Synopsis of the Situation
It appeared that Nike was nearing total market domination in the athletic footwear and casual sports wear markets of the U.S. During the 1990s Nike was nearing the pinnacle of success with its outsourced manufacturing business model to low cost laborers. Nike did not participate in more than a cursory role in monitoring the suppliers and manufacturers that produced products with their brand. This was a gross error according to Jeff Ballinger, a labor activist was a key player who was determined to bring to light the plight of workers in low wage countries (Spar, 2002). He was adamant in publishing work place exploitation in developing countries at the hands of their own governments in cahoots with large corporations. The opportunity for Ballinger to target a western company arose as many reports of workers who were tied to Nike, came in of accidental deaths, wages below minimum requirements, and underage children working in unbearable conditions even for adults. The media coverage that Ballinger was able to gather put Nike at the forefront of the labor activists movement. In an effort to improve working conditions or suffer the wrath of angry consumers in America and around the globe. Many begin to boycott the product and speak out against the failure of the leadership to intervene on behalf of its outsourced workers. College students and consumers alike picketed at the opening of several new Nike stores (Spar, 2002). It did not help that Nike, leadership felt no obligation to assist in improving the conditions of workers at their contracts with supplier plants, even though they had the means to do so. As more and more media and activist jumped into the fray charging Nike with hiring children and paying slave wages. Many well-known key players from media journalists started to report on the situation including Kathy Gifford, writers from Life Magazine, Business Week. In fact even senators in Washington begin to investigate and report on how corporations were failing in corporate citizenship and taking advantage of the poorest of the poor (Spar, 2002). The company lost 69% of its market share between 1997 and 1998 which was the point at which Phil Knight realized he was losing his company (Spar, 2002). By May of 1998 Phil Knight the CEO and spokesman for the company spoke at an event of the “National Press Club, finally admitting that “the Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse “(Spar, 2002).
It is interesting how the very same key factors that allowed Nike to experience global domination in the realm of sportswear also were key issues. Nike’s business model was to take opportunities in outsourcing its production to reduce costs. This allowed the company to invest its returns in creative marketing and designing the best quality footwear. The company was actively criticized for how it only used lower income countries to manufacture product.
Nike also was known for having contracts with factories that underpaid their workers and also faced many human rights injustices.
Along with these issues the problem of unsafe and deplorable working conditions only increased the backlash as more and more information became known to Western consumers.
Other key issues include lowered wages
By 1992 Nike had over 25,000 workers within contractee relationships with outsourced Korean manufacturers in six plants in Indonesia (Spar, 2002).
With the number of plants in Indonesia rising, attention from local and international activists was drawn to how workers were treated at these plants. Through several investigations such as those conducted by Ballinger, knowledge of how workers was treated was published in America and other nations around the world. As union representatives and activists filed complaints against their domestic plants contracted to Nike, political deals were made to sidestep paying minimum wage of $1 a day by several plants. This wage was considered to high by these plants and they would file for an exemption of paying this wage with the government. As many families were forced to live off less than $1 a day, there were incidents of deaths and abuse due to workers demanding more (Spar, 2002). Many workers reported that they were afraid of their supervisors and managers as they consistently abused them verbally or by cutting the already meager wages paid. The Asian-American Free Labor Association union organization took the time to build a case through investigating the situation at Korean ran plants. The findings from the report was reported on prime time television in 1993 on CBS interviewing workers that described their working conditions and the low wages they were forced to accept. They also talked about the extensive hours they were forced to work with reduced break times (Global Exchange, 1999). The Ballinger findings were also reported by many media publications including the New York Times and Economist, among others (Global Exchange, 1999).
Underage Child Labor
In Pakistan, Nike has contracts with several plants that manufacturer soccer balls. When Life Magazine published a story of a 12-year-old child working on soccer balls, in a child labor article, the backlash for Nike was intensified not only were they underpaying workers, now they were involved with child labor (Spar, 2002). This did not sit well with many consumer advocates as well as unions and NGOs calling for consumers to boycott Nike products. Add to this workplace safety issues and health related situations.
According to Ernst and Young that performed an audit on contractors in Vietnam toluene levels were way beyond the safety levels causing illnesses among workers. The solvent is a danger to the liver and kidneys and can cause problems with the nervous system. Reports of this reached the New York Times (Locke, 2011). Once again highlighting Nike’s failure to act on behalf of those supplying product to their bottom line. This gross neglect to provide adequate safety working environment, reported by Nike’s own auditors made many neutral officials revisit Nike’s claims to be concerned for its contractees. They too begin investigations and scrutinizing details of the audit. Eventually these allegations were proven correct which lead to Nike further experiencing the effects in the number of shoes marketed. As many begin to question their sincerity to uphold environmental ethics along with health standards.
Define the Problem. Identify one key problem.
