Corporate Social Responsibility Nike

“There is a big disconnect between the vast potential of the global economy and what it does for ordinary workers. Finding solutions to these new global realities is very difficult but not impossible; it just requires some hard thinking and some hard decisions. Where are the leaders with the vision to take up the challenge?”1

The keywords in the above excerpt are “workers”, “solutions”, “leaders” and “challenge”. Nike Inc., the world LEADER in the athletic footwear, apparel, equipment and accessories for sports and accessories for sports and fitness enthusiasts2, faces today the CHALLENGE of finding appropriate SOLUTIONS to the sweatshop conditions for the WORKERS in its aligned factories in Southeast Asia, specially Indonesia and Vietnam.

This paper examines Nike’s attempts to improve the working conditions in its operations and its sphere of influence and has been treated as being a snapshot in time (mid 1990’s). The paper evaluates Nike’s CSR strategy under four main headings. Part I links Nike’s CSR strategy and the issues faced by it to the UNGC Ten Principles. Part II identifies the major stakeholders of Nike and further discusses the management of the identified stakeholders with recommendations for alternative courses of action. Part III attempts to further evaluate the alternative courses of action in detail following which Part IV talks about what success at Nike would look like. Also, the paper contains my recommendations on behalf of the management to what Nike should do in order to effectively tackle the primary CSR issues it faces today.

PART I – NIKE’S CSR ISSUES AND THE UNGC TEN PRINCIPLES

According to a New York Times article on November 8, 19972,

The Ernst and Young report painted a dismal picture of thousands of young women, most under age 25, labouring 10.5 hours a day, six-days-a-week, in excessive heat and noise and foul air, for slightly more than 10$ a week.

While Nike’s differentiation strategy of outsourcing and intense marketing has allowed it gain competitive advantage over its competitors3, making Nike the leader in the athletic footwear industry, it has also brought Nike into the limelight with the management facing allegations from the media and social activist groups that Nike-aligned factories in China and Indonesia are forcing employees to work long hours for low pay under harsh working conditions, and that it utilizes physically and verbally abusive managers.2

THIS BRINGS TO FRONT THE PRIMARY CSR ISSUE OF TACKLING THE SWEATSHOP CONDITIONS IN THE NIKE-ALIGNED FACTORIES AND ALSO TO CONFRONT THE MEDIA’S ALLEGATIONS IN ORDER TO IMPROVE NIKE’S IMAGE AS BEING GOOD A CORPORATE CITIZEN. As one of the most visible brands in the world, and the dominant player in its market, revelations such as these brought Nike into the centre of unprecedented controversy over labour rights in a globalized economy6. Furthermore, the deeply embedded historical animosity between Korean and Taiwanese managers and Vietnamese workers has added a cultural sensitivity to the entire issue.

Working conditions are both a Human Rights and a Labour issue addressed by both international human rights and labour instruments.3 For example, Article 23 of the Universal Declaration of Human Rights highlights just and favourable conditions of work, non-discrimination, just and favourable remuneration, equal pay for equal work and freedom of association for the protection of interests.4 Nike’s position today surfaces some of the major UNGC principles. The CSR issues that Nike has to navigate through involve the following UNGC principles5:

HUMAN RIGHTS

PRINCIPLE 1: Businesses should support and respect the protection of internationally proclaimed human rights PRINCIPLE 2: Make sure that they are not complicit in human rights abuses.

LABOUR STANDARDS

PRINCIPLE 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining

PRINCIPLE 4 : The elimination of all forms of forced and compulsory labour

PRINCIPLE 5: The effective abolition of child labour

PRINCIPLE 6: The elimination of discrimination in respect of employment and occupation.

Nike’s business model incorporates heavy outsourcing of its production to factories overseas. This is due to the availability of cheap labour in the countries like China, Indonesia and Vietnam. However, this opens the path for exploitation of human rights which caused the issue in the first instance. Since, it is the Korean and Taiwanese subcontractors who are managing production, with little or no monitoring by Nike; it has led to operations that employs labour to work in harsh/unsafe conditions for very little remuneration, often accompanied by physical or verbal abuse. This has been picked up by the social activist groups in the more affluent societies which have slowly gained ground with the help of the media in their protest against Nike’s operations in Southeast Asia. In fact, the trickle seen in 1989 has now become a torrent, with the media running weekly and even daily accounts, criticizing Nike’s operations2.

