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In 1957, the University of Oregon track and field coach Bill Bowerman and Phil H. Knight, a runner on the U 0f O track team, built a relationship that would change the sports and fitness industry as well as the idea of corporate citizenship and social responsibility forever. Phil Knight and Bill Bowerman co-founded Nike in 1964 under the name of "Blue Ribbon Sports". Phil developed the plan to import shoes from Japan and sell them in the United States. This plan held the potential for wide profit margins due to the lower cost worker than its competitors in Europe and the United States. Earlier in 1963, Phil had gone to Japan and negotiated a favorable distribution contract with distribution supplier Onitsaka Company. The contract supplied the first shoes to be sold in the United States under the name of Tiger Shoes. While Phil Knight focus on the business of Nike, Bill Bowerman was the master designer of Nike obsessed with making running shoes lighter for more speed and improved soles for better traction.
From revolutionizing the running shoe to utilizing pop culture for success Nike went from $1 million in sales in 1969 to $1 billion in sales in 1986. Nike's innovative marketing and advertising played a large role in their amazing growth; however, was second to its overseas low cost production. "Nike is known as a footwear company, but approximately one-third of its revenue comes from apparel, and that manufacturing takes place in factories located in Asia" (Farrell, 414). Nike contracted suppliers in Asia to produce its products; however, due to increased demand and costs, these suppliers sub-contracted production with cheaper labor markets in third-world countries.
By the mid-1990's, Nike's production practices were revealed leading to public consciousness about product origin and Nike's "sweatshops". Nike's problems were so largely reported by newspapers and television programs that the mainstream media could not avoid reporting it nationally.
In 1998, the founder and Chairman of Nike, Phil Knight brought to light in a speech given to the National Press Club that the Nike product and name had become known to be synonymous with slave wages, forced overtime and arbitrary abuses. Throughout the mid -1990's Nike had been facing considerable criticism from civil rights organizations and the media. Those accusations included poor safety and health conditions, very low wages, and indiscriminate hiring and firing practices for its manufacturing employees based in Indonesia. These accusations lead to boycotts, picketing and cancellations of purchase order contracts by major universities and businesses. Nike's lack of corporate responsibility was ultimately leading the company to financial destruction via its stockholders and stakeholders.
Initially, Nike established its manufacturing base in Japan where better labor conditions were standard and more socially responsible. Corporate citizenship did not seem to be an issue with products being produced in Japan. However, considering both the fast growth rates of its products and that the company's margins were shrinking; efforts to improve profit margins involved Nike moving its manufacturing base to Indonesia. With newly subcontracted plants in Korea, Taiwan, and Vietnam, the company was faced with different cultural employment standards that allowed human rights issues to become a problem. Not being faced with these issues before, Phil Knight's lack of leadership led to the compounding of negative effects that the production facilities had on human and labor rights violations. Ignoring the responsibility simply because the plants were not company owned is not only a mistake but a large ethical concern for Nike and its subsidiaries.
Mr. Knight's individual leadership regarding corporate and social responsibility was at a deficit. His immediate action led to the assignment of individual employees to monitor each plant, but this proved to be ineffective. Knight simply took the issues too lightly and should have addressed them with more severity.
At an organizational level, honesty, integrity and lying appeared to be the root of the trouble between each plant location and management of Nike. Even though a code of conduct had been established and supplied to each manufacturing plant in 1992; it was not enforced. Each written "Code" was to be signed by each supplier and the document was to be placed within each factory. This action proved to be only correct in theory. With over seven hundred factories throughout Indonesia, employment policies and worker conditions could not be monitored or regulated by Nike. Plant managers appeared to report only what they wanted Nike's management to hear. This continued until reporters began breaking out news stories covering the many human right issues that were taking place.
Nike's negative press was increasing. Due to public interest the nongovernmental press elevated its reporting efforts to bring to light human rights violations. In 1993, a CBS reporter named Roberta Baskin revealed human rights abuses in Korea. Later in 1996, Bob Herbert's op-ed article in the New York Times once again brought negative attention to Nike. In 1998, Marc Kasky, filed a lawsuit against Nike that claiming Nike was intentionally misleading the public regarding Nike's publicized improvements in conduct. The suit ultimately was ruled against Nike and they settled the claim for a total of $1.5 million dollars. Though a small payout when compared to Nike's annual income; this suit proved to be a landmark case relating to commercial speech laws.
