Words: 4948
Nike’s unethical practices in these overseas territories were not illegal. In contrast, it was illegal when Nike used the media to make false statements regarding its overseas labor practices. Nike was acting socially irresponsible to allow unfair labor practices in affiliated factories and when the company deliberately attempted to mislead its customers and society in general. The allegations against Nike were confirmed by the Courts and the company took important admirable steps to improve its overall operations. Keywords: Nike, overseas labor practices, media, misleading I. Introductory Section
Integrating Business Values: The Legality, Morality, and Social Responsibility of Nike’s Overseas Labor Practices and Misleading Statements to the Media In 1997, Nguyen Thi Thu Phuong died while making sneakers. As she was trimming synthetic soles in a Nike contracting factory, a co-worker’s machine broke, spraying metal parts across the factory floor and into Phuong’s heart. The 23 year-old Vietnamese woman died instantly (Spar, 2002). A worker at the Pratama Abadi Industrial Factory producing Nike shoes said “the only rest you get is after you collapse at your machine (Worked). If I don’t work overtime, I can’t survive,” says Baltazar at PT Hasi Nike factory in Jakarta. He works an average of 40 overtime hours a week (Nike). “Today is my 17th birthday. I came here when I was 16, right after junior high,” said one girl (Juma, 2009). These are just some of the shared experiences of workers in many of Nike’s overseas factories. This paper will examine the ethical, legal and social issues concerning Nike’s overseas labor practices and its subsequent marketing campaign to explain its practices. Nike begun in 1964 as Blue Ribbon Sports (BRS); the name was changed to Nike in 1978.
It was the company Phil Knight (an MBA candidate at the time), and legendary track coach Bill Bowerman created to provide athletes with better shoes. The first year sales for BRS totaled around $8,000. It wasn’t until 1971 that BRS introduced the concept of the Greek winged Goddess of victory—Nike. In December 1980 the company went public. The company built its reputation on its technological breakthroughs in athletic shoes, and helped to introduce specialized shoes for different sports. II. Legal Section Nike is considered one of the most successful manufacturers of athletic footwear, competing with Reebok, L.
A. Gear and Adidas, as well as with manufacturers of casual footwear. By 1998, Nike controlled over 40% of the $14. 7 billion U. S. athletic footwear market. It was also a growing force in the $64 billion sports apparel market, selling a wide range of sport-inspired gear to consumers around the globe (Spar, 2002). In recent years, the company has expanded into the apparel market, to lessen its dependence on the highly fickle athletic footwear market, and has also seen significant opportunity in the international arena.
Today, Nike employs more than 33,000 people globally. The company’s World Headquarters is located in Beaverton, Oregon and is home to more than 7,000 employees. Additionally, Nike has almost 800,000 workers in their contract supply chain. Nike estimates that 80 percent of these workers are women aged 18 to 24, many of whom are the first women in their families to work in the formal economy. After years of good publicity and increasing profits, Nike was hit by claims it was involved in unfair overseas labor practices.
These include child labor, extreme low wages, and employee abuse. Nike has contracted with more than 700 shops around the world and has offices located in 45 countries outside the United States. Most of Nike’s are located in Indonesia, China, Taiwan, India, Thailand, Vietnam, Pakistan, Philippines, and Malaysia. In the 1980s and 1990s, the corporation had been plagued by a series of labor incidents and public relations nightmares: underage workers in Indonesian plants, allegations of coerced overtime in China, dangerous working conditions in Vietnam.
For a while, the stories had been largely confined to labor circles and activist publications. In 1997, Nike was faced with a terrible tragedy when a Vietnamese factory worker, Phuong, died as a result of an accident. By this time, however, labor conditions at Nike had hit the mainstream. Stories of reported abuse at Nike plants had been carried in publications such as Time and Business Week and students from major universities such as Duke and Brown had organized boycotts of Nike products (Spar, 2002).
What differentiated Nike from its competitors was not so much its shoes as its strategy. Like Reebok and Adidas and New Balance, Nike sold a fairly wide range of athletic footwear to a fairly wide range of consumers: men and women, athletes and non-athletes, in markets around the world. Its strategy, though, was path breaking, the product of a relatively simple idea that CEO Phil Knight had first concocted in 1962 while still a student at Stanford Business School. The formula had two main prongs.
