Nike: Ethics and

Social Corporate
Responsibility

Korene Till
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Table of Contents

Page No:
Introduction

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1. Nike: The company

1.1 Ho Chi Minh City
1.2 Tai Kwang Vina

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1.3 Indonesia
2. Nike: Ethics and Corporate Social Responsibility
2.1 Fair Labour Association (FLS)
2.2 Environmental Arena
3. Nike: Lets get serious
3.1. Monitoring Systems
3.2 Sloan School of Management
3.3 Balanced Scorecard
3.4 Full Disclosure
3.5 Toxic Chemicals
3.6 A New Face

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4. Nike: Result

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Conclusion
Reference List

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Introduction
Ethics has become a large part of our everyday lives. It is the way we are taught to operate in
the society in which we live and where corporate businesses fulfil transactions and duties.
Over the last decade we have seen a movement in the way society views businesses: the way
they operate and make decisions. Much research has been done by academics into the area of
ethics and social responsibility.
With the improvement in technology and the speed at which we are able to access
information, we as consumers now have a platform on which we are able to make decisions
about the products we purchase. This has led to businesses being more aware of their
corporate identity as a whole and not just meeting the legal criteria but that they should also
promote the welfare of the society in which they operate. With the emergence of
globalisation and outsourcing many businesses were able to get away from having their
operations scrutinised under a magnifying glass and have neglected their corporate social
responsibilities.
Corporate social responsibility is an ever increasing part of business especially in times of
economic crises. Consumers no longer have large sums disposable income and we are
becoming more prudent about how we spend it and who we are giving our money to.
More and more we see that businesses and corporations are being held accountable for their
actions not only on home ground, but also when operating on foreign soil. We will see
evidence of this as we explore some of the operations of Nike. We will look at where they
omitted to employ ethical behaviour in some of their sub contracted plants and what practices
they put into place in the effort to reverse the negative effect on their social and corporate
identity.

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1. Nike: The company
Nike was founded by Phillip H. Knight in 1964. It operated as Blue Ribbon Sports and was
birthed out of a paper Knight wrote during his MBA programme in Stanford. In it he
outlined the idea of importing athletic shoes in the USA from Japan. This was a new concept
in the USA at the time as this market was dominated by German competitors. In 1972 the
brand Nike was created and the company went public in 1980. It was name Nike after the
Greek goddess of Victory and today it is one of the biggest names in athletic footwear,
clothes and equipment in the world.
Nike does not actually produce any of its own products. Their main business is designing the
products and marketing them. They outsource the production of goods to approximately 700
factories in about 50 different countries, the largest number of factories being in Asia.
In 1991 reports were made in the United Kingdom about poor working conditions within
Nike factories in Indonesia. In 1993 US television networks reported of abusive working
conditions in Nike factories in Vietnam. These reports included low wages, workers being
hit on the head by supervisors and many other physical punishments. In 1994 the bad press
continued and was now widely published by the Boston Globe, the Chicago Tribune and
many more.

1.1 Ho Chi Minh City

In 1997, while Nike was attending a meeting of Business for Social Responsibility, an article
appeared in the New York Times outlining working conditions in Nike factories in Vietnam.
The article which was leaked by a disgruntled employee was prepared by Ernst & Young and
was meant to be an internal report for Nike. The report outlined working conditions in a
factory owned and operated by a Korean subcontractor. Ernst & Young found the workers
were being exposed to carcinogens on a daily basis in most parts of the factory and that 77
per cent of the employees were suffering from respiratory problems. The details of this
report came as a contradiction to Nikes claims of model working conditions around the
world. Nike claimed they had out an action plan at the plant after the company received the
report (Jan 1997). They had improved working conditions in the plant by providing proper
ventilation and reducing the toxic chemicals used in producing the athletic gear. Nike felt
that they had acted ethically by marginally correcting these issues, but the damage was done.
Ho Chi Minh was one of the newer manufacturing plants and already there was evidence of
hazardous working conditions

1.2 Tai Kwang Vina

The factory in Tai Kwang Vina was also included in the Ernst & Young report. It is one of
the larger Nike plants. It was found that of the 9,200 workers, thousands were woman and
many under the age 25. They worked 10.5 hours a day, six days a week, exceeding the hours
allowed by Vietnamese law. The wage they earned was a meagre $10.00 per week. Even

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with the cost of living being lower in this country it is estimated that a worker needs
approximately $3.00 per day to achieve an adequate standard of living.
It was found they were working in extreme heat and noise while breathing in foul air. They
also found that employees that had developed respiratory problems due to poor working
conditions had not been moved to departments that did not use chemicals, and those working
with the chemicals were not wearing protective masks and gloves. The employees were not
aware of the harmful side effects of the chemicals.

1.3 Indonesia
Nike came under attack from human rights and labour groups for paying star athletes millions
of dollars to endorse their athletic gear. In 1998 Tiger Woods and Michael Jordan made a
combined amount of $73 million from Nike sponsorships. Contrast this amount with the
meagre $100,000.00 Nike contributed to continuing education programmes for workers in
Indonesia At times even when a company does make provision for philanthropy, when
viewed in the larger spectrum it seems to fulfil the companies duties only as an afterthought.

2. Nike: Ethics and Corporate Social Responsibility

In 1998 Nike responded to the on-going criticism by amending its code of conduct for their
contractors. This code was meant to apply to factories where Nike products were being
products and some of the recommendations outlined were for minimum wage, maximum
working hours per week, minimum working age of 16 and minimum safety and environment
standards. They also became members of the Fair Labour Association.