On a societal level, human and labor rights violations are the largest concern for Nike because business is about people and people should never be discounted. When it is all said and done, a true corporate citizen takes into account all the contributors to its success. Even though the factory and employees are not directly owned by Nike, they are a part of Nike's production process and, ultimately, its finished products so that makes them entitled to respect. Poor conditions, low wages, and long work hours may be profitable for the short term; however, in the long term, companies that ignore such problems for short term gains will cease to exist in the future.
Individually, Mr. Knight has to stop ignoring the problems, take ownership, and lead the company to address the issues regarding labor and human rights issues. In doing this, he should lead Nike's efforts in promoting a positive advertising campaign and convey a positive socially responsible public image. Phil Knight must address the ethical issues individually by setting an example. Regardless of any other factors, Knight must make it his responsibility to turn the corporate culture around. Leadership must be in place for this to be effective, but leadership must be established from the bottom up as well. All individuals from Nike must understand their role to make an impact. This can be done by setting up a better management model with incentives to promote socially responsible operations. Profitability is necessary; however, it cannot come at the cost of human depredation.
Organizationally, the company must balance compliance, enforcement of its code, and oversight measures while still trying to hit profitability targets. Nike will ultimately regain a positive public image that will translate favorably to their bottom line. Through Mr. Knight's leadership, society will see improved health conditions and overall economic benefits. A balance of cost saving measures coupled with improved human and labor practices will help Nike address both at the same time. Making money at any cost is over. The time to operate ethically is now and Nike must implement a system of checks and balances that ensure compliance of factor conditions, work hours, and wages while operating for a profit.
Nike has a public relations nightmare. The alternatives that face Mr. Knight and his organization will have societal ramifications and forever impact Nike's longevity. If Nike wants to continue to contract labor in Asia and third world countries, it must understand that they are a part of their production team and are their responsibility. Nike must improve factory conditions, set a fair standard of wage, and support health and education in the areas of operation. The society includes many individuals with different connections to Nike, but Nike must make it a company covenant to improve the overall lives to all its contributors.
Evaluation of Alternatives
Individually, to do thing right thing, Mr. Knight should have visited problem locations to view violations and show his personal commitment to Nike and that he does intend to correct the ongoing atrocities. This will exemplify personal ownership even though the company does not own the individual plants. His leadership skills through this course of action will relate to the common worker and lead to improved working conditions overall. It will, as a result, promote the greatest utility for the greatest number; however, it will also allow for Nike to be around for a long time.
Organizational commitment will flow from Mr. Knight throughout his management team. His leadership will help managers and employees develop trust and commitment to look for and improve on worker violations. Each manager, in doing the right thing, will take personal ownership to improve worker conditions. By setting up a better system to monitor and enforce the problems with labor and human rights, Nike's image will eventually rehabilitate and allow all stakeholders of the company to have faith in Nike and the products they sell. Where Nike's products were sold and how they were made are more important today, so if they are to be a company of the future, they must push towards more transparency in their supply chain.
Society as a whole is made of local workers and stakeholders in and around each plan location. Once the commitment to improve the "sweatshop" conditions are understood and carried out by Mr. Knight and Nike's managers, Nike's corporate image will improve throughout its operating communities and the negative press will subside. In analyzing the societal alternatives, it is clear that the stakeholders of Nike cannot be ignored because it simply does not feel like the right course of action. Nike should be compassionate and strive to improve the lives of those who contribute to their success.
Individually, Mr. Knight initially took the stance that the human rights problems were not Nike's, but rather the individual factories that supplies the products. After the storm of negative publicity, Mr. Knight decided to engage Ernst and Young to audit one of the problematic plants located in Vietnam. The auditing firm revealed extreme issues relating to chemical uses and health problems. When making ethical decisions such as this, the greatest utility for the greatest number is realized when one chooses a solution taking all affected into consideration. Mr. Knight should make it a rule to improve the lives and conditions of the workers in their overseas facilities because it will create the most utility for all contributors and the company. By doing so, Nike's image and respect level will continue to improve and promote a long term growth strategy.
Organizationally, Ernst and Young also revealed that there had been an infringement of the established code of conducts that the plant had agreed to when becoming a supplier to Nike. Nike officials claimed to be only marketers and designers and did not own the factories; therefore, Nike was not responsible for the labor and human rights violations. Nike's implementation of compliance standards concerning their overseas production facilities should be done to promote a better quality of life for the employees in struggling economies. The greatest utility is accomplished here because the workers are able to get quality work done under reasonable conditions, but also allow Nike and its subsidiaries to benefit from improved public image and hence, a better market demand.
