ACTUAL paper used for reverse outline activity.
MGMT 312
Paper 1
Nike’s Ethical Maturation
Nike as a corporation has undergone two epic journeys simultaneously since its inception as a
company in 1964, an ethical war with public opinion and a mountainous climb to the top of the heap
amongst its competition. As Phil Knight’s original vision of a company entirely reliant on outsourcing
and heavy on intense marketing and ad-campaigning came into focus, so too did the larger ethical
quandary of Nike’s place as a corporation. As Nike’s stock, brand image, and market share grew through
the 1990’s so too did the microscope placed on it as the poster boy for criticisms of overseas labor
conditions and questionable ethics. After initially ignoring the negative publicity, Knight took small and
mostly insignificant measures. He hired Ernst & Young, worked with Washington on legislature to fix
overseas labor practices, and overhauled his public relations department. Not only were these halfmeasures, but they also solidified the fact that Knight’s main concerns were keeping his customer base
and the upward trend of his stock intact.
It was not until Nike’s profits declined by 69% in 1998 that Knight’s attention on the issue
reached critical mass. Until then, Nike had only done the bare minimum. Knight changed his strategy
when there were extreme public issues and when his company brand value was truly in trouble. His
“private troubles” could be fixed and handled with the excellent staff and resource base he had built as a
billion dollar company. What he could not change was Universities across the country bemoaning the
Nike name, freelance investigators sullying the company’s image, and famous cartoons making his
company the target of American newspaper readers. Phil Knight did not choose ethics to steer his
company back into the black, instead he chose a more balanced approach that involved taking more notice
of his stakeholder’s needs. Michael C. Jensen speaks to this balanced approach, which he calls a
scorecard, saying that it arose from a belief by authors Kaplan and Norton that “pure financial measures
of performance were not sufficient to yield effective managerial decisions”(247). That is not to say that
Nike 100% concerned with the stakeholders, the stock and the net profit, but it was certainly their primary
focus.
Despite this, it is glaring that Nike did not take the ethical issue of its production seriously until
there was clear evidence that it had affected the company’s bottom line. Nike as a company has shown a
balance between its focus on stakeholders and shareholders, the necessary combination of thinking profit
first while also taking notice of the feelings its main supporters have on the company’s operations. It has
not ignored its stakeholders nor put ethics first, instead it has continuously taken the strategy of playing
the fence and only doing the minimum necessary to maintain the levels of success that it has set for itself.
This paper will speak to the evolution of Nike and Phil Knight’s strategy towards both its stakeholders
and shareholders, and how its ethical opinion has changed based on its brand-image and corporate
success.
From its start as a company named Blue Ribbon Sports with $1000 in capital to its rise as a
billion dollar company, Phil Knight has put his stamp on Nike. His decisions have led directly to Nike’s
success and its criticisms, its peaks and its valley. Not uncontroversial, Knight has been described as
“like a three-card monte player. You have to keep a close eye on him at all times”(HBR page 13). While
no CEO of a major corporation can exist without skepticism, Knights tenure has been highly
controversial. While his decisions and operations have been under a microscope, he has turned Nike into
the market leader and a perfect example of rising from nothing. In the year 2012 Knight’s morals and
goals are balanced between short-term financials and the long term value and standing of his most prize
possession. It has not always been like that. Phil Knight never took the threats of the public or the
government seriously until it affected his bottom line. When there were questions about the factories
overseas, particularly in Indonesia, Knight hired Ernst and Young himself, replaced his public relations
head with a man named Dusty Kidd and ordered a half-hearted investigation of his compliance
department.
Before controversy centered around Nike’s outsourcing and labor practices, Knight followed
strictly a Milton Friedman philosophy that the social reasonability is to “conduct business in accordance
with their desires, which generally will be to make as much money as possible while conforming to the
basic rules of society”(Friedman). His outlook and strategy was not balanced in the 80’s and 90’s as he
was strictly focused on short term financials and the outlook for his shareholders. How can a man who is
so detail oriented neglect the clear problems with how products are produced, shipped, presented and
processed? Corporations are executive driven and this is not the case anymore than with Nike, a company
whose vision has been guided by Phil Knight from the onset.
Friedman’s notion of executive schizophrenia pertains directly to Knight’s strategic and ethical
philosophy evolution over the last 15 years:
I have been impressed time and time again by the schizophrenic
character of many businessmen. They are capable of being extremely
far-sighted and clear-headed in matters that are internal to their
businesses. They are incredibly short-sighted and muddle-headed in
matters that are outside their businesses but effect the possible survival
of business in general(4).
In Michael Moore’s film “The Big One” which details the story of Nike, Phil Knight comes off as a
gutless suit. Michael Moore corners him and this executive schizophrenia is exemplified to the fullest.
Phil Knight’s hubris cost his company a decrease in profits in the late nineties and as the smart
businessman that he is, he finally admitted his wrongdoings and did what was necessary. What changed
was a sweeping overhaul in strategy and ethical philosophy beginning in 1999 that has ended in Nike’s
current status in present day.