2.1 Fair Labour Association (FLA)

The FLA was set up in 1998 with the help of the White House, US department of labour and
the apparel industry. The purpose of this association was to safeguard the working conditions
within the factories that were contracted to work for US companies. They operate a
voluntary code of conduct and the member companies can stitch a No Sweat to their
products. As you did deeper into the code you find that it pays lip service to many ethical
issues. Examples are that member companies will pay minimum wage in the operating
country, unfortunately it makes no mention of the members paying a wage that workers can
live on. Often these factories are in countries that are in competition for international
investment and keep the minimum wage below what is needed for a subsistence level.

2.2 Environmental Arena

In an attempt to change its reputation Nike has focused on environmental issues. In 1998
they joined forces with 20 other companies in the US. Their commitment: To stop using or
selling wood or paper products made from old growth forests. In the same year Nike
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committed to removing polyvinyl chloride (PVC) from its shoes. They enlisted Greenpeace
to broadcast Nikes promise.

3. Nike: Lets get serious

In 2002 Nike was facing extended litigations when they appealed their case to the US
Supreme Court. In light of this they settled out of court. The settlement included $1.5
million to be paid to the FLA over a period of 3 years and $500,000.00 to be paid every year
for the use of subsidising entrepreneurial ventures of foreign employees and forums in Nikes
factories.

3.1 Monitoring systems

Now Nike has developed 3 tiered monitoring systems for its factories.

First method: a field based production staff is employed to inspect the factory using
the SHAPE method. They look for environmental, safety and health compliance.
Second method: This is called the Management Audit (M-Audit). 21 Staff members
have been hired and trained in labour auditing practices. This audit is designed to
uncover the problems that are not evident to the naked eye
Third method: Independent monitoring by the FLA is not encouraged by Nike

Nike now employs over ninety people that make up the compliance team and they operate in
twenty one countries enforcing their new monitoring system.

3.2 Sloan School of Management

Nike has invited students studying business at the Sloan School of Management in
Massachusetts to use its contract factories in research on business drivers and outcomes.
Nike hope to use this research to help learn about business processes, manage production
flow and further improve on working hours in their factories.

3.3 Balanced scorecard

This is grading system using letters and it helps Nike assess factories and their compliance
with the code of conduct that is set out. Nike now has a reliable method and they use it to
reward high performing and compliant factories. In addition the scorecard also helps Nike
measure cost, delivery and quality. These all need to be addressed equally to enhance the
flow of production.

3.4 Full Disclosure

Nike is now fully disclosing is contract factory base in an effort to be more transparent. Nike
believes that now that their supply chain is disclosed they will be more successful in
monitoring and implementing changes as the problems are revealed. Their hope is that other
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companies will be encouraged to follow suit in order to standardize a code of conduct for all
companies and factories in the industry. Nike are convinced that transparency within a
company should act as a motivator for contact factories

3.5 Toxic Chemicals

Nike has begun looking into their production methods with specific reference to the toxic
chemicals that are required in the production of athletic shoes. They are also looking into
new ways to recycle their old shoes and creating products out of recycled polyester. They are
now more aware of the impact on the environment and are taking steps in the right direction.

3.6 A new face

In 2004 Knight stepped down as CEO of Nike. His reason: Nike needed someone who was
an expert in corporate responsibility. Bill Perez took over the position of CEO while Knight
still operates as chairman of the Board. In 2006 Mark Parker moved from co-president to
CEO and director.

4. Nike: Result
The hard work and initiatives of Nike have paid off. In 2006 they appeared the Business
Ethics Magazine. They were listed as one of the 100 best corporate citizens. The magazine
states that it was Nikes strength of commitment to community and environment that afforded
them the place.

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Conclusion
When we take something off the shelf we are not only buying a physical product, we are also
contributing to the way the business operates in our society: what they stand for, how they
produce their product and how it affects the various societies they operate in.
Nike was responsible for many infractions of ethics, and spent many years side stepping the
actual problems that were evident to many external inspectors. They took a soft approach,
looking to environmental groups to recoup their reputation.
It is unfortunate that it has taken them so long to see the error of their ways, and it came to a
threat of years of litigation before they were able to put in place measurable methods to
control working practices outside of US soil
Fortunately they have seen the errors of their ways and have begun the uphill battle of
restoring their reputation by backing up their code of ethics with substantial and sustainable
changes.

Word Count: 1987

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Reference List

JOHN H. CUSHMAN Jr. (May 13, 1998). INTERNATIONAL BUSINESS; Nike Pledges to End Child Labor
And
Apply
U.S.
Rules
Abroad.
Available:
http://www.nytimes.com/1998/05/13/business/international-business-nike-pledges-to-end-childlabor-and-apply-us-rules-abroad.html. Last accessed 28th Feb 2013.
Lina Qutaishat . (4 November 2012). Nike Ethical Scandal. Available: 4 November 2012. Last
accessed 25th Feb 2013.
O. C. Ferrell, John Fraedrich, Linda Ferre. (2009). Nike: From Sweatshops to Leadership in
Employment Practices. In: Jack W. Calhoun Business Ethics 2009: Ethical Decision Making and Cases.
7th ed. USA: South-Western Cengage Learning. 413 - 417

Sharon Beder. (April 2002). Nike's Greenwashing Sweatship Labor. Available:

http://www.organicconsumers.org/clothes/nikesweatshop.cfm. Last accessed 28th Feb 2013.
STEVEN GREENHOUSE. (1997). Nike Shoe Plant in Vietnam Is Called Unsafe for Workers. Available:
http://www.nytimes.com/1997/11/08/business/nike-shoe-plant-in-vietnam-is-called-unsafe-forworkers.html?pagewanted=all&src=pm. Last accessed 28th Feb 2013.

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