The societal outcry from the documented human rights violations resulted in protests, picketing, and boycotts. No human being should have to work in conditions that are inhumane; however, not every country has the capabilities (i.e. economy, infrastructure, culture) to provide a proper work environment. Nike, on the other hand, has the capability to address their problem, but it has been ignored predominantly due to a capitalist preoccupation. Nike should set a precedent to improve the conditions of all the worker's lives that contribute to the company's success; thereby influencing the rest of the industry to follow suit.
Individually, Mr. Knight appears to be an extreme egoist. His non-action and avoidance of the rising outcries regarding the labor and human rights issues were clear indication of his desire to exploit cheap labor for the profitability of his company. At best, Mr. Knight only shifted his ethical style to a form of enlightened egoism before stepping down as Chief Executive Officer. Although it seemed that Phil Knight was addressing the issues, he was only doing so to improve his own situation.
Organizationally, Nike's management followed in Phil Knight's footsteps exemplifying an egotistical management style. Their blind eye to the atrocities occurring in Korea, Taiwan, and Vietnam occurred due to a lack of leadership. Bonuses and incentives are tied to profitability and keeping costs down was important to reach their goals. The goals, being out of focus to promote reasonable working conditions or wages, only promoted exploitation of their production facilities for a better margin.
From a societal perspective, Nike continued to ignore the issues until the press and equal rights groups became involved. Addressing the issues would involve increased cost and smaller bottom line and the fact that Nike was slow to react proves they were acting for their own self-interest. Continuing to ignore the labor and human rights issues will, in the end, lead to financial destruction.
Individually, Mr. Knight was not focused on equal respect for all persons. His avoidance and lack of attention to the issues let a decade of violations pass before his interest. His actions to audit the problems appeared to be a close effort toward a deontological act where Nike tried to change their behavior not because of the consequences but because it was wrong to do.
Organizationally, Nike may have had a nonconsequentialist within its ranks of management, but without top leadership, no-one stepped up to try and balance its behavior regarding the employees that really produced its revenue stream. Public relations seemed to be the answer for Nike's management. A top down review of enforcement on the code of ethics would help mitigate a large amount of its recurrent violations and steer Nike to operate with ethics based on knowing the difference between right and wrong.
Society would benefit from Nike's move toward equity, fairness and impartiality when making its decisions regarding the handling of its employees within its manufacturing facilities. Under act deontology, society ruled that not only did Nike not understand what was right and wrong, they infringed on the moral rights of their employees.
Individually, Knight did not apply the golden rules of the Judeo-Christian tradition. He chose to divert blame to public relations and did not believe that the inhumane conditions were his problem. Mr. Knight should operate his business that focuses on the rights of the individual and a set of rules or guidelines that governs ethical conduct.
Organizationally, management from the bottom up did not follow the code of conduct in place. Additionally, it did not appear that management practiced the rule of do unto others as you would have them do unto you. A company must have more than a piece of paper that says, "Code of Ethics" on it. It takes a lot to change organizational behavior. The leaders of Nike will have to reinforce every sector of their organization to comply with a corporate citizen business model and embed the revitalized culture from the ground up.
Society was focused on the deontological rights of the individuals working within the manufacturing plants. Outside efforts from media and equal rights activists helped to refocus Nike's effort toward the individual worker. Nike should use Immanuel Kant's categorical imperative as an example on how to run their business. If it is ok to infringe upon on individual's rights for business, then it is ok for everyone to infringe on your rights. With that perspective, Nike would not want to continue to ignore the problems with their overseas labor and production practices.
Perceptions to Alternatives
To continue to ignore the overseas human rights violations would result in decreased production and revenues starting from the bottom and push up all the way to the top of the Nike organization. Not to detract from the main issue, but corporate employees also face stress relating to the issues caused overseas. The stress may be job related or just as simple as not feeling good about the organization they work for. Any increase in advertising and public relation stunts would only mask the true human rights issues at hand. Strategically implementing a top down leadership focus relating to plant employee's human rights would lead the company in the correct direction for long-term prosperity.
Once top management focuses on the ethical concerns of its employees throughout its supply chain they will realize that they have substituted their short-term focus for a long term perspective. The new direction in leadership will excite employees throughout the ranks because of reduced stress related to the human rights issues. They would now be working for a company that has a positive corporate social responsibility program. Over the long-run, this should result in improved profit for both the individual and the company as a whole.
For Nike to continue to bury itself in the sand would only perpetuate additional violations and create additional public distrust. Advertising and promotions would only be viewed as window dressing and be dismissed to the point of being ineffective. A balanced top down approach to the ethical issues would translate into a favorable community perception.