The result is clear- NEGATIVE PUBLICITY for Nike; with more stakeholders becoming aware of Nike’s operations and strongly influenced by the media forming a negative image about the company. Nike today operates in a highly competitive industry. Although this public relations nightmare for the company and the perceived negative perceptions of its consumers cannot be directly attributed to its loss of revenue and market share, it is certainly a question of time when these stakeholders would become the most impactful on Nike’s operations and subsequently its profitability. For example, university students who were earlier seen as keen to work for Nike are now more inquisitive about the CSR issues and Nike’s labour practices manager, Simon Pestridge has to constantly defend Nike’s position on these key issues2. In order to summarise what impact these CSR issues had on Nike, I would like to quote Phil Knight, the CEO- “Nike has become synonymous with slave wages, forced overtime, and arbitrary abuse”7

Nike’s initial position on the issue of negative publicity has been DEFENSIVE. Instead of managing stakeholders effectively and trying to proactively incorporate their interests in their CSR initiatives; Nike has widely dismissed the issues, putting the onus on the subcontractors. Nike argues that the unacceptable practices are an exercise of the suppliers who are not their own employees. As a reaction to the growing allegations of worker abuse, Nike has conscientiously drafted the CORPORATE CODE OF ETHICS.2 The Corporate Code of Ethics aims at providing each worker at least the minimum wage and to keep a clear, written accounting record for every pay period; prohibits factory owners from deducting employee pay for disciplinary infractions; and strongly prohibits child labour.

At the first look, it may be argued that this issue is a moral issue representing a relationship between Nike and the principles expected by the wider society in which it operates8. However, on a much closer look, it may well be seen that the issue is of a RATIONAL nature. Nike today is losing societal legitimacy due to the social activism that is haunting the management and defaming the organisation. Being a for-profit organisation, Nike is definitely performing its economic responsibility and earning profit for its shareholders (revenues have exceeded US$9 billion2). Also, Nike is operating within the legal framework of the Southeast Asian countries with the wages being at par or above the minimum legal wage.

The problem of the sweatshops however, brings to light Nike’s ETHICAL responsibilities, even DISCRETIONARY responsibilities. It is interesting to note that what was considered discretionary responsibilities of for-profit organisations is increasingly becoming ethical or even legal requirements with changes in the society (pressures from the western developed societies in the case of Nike) within which the business operates. Therefore, it becomes even more important for Nike to be the torch runner in fulfilling the ethical and discretionary responsibilities since it is the MARKET LEADER. Some excerpts from the case that prove this:

“In many cases, critics will tell you that Nike is doing a good job, but people target Nike because it’s the market leader and they believe other companies will change their labour practices.”- Vada Manager, Global Director of Issues Management2

“Nike is one of the few companies that have great influence over the entire industry. If they changed and raised their human rights standards, it could be set a precedent for the entire apparel and garment industry. We didn’t call them a leader- they did. And they’re not doing what a leader would do.”- Anti Nike Demonstrators2

Archie Carroll argues that businesses can wait for legally mandated requirements and react to them.9 Although, this reactive nature can permit for profits, and it inevitably leads to strictures being imposed which are neither preferable nor efficient from Nike’s viewpoint. Imagine millions spent on newspaper ads, new hires etc to clean our image- something which could have easily been avoided if we had been more proactive. Violations of ethical and discretionary standards are not just inappropriate; they present a rational argument for CSR.8

Although, Nike has the Corporate Code of conduct in place, it would have been helpful to know the data/facts about the results of this program. The case does not present QUANTIFIABLE INFORMATION on the effectiveness and the validity of the use of the Code. What percentage of factories was not following the Code earlier? ; What effects does this Code have on profitability? ; What is the time interval between factory audits? ; What were the results of the monitoring for implementation of the Code? – Some questions which would have assisted in analysing Nike’s CSR strategy.

PART II – STAKEHOLDER MANAGEMENT:

The argument in favour of CSR presupposes that there are benefits for Nike being perceived as a net contributor to the society. At the very least, there is an economic disadvantage for Nike if it acts contrary to the expectations of the key stakeholders. Like any other for-profit organisation, Nike too has internal and external stakeholders. This section of the paper identifies the key stakeholders of Nike and attempts to rank their priorities and goals.

“THE WATCHDOGS” – NGO’S, SOCIAL ACTIVIST GROUPS: Possibly one of the most powerful stakeholders of Nike in the societal arena are the “watchdog groups” such as Campaign Labour for Rights, Global Exchange and other high profile critics such as filmmaker Michael Moore. These groups work to raise human rights issues and aim to spread awareness about the human rights and labour issues. They keep a close eye on a corporation’s (such as Nike) operations and look to pick up any instances of violation of human rights. The social activist groups are the DEFINITIVE stakeholders having GREAT POWER, LEGITIMACY AND HIGH URGENCY and look to change the Corporate Policies at Nike. It may seem as if their goals are completely opposite to Nike’s goal of maximising profit. However, it is important that Nike incorporates the interest of these stakeholders in its corporate strategy.

