Nike and the reality of corporate social responsibility.
Written by William Scarff, module leader, Corporate Social Responsibility and Ethics.
Answer the following questions, using the case study.
1 Identify the different stakeholder groups for Nike. Can some stakeholder groups be
ignored? Explain and justify your views
2 Examine and justify actions Nike could take to improve the labour conditions of its
workers in developing countries.
3 Assume you are the Chief Executive Officer (CEO). Discuss whether or not you should
carry any personal responsibility for alleged misdeeds in the multinational company.
4 Is it reasonable, or fair, to expect a large company in one part of the world to be
responsible for the activities of a supplier in another part of the world? (This question is
linked to question 2)
The case study
This case study is based on an article by Simon Zadek in the Harvard Business Review for
2004. The case study has however been adapted and supported by academic commentary
from other noted authors. There is one appendix. It gives more detail to the activities taken
by Nike. Here are some ideas and debates from those authors. The quotations are given to
highlight some of the issues in the subject areas of business ethics and corporate social
responsibility. Not all comments from these authors can be used directly in the answers to
the case study, but they are included to encourage thinking around company behaviour
and practice, and to illustrate some of the very real dilemmas faced by managers and
policy makers in large organisations.
Here are some sources to help you develop your thinking and understanding of the
subject areas.
1 ‘It is being increasingly recognized by managers, policy-makers
and researchers that business ethics in the global economy is simply
too important to be left merely to chance. Global corporations such
as McDonalds’s, Shell, Nike, Nestle and others have realized to their
cost the threat that perceived ethical violations can pose to their
zealously guarded reputations’. (Crane and Matten 2010:184)
2 ‘No issue has been more consistently evident in the global
business ethics debate than the MNCs’ (Multinational Corporations’)
use and abuse of women and children in cheap labor factories in
developing countries. The major players in this controversy , large
corporations, have highly recognizable names –Nike, Walmart,
Reebok…..The countries and regions of the world that have been
involved are also recognizable – Southeast Asia, Pakistan,
Indonesia, ….’ (Buchholtz and Carroll 2012: 358)
3 Nike like ‘Many companies have discovered (or their critics have
discovered for them) that in their suppliers’ factories, workers have
been paid below a living wage, subjected to physical and verbal
abuse, worked compulsory overtime, failed to have time off
recognized, and even engaged in child labour.’ (Crane and Matten
2010:416)
4 ‘Nike’s problems with global outsourcing became an international
scandal as pictures of children working in deplorable conditions
reached mainstream newspapers…Boycotts, started on University
campuses, prompted changes in policy for Nike’s outsourcing
strategy. Eventually, Nike changed many of its policies and is now a
leader in disclosing the conditions of its factories. Nike now performs
many of the tasks that had previously been left to the factories or
outside monitoring agencies.’ (Wicks et al 2010:378-379)
5 ‘Nike was heavily criticized in the 1990s for buying footballs from
companies that used child labour in Pakistan…In 2006 Nike reacted
to the concerns (over the continuing use of child labour) by shifting
its football production to China and Thailand. This however had a
harmful effect on employment in the area where football production
takes place in Pakistan. A local newspaper commented on the
decision as follows: “By severing its contract with the local company,
Nike scored moral points with its customers in the West at the
expense of 20,000 families who were affected, since 70 percent of
local workers relied on Saga Sports for employment.” Since then
Nike has reviewed its decision…’ (Griseri and Seppala 2010:180)
Business ethics and corporate social responsibility are new aspects of international
business. From these quotations, from academic literature and from coverage of
international events through news media, it is clear that subjects covered by the terms
‘business ethics’ and ‘corporate social responsibility’ are exercising ever greater influence
on the policy and strategies of large companies. Employees and customers live in many
different countries. These large companies need the support of, or at least the tolerance of,
national governments to be able to operate in different locations across the world.
The multinational context
Nike has not been the only company to be attacked for its highly cost efficient, but ethically
questionable, labour practices globally. It has been struggling with its public image to show
it takes seriously its attitude to corporate social responsibility (csr). Auditing and reporting
practices have come under scrutiny. The processes of organisational learning have
happened on the way to constructing strategies of social responsibility. Nike has seen csr
as an essential part of the realities of globalization.
In the 1990s protesters attacked Nike for the sweatshop conditions of its overseas
suppliers. Nike’s every move was examined so as to strengthen the view that Nike
management was driven by irresponsibility and greed. But Nike had a practical problem.
According to Crane and Matten (2010:71) ‘Nike had long claimed that the identity and
location of their suppliers could not be revealed because it was commercially sensitive
information that their competitors could exploit’. That same defence could plausibly be used
by other companies as well.
It can be said that companies need to identify and respond to society’s awareness of
particular issues, even if the awareness is partly wrong or misinformed. Pharmaceutical
companies, for example, are asked to sell life saving drugs cheaply, even if full prices are
needed to sustain research and development.
Issues which were once radical, or
unimportant, in the business environment, can become central to a company’s strategy.
Perhaps Nike experienced rapid changes.
Nike has a similar business model to other companies: namely to market highly expensive
consumer products through cost efficient supply chains. The protests have forced the
company to look at csr in tough new ways. The public have evolving ideas about csr.
Many companies pass through five distinctive stages of organisational learning in the
process of developing csr. Please see the Appendix for a fuller explanation of the stages..
Learning is therefore both organisational and societal.