At its inception, Nike operated under the mindset of a consequentialist by determining if there is
more good or bad by the outcomes that they have created form their decision making processes (Bucknell,
MGMT 312, Session 2). This led Knight to take Nike toward a culture of profit driven idealism, with a
focus on brand-image and marketing. In that time and place, the shareholder was king. The philosophy
from their perspective was that because their marketing and celebrity brand-image was taking care of the
needs of stakeholders as a secondary concern, they could focus on optimizing profits and shareholder
equity. As Nikes problems erupted in the late 1990’s Knight needed to adopt his strategy. After 1999
and their reality check as a company in the news for negative reasons they started on a path towards the
deontological side of the spectrum, concerning themselves with who they owe a duty too.
For Phil Knight, that duty was to his wallet and in a round about way that meant cleaning up the
company’s image. He completely changed the compliance procedures for all factories and started
oversight on an organization called the Fair Labor Association (FLA). He got universities back on board
with his FLA plan and began to seriously look into protocols that would improve the messaging of worker
complaints and conditions back to the U.S. For instance, “all managers and supervisors were required to
learn the native language of their workers, and receive training in cultural difference and acceptable
management styles”(Spar, 13). What took so long for Knight and Nike’s board of directors to make
substantial tweaks to the way they produced their products? Edward Freeman explains his theory about
the juxtaposition of business practices and ethics nicely in “Business Ethics at Millennium” by saying that
“if business is separate from value and ethics, and if change requires one to think about values and ethics,
then change in business will be difficult”(Freeman, 175). Knight was able to make this change by
allowing business and ethics to cross naturally, by understanding the needs of a changing market place,
and by absolving his faults in a clear statement to the National Press Club in May 1998: “the Nike product
has become synonymous with slave wages, forced overtime, and arbitrary abuse.”(HBR page 12)
In July 2006 the MIT Sloan School of Management conducted a study about the lessons we can
learn form Nike regarding improving labor standard and how much their efforts truly changed their
productions landscape. They looked at many factors including country, age of building, relationships
between supplier and the company, compliance grading records. It was concluded that Nike efforts have
improved factory conditions because they have actually “spent millions of dollars to improve working
conditions at its supplier factories….with Nike monitors and compliance staff revealed that these people
are serious, hard-working people with a genuine concern for workers and their rights.”(MIT, 27) Their
intense efforts worked because they went all-in on ethics and their social standing. Knight was able to let
social science effect the way he did business ethically because it actually mattered to him and despite his
efforts to ignore it, he knew his value stream would not survive without sweeping changes. C. Wright
Mill’s “Sociological Imagination” explains the quandary that Nike faced in 1998, “No social study that
does not come back to the problems of biography, of history and of their intersections within a society has
completed its intellectual journey”(Mills, 6). For Nike and Phil Knight, their journey was not complete
unless they understood how the decisions they had made in the past had affected where they had ended
up. Phil Knight was able to see that society and himself crossed forever and that in order to maintain the
strength of shareholders while also continuing to please his stakeholders, ethics and the sociological
imaginations of believing in change had to come into play.
Jensen’s balanced scorecard is pertinent here when dealing with how social science effects ethical
reasoning by putting Kaplan and Norton’s theories into perspective. As he puts it, “balance cannot ever
substitute for having to deal with the difficult issues associated with specifying the tradeoffs among
multiple goods and bads that determine the overall score of an organization’s success”(Jensen, 251). By
stating this, Jensen is trying to get across the notion that no matter how balanced a company is, they must
operate on a case-by-case basis. For Nike this means that continuing forward past 2012 they must
consider it all when it comes to environment, ethics, financials, and long term growth in what Knight
deem as value areas. Essentially, Nike needs to continue what they have done since 1999 and adapt to the
needs of a changing market place.
Stakeholder and shareholder capitalism ethics determine how a company does in both the short
term and the long term. Nike grew from the ashes to become a monster in sales, marketing, and
revolutionary product design. What held them back was a lack of commitment to stakeholder’s morals
and beliefs in bigger things regarding their products, particularly dealing with manufacturing. Phil
Knight’s stubbornness cost Nike 5-8 years of true growth but his ability to admit his mistakes and move
the tide of negativity by going all-in on change let those mistakes become a thing of the past. It is not
about Friedman’s theory of moving and shaking around the ethical guidelines of society to make as much
money as possible. Instead it is about looking in the mirror as an executive, as a company, and as a
brand, and balancing your scorecard as to make your private and public self feel complete.
Rubric for Paper 1
Mg 312 F 2012 Professor Jordi Comas
Works Cited
Freeman, R. E. "Business Ethics at the Millennium." Business Ethics Quarterly 10.1 (2000): 169-80.
Print.
Friedman, Milton. "A Friedman Doctrine." New York Times [New York] 13 Sept. 1970: SM17. Print.
Jensen, MIchael C. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function."
Business Ethics Quarterly 12.2 (2002): 235-56. Print.
Mills, C. Wright. The Sociological Imagination. New York: Oxford UP, 1959. Print.
Spar, Debora L., and Jennifer L. Burns. "Hitting the Wall: Nike and International Labor
Practices." HBS. Harvard Business School, 6 Sept. 2002.
Yoffe, David B. and Renee Kim.Hitting the Wall: Nike and International Labor Practices. Case Study.
Boston. Harvard Business Publishing, 2010. Web. 28 October 2010.