After all, Nike cannot flourish in a failing society. With campaigns such as “National Days of Consciousness” these activists have been successful in greatly influencing the public leading to negative publicity for Nike. Facts being lost in activists’ rhetoric, making it increasingly difficult for Nike to defend its’ commitment to labour rights2, clearly suggests that this stakeholder group has most influence on Nike’s operations today and therefore must be given HIGHEST PRIORITY. Nike did not realise this initially in the late 1980’s and looked to disregard the issues raised by the NGO’s. However, as campaigns against Nike gained momentum after the initial trickle, the watchdog groups have definitely become top priority for Nike today.

THE MEDIA: The goal of the media is simple – “Increase TRP” – and they go about doing this by constantly looking for scandal stories to be published as headlines. The media, just by its reach and influence over the audience has a lot of power and therefore it is a DOMINANT EXTERNAL STAKEHOLDER. They do not prompt for change themselves but is one of the strongest channels used by activist groups to effect change. The media is more than willing to disseminate anti Nike stories to aid activist campaigns and thus in a sense empower the activist groups. (Stakeholders have stakeholders!) The media effectively paints a dismal picture about Nike in the consumer’s mind and therefore its goals are aligned completely opposite to Nike’s goal of maximising profit. With the influence of the media, Nike is being put in bad light in the eye of the customers.

Although, no direct correlation can be found between customers’ opinions and the falling revenues, it is just a matter of time when customer perceptions about Nike starts affecting profits. Therefore, the media too should be given HIGH PRIORITY and steps should be taken to rather use the media to improve Nike’s corporate image through beneficial partnerships and working cohesively with the NGOs and the media. This would improve Nike’s corporate image and possibly help in boosting sales. Again, just like the watchdog groups, the media has come a long way since 1989 gaining in momentum and priority today.

CUSTOMERS: One of the most important stakeholders for any for-profit organisation such as Nike is the customer group since they directly affect revenues. Today, Nike faces a fall in revenues which could be attributed to the Asian financial crisis and fierce domestic competition. In order to boost sales through tough economic times, it is important that Nike’s image in the minds of its customers remains clean. Customers want quality products which matches their needs for prices that are lower than what Nike’s competitors have to offer, and therefore their importance is NEUTRAL and has remained that way since no direct correlation could be found between falling revenues and customer perceptions. Therefore, customers have been a DORMANT STAKEHOLDER for Nike. As far as Nike aligns its operations to produce good quality products at competitive prices and manages the watchdog groups and the media effectively to build healthy customer perceptions coupled with groundbreaking marketing strategies, it will be successful in retaining and even expanding its customer base ( and hence profits) which would be in line with the corporate vision.

WORKERS: The workers in the Nike-aligned factories in Southeast Asia depend on these factories and hence Nike to provide employment to them. Their motivation and goals include earning enough money for subsistence and sending back to their families. Also, save money which would help them starting their own business in their villages once they retire. Of course, they do expect healthy conditions of work and equal pay for equal work with no verbal or physical abuse. Although their concerns are LEGITIMATE, they have very LITTLE POWER TO INFLUENCE making them a DISCRETIONARY stakeholder of Nike. Also, their priority as Nike’s stakeholder is NEUTRAL and has remained that way. Nike should, through effective monitoring of its Code of conduct and better operations at the factory level aim to improve the working conditions of the labourers. This would not only help to address the human rights issues which Nike is currently being criticized for but also improve quality of output and hence profitability.

SUPPLIERS: Suppliers are business houses themselves aimed at making most profits. However, in their case the customer is Nike. It is important for the suppliers to work in accordance with Nike’s expectations or risk losing business. Therefore, their position as Nike’s stakeholder is DISCRETIONARY and has remained that way during the course. Their concerns about making profits are legitimate. However, since they have to work within Nike’s framework, they have little power to pressure. That said, it is important to note that the operations of the suppliers affects Nike’s image and business. Therefore, Nike should give suppliers HIGH PRIORITY and monitor their operations to check for compliance with the Code of Conduct which would help aligning their operations with the goals of Nike.

EMPLOYEES: The employees are the human resource assets of any organisation and it is important that Nike provides and promotes an atmosphere where the employees feel proud to be a part of the organisation in addition to meeting the goals of employees like providing job benefits, job security, housing etc.

