Business Ethics and Social Responsibility at Nike - Essay Example

Business Ethics and Social responsibility: Nike Introduction Nike is a renowned in the world of footwear. The company was founded in 1971, when the cofounder placed a piece of rubber into a kitchen waffle iron (Kimmel, Weygandt and Kieso 549). Nike derives its name from Greek mythology. The winged goddess of victory was called Nike and the swoosh logo of the brand is a representation of the wing of the goddess. Nike has gained fame and repute over the period of time, and is an established multinational brand that deals with the production of footwear and clothing. One of the innovations that Nike is credited to have brought to footwear was the Nike Air, which was an air cushion placed under the sole of the foot (Kubesh, McNeil and Bellatto 15). Nike has also become one of the world’s leading sportswear and equipment providers with revenues exceeding 18.6 billion in supplies for athletic shoes (Yu). Although based in the US, the company continues to provide excellent quality products to its customers and to maximize its profits all over the globe, with the swoosh becoming one of the most iconic brand symbols of all time. In 2009, Nike was employing 30,000 people in different 52 countries all over the world (Yu). Nike began as a small retail outlet in the car of Phil Knight in January 1964. Its founding fathers, Bill Bowerman and Phillip Knight, were initially disappointed by the sales that they were making. They paid a university student to make a logo for their products that would help to attract more recognition to the brand (Yu). Over the past five decades, the company has risen to remarkable fame, and the UK marketing manager for Nike attributes this fame and success to the firm and resolute vision of the company. He observes. “Absolutely everything we do is motivated by the fact that we’re here to enable athletes to be even better. We know who we are. We know what we want to achieve and we go for it 100 per cent of the time” (Yu). Nike has several brand names such as Nike Pro, Nike Air Max and Nike Football, and works with subsidiary names such as Umbro, Cole Haan and Converse. Along with producing sports gear and equipment, Nike also operates widely in retail stores under the ‘Nike Town’ profile. Many high profile athletes have benefited from Nike sponsorships deals promoting the ‘swoosh logo’ and ‘just do it’ trademarks. According to the Global Alliance report on the factories making Nike products in Indonesia, about 58% of the employees are young adults aged between 20 and 24 years. Moreover, 83% of the labour is female. Half of the workers have finished their high school (Baker). More than 90% of the workers have received increases in their pay over the last year, and the wages mostly the requirements of the government for minimum wages. Nike operates approximately 700 contract factories, where around one-fifth of the workforce is deployed for the production of Nike goods (Baker). Nike’s products are distributed all over the world and the company has many global distributors. The production costs of the products are high and Nike has taken steps to reduce them and to maximise its profits. Nike has done this by outsourcing their production channels but it has used poor countries such as Pakistan and rural areas in countries such as China, Vietnam, Indonesia and Mexico. Although the outsourcing has had benefits for these countries such as providing employment to the natives, it brings into limelight many ethical and social issues (Buenavente). Friedman asserts that the social responsibility of a business is to increase its profits but the question arises as to how far Nike can go to increment its profits. This gives rise to many questions. Is Nike solely concerned with incrementing its profits and to what length can it go to maximise them? It has been argued that Nike has exploited the inefficiency of enforcement of laws in developing countries and has worked against the principles of ethics and human rights. How should Nike react to this? How can Nike compensate those affected by its unethical behaviour? This paper will explore the social and ethical issues of Nike and discuss corporate responsibility that the company owes. Current Issues Starting in 1996, the company has been the subject of an array of allegations in the past and its activities in several Southeast countries have been questioned (Jennings 99). The conditions that Nike workers have to work in, as well as the steps that the company has taken to reduce costs have been the subject of much heated debate amongst political, human rights and philanthropist circles. A report on nine Nike factories in Indonesia documented that all nine factories have been witness to several forms of sexual abuse and harassment (Chappell, Martino and International Labour Office 99). There have also been allegations regarding harassment and abuse in some of the factories. Although the company asserts that there is no child labour and exploitation going on in its factories, and regular monitoring has helped to keep it in check, the BBC News reported how sweat-shop working conditions and child labour have been uncovered in June Textiles factory in Cambodia (Kenyon). According to a Nikes spokesperson, the few instances of child labour that have been found in some factories are “isolated” and that the company is working to ameliorate the working conditions of the factories (Kenyon). The child workers interviewed have been discovered to be working in the factories because of poverty. The company has responded to this by promulgating that any child worker found working in the factories would be sent to school and funded by Nike (Kenyon). In Vietnam the company has been accused of violating minimum wage and laws regarding working hours. The Vietnam Labor Watch has conducted extensive research on the activities of Nike in the country. According to Thomas Nguyen, founder of the Vietnam Labor Watch, there are many instances of worker abuse that can be cited in Nike plants in Vietnam. In one of the factories, the supervisor severely rebuked 56 women who had not worn suitable shoes to the factory and punished them to run around the factory in the sweltering heat (Carroll and Buchholtz 848). Twelve of the women could not bear the intense exercise and fainted, and were directed to the hospital. The Vietnam Labor Watch also reported that the workers were only allowed to drink water twice and to take one bathroom break in the eight-hour shift. However, Nike asserted that these activities have been put to a stop. It was announced that the supervisor had been sacked and an independent accounting firm have been appointed to delve into the issue in detail (Carroll and Buchholtz 848). Other than human rights and workers’ rights, Nike has also been the subject of ethical debates regarding its marketing campaigns. Notwithstanding their appropriateness, children usually aspire to successful sports athletes and try to imitate their talents. These athletes have also been used for the purpose of marketing sports goods and other products by companies. Nike has been famous for using not so nice celebrity sports models for promoting its products (Schwarz and Hunter 252). It was the first company to be involved in the casting of a non-conventional athlete, Steve Prefontaine, in its advertisements. Other athletes with a debateable background, such as Andre Agassi, John McEnroe and Charles Barkley, have been involved in publicly endorsing Nike products (Schwarz and Hunter 252). This is representative of the fact that Nike has acted unethically and has not taken accountability to the stakeholders seriously. The company has given the maximisation of its profits the first priority and has violated the rights of the workers, as depicted in the laws regarding human rights (Phoenix Business). The main issue here can be seen as poor corporate accountability as the stakeholders in the organisation were not made aware of the organisation’s corporate social activities. The initial response of Nike was to downplay the reports and to promote a defensive stance that the operations were the responsibility of local agents and the Nike did not have any control over them; so it cannot be held responsible for any transgressions. When the reputation of the business is at stake, it would take steps to improve it so that its sales are not affected. This is exactly what Nike did. It made its information public when its reputation started to deteriorate seriously (Crane and Matten 70). The question arises that why did Nike let this happen. The simple answer to this is simply because it could. In my view, Nike did abide to laws but at the same time, it treated its workers unfairly. The next section of the paper will review the intent of Nike and explore social and corporate responsibility from a theoretical perspective. Friedman doctrine/Cultural Relativism According to Milton Friedman, the only social responsibility of the business is to increase its profits (Shah and Shah 174). He argued against the notion of social responsibility based on three main arguments (Institute for Corporate Culture Affairs 10): Only human beings have a moral responsibility for their actions. The responsibility of the managers is to act solely in the interests of shareholders Social issues and problems are the proper province of the state rather than corporate managers. If the ethical and social dilemmas of Nike are explored, the theory is seen to correspond to its practices. The reason why Nike let people work in the conditions that they were exposed to was that it considered those conditions to be suitable for that particular country; otherwise, the government would have taken steps to improve them. Moreover, Nike did not feel any threat if some of the workers left the sweatshops, since it knew that they can be replaced easily. This is representative of lack of accountability. According to Piercy, “In the face of accusations regarding consumer exploitation resulted in collusion amongst competitors to produce artificially inflated prices, pressure has been put on firms in these industries to be make their costs structures more transparent” (68). Nike used artificial prices to improve their image, although the act has been considered to be very unethical by some critics. The release of information regarding the pricing of the products is also not in the interest of all the stakeholders within Nike such as