Society will note the changed perspective of Nike. Improved human rights related issues will translate into better worker conditions, reduced safety issues, respect, and equality in the workplace. Plant employees will be happier along with their respective communities.
The media would continue to thrive if Nike continued to ignore the issues. Additional activists groups would join in on the human rights cause and band together. Becoming stronger, these groups would continue to gather evidence and document violations. Ultimately, this would lead to greater legal action against Nike. Increased advertising would once again create frenzy within the media. As documented violations mount the media would continue to pounce on Nike. Social rights activists groups might subside in the short-run but only come back stronger as evidence mounted against each ad campaign. If Nike changed and implemented strategic efforts to balance its profitability targets to its human rights issues the media and social frenzy would, over time, subside. The media and nongovernmental social groups will feel a sense of accomplishment. They will continue to monitor yet refocus their efforts to other more needed areas within corporate communities.
Constraints to Alternatives
Implementing a strategy that encompasses human rights of workers in plants overseas would involve the greatest constraint. The primary constraint would be the complete buy in from top management. A long-term financial support system would also have to be put into place in order to maintain the investigative and regulatory bodies as well as the employees that are needed to implement the strategy. Finally, hiring and placing the correct regulatory employees that would establish new guidelines, code reformation, and monitoring would take time considering the large multi-country footprint of the Nike organization. These combined constraints will have to be balanced as a priority throughout the Nike organization.
Our personal solution would have top management put in place a balanced system that incorporated both strong ethical beliefs and profitability goals. This system would be integrated into the corporation simultaneously from both the top and the bottom of the organization. Starting with the Chairman, codification of ethical practices and financial consequences would be put into place. At the same time manufacturers would be monitored and rated based on violations. Monetary parameters would be used as incentives to improve worker conditions and safety. Eradication of egoism related to ethical concerns within the organization would be an underlying goal of the cultural transformation.
Commitmentâ€¦the Nike Corporation as a whole would feel greater commitment throughout the organization with the higher level of ethical concern shown by top management. Corporate responsibility and citizenship will manifest pride amongst its workforce. Worker productivity should increase through improved working standards overseas and corporate employees would face reduced stresses relating to individual jobs and negative press.
With reduced human rights violations and a reformed ethically responsive institution, Nike would be embraced by society as a model organization of which others could look to for guidance.
Nike is known worldwide as a multi-national corporation (MNC). These large corporations often generate more revenues than the total gross domestic product of the countries in which they operate. In Nike's footprint, negative feedback would likely occur pertaining to the amount of each country's resources that are consumed by the MNC. This would include but would not be limited to the amounts of rubber used for shoe soles or the individual community labor markets.
Between 2002 and 2006, Nike reformed its ethical stance as a MNC. The company adopted an open-minded approach to ethical issues instead of denial. Nike moved away from its own general code of conduct and established a standard of conduct that could be embraced as corporate responsibility throughout its industry. To monitor this new code, Nike established three different types of monitoring systems that now employs over ninety people in twenty-one countries.
Nike's field-based production staff now uses a system named SHAPE to determine compliance related issues regarding the environment, safety, and health. Labor Audits are now regulated through a new system called management audit or M-Audit. This system is staffed by twenty-one trained labor auditing individuals that focus on revealing problems that are not obvious on the onset. As an addendum to the audits, Nike has engineered a scorecard that gives each factory driving measures to keep production running smoothly. The scorecard measures costs, delivery, and quality all of which are needed to keep the shoe running. Encompassing these programs, Nike has now encouraged the Fair Labor Association to independently monitor its progress. This greater move toward transparency has lead Nike to open its doors to other opportunities.
Nike has now disclosed its factory bases. Furthermore, Nike allows some of its factories to be reviewed for educational research. Schools like the Sloan School of Management at the Massachusetts Institute of Technology now study various drivers and outcomes in hopes to improve the production flow and work hours of Nike's facilities.
In 2005 and 2006, Nike appeared in Business Ethics magazine as a top 100 best corporate citizen. Additionally in 2006, in Fortune "100 Best Companies to Work For" they came in at number 100.
Finally and probably most importantly- Nike achieved a perfect score on the Human Rights Campaign Foundation's Corporate Equality Index- twice.
Was Kasky a material catalyst in driving change throughout the Nike organization?
Why do you think Phil Knight stepped down?
Based on the information of this case and presentation, do you think Nike is continuing these efforts today?