research insights
Just Do It: How Nike Turned Disclosure into
an Opportunity
In April 2005, Nike surprised the business community
by suddenly releasing its global database of nearly 750
factories worldwide. No laws presently require companies to
transparently disclose the identity of its factories or suppliers
within global supply chains. Yet, between the early 1990s
and 2005, Nike had dramatically transformed. It went from
denying responsibility for inhumane conditions in its factories
to leading other companies in full disclosure — a strategic
shift that illustrates how a firm can leverage increased
transparency to mitigate risk and add value to the business.
David Doorey (York University) conducted an indepth case
study of this transformation, drawing on interviews with
company executives, industry professionals experienced in
managing supply chain labor practices, and representatives
of unions and NGOs who were involved in the push for
factory disclosure. In the early 1990s Nike executives began
to see persistent reports of abusive labour conditions in
their supplier factories as a risk to their brand image. Nike’s
traditional line denying responsibility for conditions in these
factories no longer satisfied a growing number of customers.
On top of that, media images of children sewing Nike soccer
balls and running shoes sent social activists, academics and
journalists into a costly anti-Nike campaign.
Nike leaders realized they needed a new strategy to
deflect the growing criticism and improve their suppliers’
performance. Starting with the creation of a new labour
practices department responsible for implementing and
monitoring its code of conduct, Nike introduced a series of
organizational changes designed to enable better monitoring
of sources of risk associated with suppliers’ labour practices.
These changes included:
• Conduct a basic audit: Nike introduced the SHAPE
internal monitoring system intended to provide it with an
initial assessment of whether a proposed new factory
was at least in the ballpark in terms of satisfying the code
of conduct. Factories flagged as high risk would also
undergo a more comprehensive “M-audit.”
• Create a corporate responsibility and compliance
division: Senior management created a new division
that housed several departments to facilitate the
integration of corporate responsibility issues throughout
the business. This brought together sustainability and
compliance employees working across product groups.
• Assign field managers: Nike assigned field managers to
the various regions. They were responsible for monitoring
day-to-day compliance with labour laws and the Nike
code.
•
•
Establish a global database: Head office developed a
comprehensive database to help track the global supply
chain and access audits conducted in the field.
Initiate external expert review: In 2004, Nike invited a
panel of external experts to review a draft of its 2004
corporate responsibility report. The committee concluded
that Nike would not receive the credit it craved from
the NGO community unless it released the names and
addresses of its entire factory database.
“Companies should replace
defensiveness with a proactive
strategy that uses code
monitoring and enforcement
— and eventually full disclosure
— to their advantage”
These monitoring and enforcement systems created
confidence internally, which was necessary before releasing
the list externally in 2005. Nike turned this unprecedented
move into a lucrative marketing opportunity that outweighed
competitive risks associated with factory disclosure. It
advertised its new transparency as evidence of its new
commitment to labour practices. In fact, the company turned
its full disclosure into a badge of honour among the apparel
industry. Seeing the success that Nike enjoyed from this
move, many of Nikes competitors disclosed their factory lists,
including Levis, Timberland, Puma, Adidas and Reebok.
What can you learn from Nike’s experience?
1. A systematic supply chain monitoring mechanism
can help address the worst practices. Moreover, this
mechanism is foundational prior to adopting greater
transparency. If you don’t know about it, you can’t fix it.
2. A defensive strategy is not a realistic long-term approach.
Companies have difficulty hiding from the media and
should replace defensiveness with a proactive strategy
that uses code monitoring and enforcement — and
eventually full disclosure — to their advantage.
Source: Doorey, David J. (2011) The Transparent Supply Chain: from Resistance to Implementation at Nike and
Levi-Strauss. Journal of Business Ethics, 103, 587-603.
Summary by: Bushra Tobah and the NBS team
February 2012