Problem was failure of Nike leadership to get involved in demanding adherence to a code of conduct with contracts to suppliers and manufacturers. The main complaint being the failure of governments in these countries to enforce their own minimum wage and other union policies that were designed to protect the interests of the workers (Locke, 2011). Those that indirectly work for Nike could benefit from the parent company using their influence to improve the quality of life for workers in developing countries. Instead the company that supposedly had such high standards attached to wearing the Nike brand, had no standards when it came to the working poor.
It is important to establish a policy whereby contractors must agree to abide by certain corporate governance issues of ethical compliance. Much like the Sarbanes-Oxley Act.
The corporate governance policy requires suppliers to be audited more frequently and have onsite inspections of factory conditions. Interviews with workers and require surveys be conducted with results forwarded to Nike and the local supplier for review.
The policy should also include laws concerning wage adherence and increases as profits grow. Legal age of workers should be established based on culturally established laws within each country. The policy should require personnel to monitor solution which consisted of a factory inspection by Nike production team of professionals. The audits include factory equipment, and workplace safety policies.
Another auditor to ensure unbiased labor relations is Price Waterhouse Cooper that goes through the more in-house approach. Some of the areas reviewed include practices of a more administrative nature such as wage adherence, time clock management, overtime, and benefits (Locke, 2011).
The object of more inspections is to increase awareness by Nike of those suppliers who adhere to the requirements vs. those that do not. In the event that a supplier refuses to comply, these can be removed from Nike contracts and keep only the contracts with those in compliance.
Ethics can strengthen Nike by establishing or sharing foundation principles that are a large part of business in Western markets. They provide a guideline to building relationships and setting expectations in determining actions are acceptable and those that are not acceptable in business (Navran and Pittman, 2003). The code of ethics or corporate governance policy should include Nike’s core values and truly reflect behaviors that are honorable and fair to all parties involved.
Cons, audits are expensive and time consuming taking time away from production. Audits may strain Nike’s relationship with some manufacturers if they decide to release them from a contract. There may be repercussions as a supplier that Nike no longer employs may side with the competition, taking along proprietary information of trade secrets or designs that may have been shared.
Nike should consider training leaders in labor relations and define corporate responsibility requirements. The products that are developed should undergo environmental checks and balances to ensure safe materials are used in the designs as well as equipment in the plants.
With knowledge about labor concerns in house, Nike is better able to proactively investigate their own plants where a complaint may arise. They will also be better prepared to address problems and quickly negotiate equitable solutions. This will reduce the amount of downtime associated with production interruptions due to strikes, walkouts or boycotts.
The level of administrative employees increases overhead and costs for the company. Though these teams labor and environmental oversight professionals are necessary they do not contribute to the revenues of the company directly.
Solution to the Problem
A detailed Ethical Code of Conduct or Corporate Governance Policy that must be adhered to would be a first step in changing organizational relations between suppliers and Nike. As a first step it will provide a guideline that can easily be monitored for compliance. This is the best solution as it can be implemented rather quickly using third party auditing firms already established and known by reputation for handling such issues. This ensures unbiased oversight and provides the additional staffing without adding excessive costs. It will also be a more media friendly solution rather than using Nike staffs which may not have the experience or expertise to handle such major issues.
Expected Results and Rationale for the solution
The leadership and suppliers at each plant will have to meet individually to discuss the compliance policy and explain its objectives as well as any problem areas or conflicts. It will be necessary to share this with all employees within both Nike and the contract suppliers location. In house meetings with representatives from Nike to facilitate meetings to roll out the mutually agreed final compliance requirements with workers should be planned over the next two years. A detailed schedule and timeline should be developed with each individual supplier to handle implementation of the new ethical plans. Consideration will need to be given to the local customs and culture of the supplier site. Perhaps hiring individual and managers with a similar cultural background can assist Nike in handling this aspect of drafting the Corporate Compliance document.
In handling the media it is wise to hold a press conference to talk to all the major PR at once. Explaining the strategy to roll out the Corporate Governance Policy Plans.
Positive and Negative Results
Positive results will be acceptance and adherence to the corporate policy. Explaining that the policy is a living document that will need to be modified as new issues come up that need to be addressed by either side.
A quarterly follow-up to review any open issues or complaints that have surfaced will ensure ongoing process improvements occur.
Negative Results would result in losing many suppliers that fail to comply. However, it is certain that there will be competition that is willing to work with Nike. After all they are still the one of the most successful retailer of footwear and sports wear in the world.
Global Exchange. (1999). Nike: what’s it all about. Electronic memo, Global Exchange.
Locke, R.M. (2011). The problems and perils of globalization: case nike. Publication Siteman: MIT
Navran, F. & Pittman, E. (2003). Corporate ethics & sarbanes oxley. Retrieved June 2,
2011 from http://www. ethics. org/erc-publications/staff-articles. asp?aid=759
Spar, D.L. (2002). Hitting the wall: nike and international labor practices. Harvard Business School. 9700047.
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