Stage 1 Defensive ‘Its not our job to fix that ‘, the defensive stage, denial of event or ‘It was
not our fault’
Stage 2 Compliance ‘We’ll do just as much as we have to’ the compliance stage often
visible to critics. Nestles for example offered compliance to the law but the public wanted
Nestle to show commitment to take more than legal action
Stage 3 Managerial ‘It’s the business stupid’. This is the stage for managers to take
responsibility for the core problem, to make changes and to seek solutions.
Stage 4 Strategic ‘It gives us a competitive edge’’ Responsible business practice can help
contribute to the company’s long term success.
Stage 5 Civil ‘We need to make sure everybody does it’. Companies promote collective
action to meet the concerns of a society. Diageo and other drinks companies promote
responsible drinking.
Nike’s story.
In 1990s the company was surprised when activists launched a hostile campaign because
of worker conditions in its supply chain. Nike did make some mistakes. The company now
participates in, and finances initiatives to improve worker conditions in global supply
chains, and is keen to promote corporate responsibility more generally.
Stages 1 and 2 From denial to compliance
Nike has worked exclusively through global outsourcing. It has not made anything itself,
except the first example, the prototype, in its design studio. Most competitors operated with
similar organisational structures, with appalling working conditions in some suppliers’
factories.
Nike was targeted by activists not because the company was any worse than other
companies, but because of its high profile brand. Indeed its business practices might be
seen as being better than the activities of its competitors. Crane and Matten report that
‘Nike’s ‘Reuse-A-Shoe’ programmes have turned 23 million used sports shoes into material
used by sports surfacing companies for gym flooring and soccer fields’. (Crane and Matten
2010:430).
The company’s first response was defensive, a response which quickly turned out to be
unworkable. Early attempts to build credibility failed. Labour activist demands affected the
highly profitable youth markets in North America and Europe. In 1998 Nike created a
Corporate Responsibility department: a recognition that the aspect had to be managed by
the company.
Stage 3 Managing responsibility
By the year 2000, 80 employees worked on labour issues. Expensive external
professionals audited 900 suppliers. But Nike was exposed for not sincerely following its
own publicised practices After a 6 month review, senior managers concluded that factory
practices were not the problem, but rather problem lay in the common structure of
performance incentives based on price quality and delivery times. Codes would be
bypassed by buyers to hit targets and secure personal bonuses. The tension was between
short term financial goals and long term strategy to protect the brand. To introduce and
manage corporate responsibility meant challenging the entrepreneurial spirit that had
brought success to the company over 30 years. The reaction was not just against change.
Nike’s efforts to create better worker conditions had little effect on profitability. Most
investors wanted only short term profits.
The American and British governments supported developed initiatives to help resolve
such situational difficulties. The American Fair Labor Association and the British Ethical
Trading Initiative helped to bring about compliance in higher labour cost standards by a
number of companies.
Stage 4 Responsible business strategies
The important trade agreement in the clothing industry was the Multifiber Arrangement
which caused Nike to search for spare quotas of production at lower prices from developing
countries. Longer term commitments to suppliers would be impossible. The arrangement
expired in 2005 leaving Nike freer to work with fewer, larger suppliers. Lean manufacture
has followed, reducing the number of workers through the use of advanced production
technologies. Workers need to learn these new production methods, so helping them
increase their skills and receive higher wages.
In 2004 Nike acquired the footwear brand ‘Starter’, sold at large retailers such as Wal-Mart.
‘Starter’ operates to high production volumes and low margins, creating challenges to
maintaining the company commitment to its labour codes. Customers seeking value focus
on price, and are generally less interested in ethical concerns. Nike is however clear that it
is committed to good wages for anyone who works in the supply chain. Nike has argued for
regulated international labour standards, to deal with any disadvantage that might happen if
it acted alone. Cooperation between competing companies makes sense.
Stage 5 Towards civil action
In July 2000 CEO of Nike Phil Knight attended the launch of the ‘Global Compact’
organised by the United Nations. He was the only CEO of a US company out of 50
company chief executives. Knight announced Nike’s support of ‘mandatory global
standards for social auditing’ asserting that ‘every company should have to report on their
performance ’against these standards. (Zadek 2004:132)
Bibliography
Buchholtz A and Carroll A (2012) Business and society, Ethics and Stakeholder
Management, 8th edition, South Western, Cengage Learning
Crane A and Matten D (2010), Business ethics, 3rd edition, Oxford, Oxford University Press
Griseri P and Seppala N, (2010) Business ethics and corporate social responsibility, South
Western, Cengage Learning
Wicks A C, Freeman R E, Werhane P H, Martin K E, (2010) Business ethics, a managerial
approach, Boston, Prentice Hall
Zadek S (2004) The path to corporate social responsibility, Harvard Business Review 82,
December 125-32
Appendix: the five stages of organisational learning. Extra reading and ideas but do
not worry if the ideas in this appendix seem complicated
STAGE
WHAT ORGANISATIONS DO
WHY THEY DO IT
Defensive
Deny practices
outcomes or
responsibilities
To defend against attacks to
their reputation that in the short
term could affect sales,
recruitment productivity and the
brand
Compliance
Adopt a policy based
compliance
approach as a cost
of doing business
To mitigate the erosion of
economic value in the medium
term because of ongoing
reputation and litigation risks
Managerial
Embed the societal
issue in their core
management
processes
To mitigate the erosion of
economic value in the medium
term and to achieve longer term
gains by integrating responsible
business practices into their
daily operations
Strategic
Integrate the societal
issue into their core
business strategies
To enhance economic value in
the long term and to gain first mover advantage by aligning
strategy and process
innovations with the societal
issues.
Civil
Promote broad
industry participation
in corporate
responsibility
To enhance long – term
economic value by overcoming
any first mover disadvantages
and to realize gains through
collective action