Simon Pestridge, Nike’s labour practices manager, was responsible for managing corporate programs at post-secondary institutions throughout the US. Pestridge explained that over the years, he had seen a change in the type of interaction he had with students that he encountered on campus. For years, Pestridge would often be approached by students who were very interested in working at Nike. However, he was now more frequently questioned( and often reproached) for Nike’s perceived labour practices in developing countries, finding that he had to defend Nike’s position on such issues.2

The above excerpt highlights how the priorities of employees have changed over time from being NEUTRAL TO HIGH. It also brings to light the fact that people want to work for a company that is a good corporate citizen. The concerns of the employees are LEGITIMATE and they also have HIGH URGENCY suggesting that they want Nike to change its business practices almost instantaneously. Thus it makes their position DEPENDENT. Also, since employees are the most important internal stakeholders of Nike, it is important that it incorporates CSR initiatives into its business strategies in order to attract and retain best talent.

That said, it is important to note that CSR is not a short term issue. The management at Nike should not only understand the current stakeholder concerns but also anticipate shifts in stakeholder concerns in order to effectively respond and drive Nike toward a successful future. I agree that we cannot please all the stakeholders all of the time. However, the decisive answer must be hedged by the tradeoffs between stakeholder groups – as when company profits compete with paying higher wages to Southeast Asian workers. Also, the above discussion surfaces the fact that stakeholders are concerned about the consequences of CSR and the moral, rational and economic implications of those consequences.

PART III – ALTERNATIVE SOLUTIONS, IMPLEMENTATION AND RECOMMENDATIONS:

Having identified the motivations and goals of the various stakeholder groups and knowing that Nike has taken reactive position in solving its CSR issues, it becomes imperative to recommend alternative solution(s) to Nike’s CSR strategy. These recommendations aim at improving the working conditions for labourers in the Nike-aligned factories with a new set of proactive tools. The Code of Conduct ( and its monitoring ) has not achieved the desired change. These solutions link compliance with financial performance.

LEAN MANUFACTURING PRACTICES: Aligning sustainable strategies to Nike’s business strategy is the key for Nike today. This can be achieved by restructuring the manufacturing model. The concept of ELIMINATING WASTE AND REDUCING COST should be applied simultaneously with the intention TO IMPROVE LABOUR CONDITIONS IN THE SUPPLY CHAIN. In addition to the operational reform, MATERIALS CONSOLIDATION is necessary. This will reduce the materials palette which would help Nike to plan better with its material vendors so that materials are available at the right time in the production process resulting in elevating delivery performance. This reduces the pressure on the factory managers ( and hence the workers). Nike should aim at aligning lean manufacturing practices with better human resource management and also look to form BENEFICIAL RELATIONSHIPS with Social activist groups and the media in the process who would also track the Nike’s performance in terms of freedom of association of labourers, wages linked to productivity collective bargaining, working conditions and overtime.

The advantage of having a lean manufacturing model is twofold. Firstly, since it aims at improving OPERATIONAL EFFICIENCY AND QUALITY, it reduces the PRESSURE on the workers to perform OVERTIME. Secondly, since workers will be trained at performing multiple tasks, it will result in a higher skilled, higher paid workforce. As efficiency and quality improve, so do productivity and profitability, and these gains are shared with workers who will then have HIGHER SKILL SETS and MORE VALUE in the market.3

The problem with this strategy is that although Nike is one of multinational corporations which has gained notoriety, it is far from being the only one. Therefore, the COMPETITIVE ENVIRONMENT itself inhibits Nike to adopt such a strategy. Also, the governments of most developing countries refuse even to discuss a common strategy that would halt the downward spiral of labour conditions provoked by competition in the international labour market.1

SUPPLIER RELATIONSHIPS AND ACCOUNTABILITY: The traditional tariff and quota systems under the Multi-fibre agreement3 suggest that it would be best for Nike to have a FEW, LONG TERM STRATEGIC PARTNERSHIPS with suppliers. In doing this, Nike would be in a better position to monitor the operations of its aligned factories overseas and ensure that their labour practices are in line with Nike’s CSR strategy. Furthermore, this approach means that Nike can remain loyal to those suppliers which comply with the labour standards (which would be beneficial in the long run) instead of moving production to a different countries with perceived lower costs.

