance Corporations who emerged guilty of unethical practices announce to the world the type of corporate governance that their company maintain. Thus, ethical controversies request another look at the company’s ethical governance structure. As in the case of Nike, Inc, they claimed that they have refurbished their corporate governance framework to accommodate the ethical issues that they were made to face previously. The effects of the new and revamped corporate governance would be observed by their critics if indeed they were put into place. Otherwise, they will be forever hounded by these people calling on them to have a look at their ethical standpoints. Inactions or omissions on their part might bring their company to peril and even oblivion, as in the case of Enron (Buondonno et al, n.d.). Economic Repercussions There are still groups that argue that outsourcing in the long haul will prove to be beneficial to the majority as the utilitarianism promotes. They claim that the difference in labour costs that the company was able to save in outsourcing would be spent elsewhere which in the end will still find its way into the domestic market and expands it. They state that it might not be obvious at the moment how it could but one thing is for sure, eventually it would and thereby proving its beneficence. Their point is the wrong perspective of the person looking at the disadvantages of outsourcing to the domestic economy (Greaves, 2009). While it could be true that in the economic perspective, outsourcing would be in one way or another still prove to be advantageous both to the domestic company and the recipient foreign economy which will stand to gain with the infusion of cash flow, the economic benefit to the individual person is not taken into account. Working long hours under poor working conditions for a few dollars might bring food on the table and sustain the employee in terms of his/her daily food consumption, the abuse to the body might take its toll, sooner or later. Sickness, disability or even loss of life, as a result would lead to lost economic potential not only for the individual but also in the entire economic system where both the company and the country are part of (Whiteside, 1987). This is another ethical issue that has not probably cropped up yet but is an integral part of the unethical practice. Recommendation Closing the Gap Nike, for its part announced that they have done adjustments in fulfilment of their new code of conduct such as the introduction of minimum age requirement of labourers, improving the quality of the working environment especially the air quality, provision of expanded education programs for the employees, etc. They have also adopted a system in the inclusion and approval of a potential supplier which looked into the alignment of manufacturing practices in their code of conduct. They also set up a Corporate Responsibility division tasked to oversee the implementation of best practices in their factories as part of their upgraded corporate governance structure. As it is, the realization that they will eventually lose customers because of the negative perceptions about the company and the brand brought them towards the implementation of adjustments in their ethical governance (Murphy & Mathew, 2001). However, this could prove to be still self serving. The threat of loss of sales and profit drove them to take necessary actions and required adjustments. If the company truly take into heart ethical governance, it is not the motivation of profit that will propel them to action; rather it is the idea of closing the gap on the ethical issues they faced. For Nike to be truly an ethical company, the welfare of the other stakeholders, especially in their case, the offshore workers must be the compelling force for the restructuring of corporate governance in alignment with the ethical standards. Conclusion Globalization has brought about the mad rush of companies towards seeking the best strategic move on their way to claiming supremacy in their fields and in their industry. As such, the motivation for profit relegated one of the most important aspects not just in business but of any civilized society-ethical values. Most especially, the recent popularity of outsourcing which provide cheaper labour costs to companies is impugned to have undermined human rights. Companies have utter disregard for the rights of workers seeing them only as means to their ends. Indecent wage rates, long gruelling working hours in poor working environment were disregarded by companies and blindly accepted by workers compelling those who saw through the abuses to open the eyes of the world to the unfairness of the scenario. The clamour of the critics against guilty corporations to uphold ethical standards will not diminish until these multinational giants who exploit the weak developing countries would take another look at their corporate governance and adjust their ethical values in consonance with the demand for humane treatment of workers towards a truly civilized society. Companies adhering to strong business ethics might be the only hope of the dying world economy. As organizations identify the advantages of being considerate, humane and ethical, they could prove that this is the true strategic and competitive edge of any organization. “Their morally upright reputation attracts better staff and helps in retention. Though ethics are legally binding in most cases, self-monitoring, transparency and accountability will go a long way in establishing trust of the people (Rajeev, 2009).” Bibliography Allinson, R. E. (1998). The Cog in the Machine" manifesto: The banality and inevitability of evil. Business Ethics Quarterly, 8(4), 743-756. Anderson, J. A., & Englehardt, E. E. (2001). The organizational self and ethical conduct. Fort Worth, TX: Harcourt. Berglöf, E. & Ernst-Ludwig, V.T., 1999. the changing corporate governance paradigm: implications for transition and developing countries. Conference Paper, Annual World Bank Conference on Development Economics, Washington D.C.. 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CBC-RPS No. 0026. Available at SSRN: http://ssrn.com/abstract=970909. Accessed 12 Dec 2009. Read More