First, the company would shave costs by outsourcing all manufacturing. There would be no in-house production, no dedicated manufacturing lines. Rather all product would be made by independent contracting factories, creating one of the world’s first “virtual” corporations — a manufacturing firm with no physical assets. Then, the money saved through outsourcing would be poured into marketing. In particular, Knight focused from the start on celebrity endorsements, using high-profile athletes to establish an invincible brand identity around the Nike name.
While other firms had used celebrity endorsements in the past, Nike took the practice to new heights, emblazoning the Nike logo across athletes such as Michael Jordan and Tiger Woods, and letting their very celebrity represent the Nike image. “To see name athletes wearing Nike shoes,” Knight insisted, “was more convincing than anything we could say about them. “6 With the help of the “swoosh,” a distinctive and instantly recognizable logo, Nike became by the 1990s one of the world’s best known brands, as well as a global symbol of athleticism and urban cool (Hitting the Wall).
In the 1997, the giant apparel maker, Nike was accused of having its expensive products made in sweatshops located in China, Vietnam and elsewhere. The allegations were that Nike’s workers in these factories were paid below minimum wage, verbally and sexually abused, exposed to dangerous working conditions including working with hazardous chemicals (Business Ethics, 2009). When responding to claims of unfair labor practices in its overseas factories, Nike provided misleading information to the public and its customers primarily through advertisements and press releases.
Many of the countries Nike operates in such as Indonesia had worker protection legislation in place. However, widespread corruption made the laws essentially useless. So while Nike’s overseas labor practices were not deemed illegal in many of those countries, the company’s use of the media to make false claims about its practices present legal issues in America. The question is when may businesses be sued for making allegedly false or misleading claims? Nike was sued by Marc Kasky, a consumer activist from San Francisco. Kasky contended that Nike’s marketing campaign to defend itself was inaccurate and deceptive.
Kasky held that many of Nike’s statements were amounted to false advertising. “Mr. Kasky charged, including one that Nike paid more than double the minimum wage in countries where its products are produced, and another that workers are protected from physical to sexual abuse, amounted to false advertising. Mr. Kasky’s suit also contends that Nike’s statements that it provides free meals, housing, and healthcare to its workers were false, and that the workers’ pay stubs actually showed that the company was deducting fees for those benefits” (Business Ethics, 2009).
Kasky’s lawsuit was thrown out by both a California trial court and a state appeals court which held that Nike’s statements are protected by the First Amendment right to free speech. In 2002, Kasky appealed to the California Supreme Court which ruled in a 4-3 decision that Nike’s effort to defend itself before critics of its practices overseas amounted to “commercial speech” which applies when a company seeks to promote and defend its sales and profits and makes factual representations about its own products and operations.
The California court held that Kasky could sue pursuant to a state consumer protection law because Nike’s publicity was commercial speech, meaning the company could be sued for deceptive advertising. As opposed to political or public affairs speech, commercial speech, as determined by the Supreme Court, only is protected as free speech under the First Amendment if the speech is truthful and non-deceptive (Nike and Commercial Speech). In other words, in order for Nike’s statements to be constitutionally protected, they must be true and nondeceptive.
In Nike v. Kasky, critics claimed Nike’s products were made in sweatshop conditions and urged the public not to buy the products. Not so, Nike responded, using press releases, letters to the editor and letters to institutional buyers. Nike was participating in public debate — but also trying to get readers to keep buying Nike products. These allegations against Nike now amounted to whether or not the company’s statements were protected by the U. S. Constitution and specifically the First Amendment. This is a complex issue. The First Amendment of the U. S.
Constitution grants the most extensive protection to “political speech,” which is speech regarding politics, political candidates, elections, and public affairs issues. “Commercial speech” consists of business marketing and advertising activities. The motivation behind commercial speech is monetary and economic with the primary objective being to propose and consummate a commercial transaction (Foundations). Nike eventually appealed the California Supreme Court ruling and many observers expected the U. S. Supreme Court to reverse that decision, but the question was close.
It is wrong to allow Nike to make misleading statements to deceive customers into buying its shoes. Nike was found to be in violation of the California false advertising laws. There are some who believe the particular structure of the California false advertising law is unconstitutional since the law lets any citizen sue over allegedly false or misleading statements by a business. In this respect, the law differs from traditional false advertising laws used by government agencies, or by people who actually bought a company’s products in reliance on the ads.