finance directors and procurement departments. Moreover the outsourcing of the organization overseas is not a purely unethical act. Outsourcing renders a number of advantages to the countries that the company operates in; this results in more employment opportunities, quality of life for the people and increase in the GDP (Dolgui and Proth 103). However every business decision depends on the intent behind it. If Nike sought to relocate in areas where labour is cheap, coupled with lower wages and poor working conditions that result in low manufacturing costs, then the act is not ethical. Evaluation of performance in terms of ethical business practices and corporate social responsibility Over the last two decades the athletic footwear industry experienced mass growth with consumers purchasing over 250 million units of trainers. In 2001 Nike gained record sales with over 300 million pairs of trainers sold, exceeding $13 billion dollars in revenue. The athletic shoes industry is highly segmented with various sporting areas and prices; however it is controlled and lead by just a few brands such as Nike, Addidas and Reebok and only ten organizations control 70% of the market (See Table 1). Since gaining competitive advantage over multinational brands like Addidas and Reebok in the late 1990s, Nike has become the industry leader in production of athletic sportswear and equipment as shown in Figure 1 (Korzeniewicz). Due to the intense competition in the market in the 90s, with the increased availability of cheaper goods similar to those of Nike, Nike was forced to bring down the price to maintain growth. However, Nike continued to focus on increasing its market share, as shown in the figure and table above, and little attention was paid to social and corporate responsibility. Moreover, Nike started to face opposition regarding its activities, such as banning of short-term contracts. This slogan emerged due to Nike’s bad conduct of moving manufacturing to various locations whenever it felt appropriate, making many people redundant in those areas and leaving them with nothing (Jacob). Stakeholder analysis (issues) The stakeholders were shocked when the reports of child labour, abuse and exploitation were published. The US and Canadian unions for human rights responded by appealing to the UN to reconsider the association of Nike with the Global Compact. According to the Unions, Nike should not be allowed any affiliation with the Global Compact because of its repeated transgression of human rights and worker’s rights. The UN Global Compact is a strategic policy initiative where organizations who regard themselves as socially responsible and adhere to the principles of human rights, labour and environment affiliate with (UN Global Compact). The stakeholders wrote a letter to the UN, signed by the four presidents of the Unions and representing over 3 million workers in the US and Canada, that Nike has been engaged in the violation of Principle Three of the Global Compact, which requires firms to “uphold the freedom of association and the effective recognition of the right to collective bargaining” (CSR Press Release). As more opposition arose against the activities of Nike, it began to take its social accountability more seriously (Nike Biz). The radical approach adopted by the company was to not only take concrete steps to ameliorate the working conditions but also to monitor the activities of the factories. In order to do this, Nike established and enforced a code of conduct, and all contractors were required to put it into practice. Moreover, in collaboration with other companies in the industry, Nike set up an organization by the name of Apparel Industry Partnership, which was later changed to Fair Labor Association. The organization is a NGO which functions to orchestrate the activities of NGOs, universities and colleges in order to enhance the compliance of the factories with universally-accepted principles of human rights and labour, and to ameliorate the working conditions in the factories. The company has also responded by devising a full-fledged social responsibility policy which necessitates the monitoring and reporting of regulations relating to environment, community, diversity and other stakeholder issues (Katsioloudes and Hadjidakis 269). Corporate Citizenship The following Venn diagram could be used in organisations such as Nike as a guide to illustrate where they stand in terms of the legality and legitimacy in their operations. The diagram helps to explore the practices of Nike from the lens of corporate citizenship. Looking at Nikes practices, it is clear that they have shown legal and legitimate operations as they haven’t breeched any laws or regulations of the countries they operate in (Hill and Jain 159). However if the practices were to be plotted on the diagram they would lie on the borderline of being illegal due to the little consideration being given to corporate social responsibility. In order to meet minimal day to day living needs, workers need financial stability, working 7 days a week should at least cover their cost of living. On the contrary, the reality paints a different picture; even after such long days employees struggle to meet every day to day