In addition, Nike should INITIATE PROGRAMS that educate the suppliers to apply global standards in their factories and also informs to them the potential benefits of such an exercise. According to Dusty Kidd, the Director of Labour practices, Nike has 400 factories in 35 countries. Within such a huge span of operations, the potential for labour scandal is correspondingly huge. The only question is when and where the next scandal will break out. In order to cater to this problem, what Nike should do is identify a FOCUS GROUP where most of its production is concentrated. Doing so would help Nike to better manage the performance and monitor workers conditions in these ‘focus’ factories.

COLLABORATION AMONG BRANDS: Nike could collaborate with other brands in the sector such as Reebok, Gap Levi’s Strauss , which face similar CSR issues. These partnerships would be crucial in addressing the Human Rights issues and would also be more effective since it would be a cohesive effort.

We all work with the same factories and we all have the same problems in our factories, so we should be solving these problems together, because these are real issues that are beyond our companies. These (labour and compliance) issues af​fect the livelihoods of the people who make our products.3

Nike should aim to align the AUDITING PROCEDURES and REMEDIAL ACTIONS with these partners. Also, since it is possible that a factory produces shoes/apparel for more brands than only Nike, having such collaboration would mean fewer audits (Just one instead of each brand auditing the same factory) leading to greater EFFICIENCIES. It also provides the factories the INCENTIVE to comply with the Code of Conduct since they have to face fewer audits.

The problem here however is that it opens the path for greater CORRUPTION. Since, an auditor appointed by some other brand (maybe a competitor) audits the factory; factory managers might influence them to pass audits – for example by creating double sets of accounting books!

STYLE PRODUCTIVITY AND MARKETING:

The CSR, operations and manufactur​ing leadership seek to raise awareness of the correlation between proliferation of product styles and declining factory performance on quality, delivery and compliance. With fewer styles there will be greater returns for both busi​ness performance and working condi​tions.3

The problems with having fewer styles however mean lesser choice for the customers. This may lead to Nike losing its COMPETITIVE ADVANTAGE. But there is a level of TRADE OFF that Nike will have to make and competitive advantage can be regained though EFFECTIVE MARKETING INSTRUMENTS.

In order to reduce costs and increase demand for its products, Nike should focus on its competitive strategy and marketing techniques. It can also introduce PRODUCT INNOVATIONS such as adaptable products, tailor made products etc. Furthermore, fewer styles and better marketing techniques, ensure REVENUE GROWTH alongside the ELIMINATION OF POSSIBLE OVERTIME. This opens the way for more HUMANE CONDITIONS OF WORK and encourages LABOUR TRAINING and establishment of a SKILLED WORKFORCE.

PART IV – CONCLUSION- WHAT WOULD SUCCESS LOOK LIKE? :

It is evident that the yard stick approach of Nike of measuring compliance to the Code of Conduct has proved to be insufficient. The ideal position for Nike would be that of a PROACTIVE approach to CSR. It would involve effective management of all key STAKEHOLDERS’ EXPECTATIONS AND NEEDS ( through stakeholder dialogues ) and in turn take a position where Nike fulfils ALL RESPONSIBILITIES ( economic, legal, ethical and discretionary) as suggested by Archie Carroll’s framework9. Nike can claim to be successful when each pair of shoes or piece of apparel produced at Nike-aligned factories contributes to Nike’s profitability and simultaneously IMPROVES WORKERS’ CONDITIONS and results in VALUE CREATION for its customers, employees and workers alike. Furthermore, a successful Nike Inc would focus on three crucial areas – affecting systemic change for workers in the apparel, foot​wear and sport equipment industry; im​plementing sustainable business models; and using sport as a tool for social change3.

END NOTES:

Robert A. Senser ; Editor; Human Rights for Workers; Bulletin No II-5; April 7, 1997

Nike Inc.: Developing an Effective Public Relations Strategy; Donna Everatt

Embedding Human Rights in Business Practice II; A Joint Publication of the United Nations Global Compact and the office of the UN High Commissioner for Human Rights

The Universal Declaration of Human Rights; Article 23 – http://www.un.org/en/documents/udhr/index.shtml#a23

United Nations Global Compact – http://www.unglobalcompact.org/aboutTheGC/TheTenPrinciples/index.html

A Natural Step Case Study – NIKE

Phil Knight Speech to the National Press Club; May 12, 1998

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment; William B. Werther, Jr; David Chandler

Carroll, 1979, op.cit.

GLOBAL CITIZENSHIP

“There is a big disconnect between the vast potential of the global economy and what it does for ordinary workers. Finding solutions to these new global realities is very difficult but not impossible; it just requires some hard thinking and some hard decisions. Stakeholders are concerned about the consequences of CSR and the moral, rational and economic implications of those consequences”.