needs. Compared to this, billionaire sports stars such as Tiger Wood who earns in millions per year for a video shoot endorsing Nikes products, faces no such hardships and afflictions. Lamentation by Phil Knight in 1998 to the National press was expressed: “the Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse” (Aswathappa and Dash 293). Sustainability It would be impractical to focus merely on economic and social factors without considerations for environmental effects. Nike uses these key components in order to sustain growth in their pay structure. The consistently growing textile industry often negatively impacts the environment. Because Nike is a large participant in this manufacturing, many of its processes negatively contribute to the environment. One way the expanding textile industry affects the environment is by increasing its water deficit, climate change, pollution, and fossil fuel and raw material consumption. In addition to this, todays electronic textile plants spend significant amounts of energy, while also producing a throw-away mindset due to trends founded upon fast fashion and cheap clothing (The Telegraph).Globalisation also can affect loss of traditional localised cultures and community life in the developing world and some self-interested nations and companies avoid responsibilities. Although these combined effects can negatively alter the environment, Nike tries to counteract their influence with different projects. According to a New England-based environmental organisation Clean Air-Cool Planet, Nike ranks among the top 3 companies (out of 56) on a survey conducted about climate-friendly companies (Zabarenko). Nike has also been praised for its Nike Grind programme, which closes the product lifecycle, by groups like Climate Counts (Climate Counts). Moreover, Nike introduced the “considered design ethos” in all its footwear production practices, which couples best design and performance with environmental sustainability (Stern and Ander). It has also accepted the responsibility for the conditions and environmental effects of production processes at the contractor factories (Boesak and Hansen 135). Improvements According to corporate and social responsibility theories, the business case is that organizations who shoulder their responsibility to the society well progress financially (Crane 570). One can argue that there should be greater information that is available to the stakeholders. Even though Nike claims that its data is commercially confidential, there is a need for greater transparency and release of information regarding its activities. Reports can be very helpful in appeasing the stakeholders, a long as it is done correctly (Conner). Moreover, Nike should also consider a platform for employees in the third world able to come forward and complain about issues that they are unhappy with. Nike should listen to them to and solve any problems they encounter, and work for the provision of equal rights. Another improvement that the company can introduce is the creation of a trade union for upholding the rights of the employees. The company needs to give more importance to the impact that production activities have on the environment. For instance, the company can plant a tree for every 100 shoes made for the reduction of carbon dioxide emissions. This would also project a favourable image of the brand. The company should work to improve the production processes, making them more environment-friendly. The company can encourage the recycling of products and is a great way to show the stakeholders that the company is socially responsible. Education for the workforce in third world countries can be a great idea if implemented by Nike. This can give the natives hope in having a better future and to move up in the hierarchy at Nike. Training would make them more efficient at what they do, thereby reducing costs and improving their standard of living. Another factor that buttresses the reasonability of Nike to keep operating in third world countries is that constantly moving production and closing factories in these countries would create job insecurity, and the cut-offs can cause the workers to be unemployed, leading to greater poverty. With the education and training sponsored by Nike, the workers can seek other similar jobs and have a greater chance to get better employment than without education. Conclusion Nike is the largest sporting goods company in the world and like other giant corporations it has many ethical and social responsibilities. Over the year, the company had been engaged in unethical practices; however it has taken steps to correct itself and has become a standard-setter for measures to be more socially responsible (Werther Jr. and Chandler 286). The company is still embroiled in debates regarding some of its practices and the decision of using the GPI (Well Being Index) to benefit its stakeholders. Overall Nike has come a long way from its sweatshops and working conditions, but there can be much more that can be done to make the organization fulfil its social and corporate expectations. Works Cited Books Aswathappa, K and Sadhna Dash. International Human Resource Management. 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