This is believed to allow “a large and hostile crowd freely . . . bring prosecutions designed to vindicate their beliefs,” without facing the practical constraints that keep prosecutors focused on genuinely economically harmful conduct. Many believe the risk of such lawsuits may deter businesses from participating in public debates which would in turn have a negative effect on the media. Nike later settled with the consumer group for $1. 5 million. The group, Fair Labor Association vowed to use the money to improve factory condition, strengthen workplace monitoring, and conduct worker programs.
In recent years, the Courts’ treatment of “commercial speech” has undergone a transformation, from no protection under the First Amendment to some protection. However, the court holds that speech that does no more than propose a commercial transaction is nonetheless of such social value as to be entitled to protection. This does not necessarily mean if Nike were to be charged of similar offences they will automatically be allowed to dismiss the case. This is owing to the fact that consumers’ interests in receiving factual information may even be of greater value than political debate.
III. Ethical Section Nike’s overseas practices and its statements on the issue affected a number of groups including employees in these countries; the public and its consumers. This paper will employ the Utilitarian and Deontological ethical philosophies (theories) to ascertain the morality of Nike’s actions particularly the company’s use of the media to make misleading statements and false claims. The Utilitarian theory assumes that one can measure on a common numerical scale the quantities of pleasure and pain produced by an action (Business Ethics).
Effectively applying Utilitarian ethics requires the proper identification of the act being examined, all individuals and groups that could possibly be affected by this act and their respective consequences – good and bad and then weighing or assigning values to these groups and individuals based on how they are affected by the act. This theory will be used to determine if Nike was acting ethical/moral when the company used the media to make misleading statements and false claims regarding its practices in its overseas factories.
The individuals and groups affected by Nike’s use of the media to make false claims and the values I assign them are: Nike (-5), Nike’s founder and shareholders (-5), Nike’s celebrity endorsers (-3), Nike’s employees (-4), Nike’s customers (-3), consumer rights groups (-5), overseas factory workers (+2), human rights groups (-5), religious groups (-3), advertising/media companies (+2), and other companies that operate or contract overseas factories and/or make false claims via the media (-3). My explanation for the values assigned are as follows.
Nike will most likely experience only bad consequences as a result of its own actions and so will its celebrity endorsers. As far as public relations were concerned, 1997 was a bad year for Nike. Nike’s giant marketing machine was easily turned against itself and in a climate awash with anti-Nike sentiment; any of Nike’s attempts at self promotion became easy targets. In 1997 the company began expanding its chain of giant retail stores, only to find that each newly opened Niketown came with an instant protest rally, complete with shouting spectators, sign waving picketers, and police barricades.
Knowing a good story when they saw it, reporters eagerly dragged Nike’s celebrity endorsers into the fracas. Michael Jordan was pelted with questions about Nike at press conferences intended to celebrate his athletic performance, and football great Jerry Rice was hounded to the point of visible agitation when he arrived at the grand opening of a new Niketown in San Francisco. In the August issue of Harper’s magazine, Jeff Ballinger, a labor activist and Nike critic published an annotated pay-stub from an Indonesian factory, making the soon-to-be famous comparison between workers’ wages and Michael Jordan’s endorsement contract.
He noted that at the wage rates shown on the pay stub, it would take an Indonesian worker 44, 492 years to make the equivalent of Jordan’s endorsement contract. 19 Even some of the company’s natural friends took a dim view of its actions. The Wall Street Journal ran an opinion piece alleging that “Nike Lets Critics Kick it Around. ” The writer argued that Nike had been “its own worst enemy” and that its public relations efforts had only made the problem worse.
The writer concluded that, had Nike acknowledged its wrongdoing early on and then presented economic facts that showed the true situation of the workers, the crisis would have disappeared. Instead it escalated. Nike was faced with even more bad publicity from the anticipated release of The Big One, a documentary film by Michael Moore that was widely expected to be highly critical of Nike’s labor practices. Nike’s employees would not escape and be caught in the line of critic fire. Employees are sure to be ridiculed because of their association with Nike.
It is likely that some would chose to quit or be made redundant by Nike. Nike’s customers would come under similar pressure for their support of the company and some would most likely switch their allegiance to one of Nike’s competitors. Consumer rights groups, human rights groups and activists such as Kasky and Ballinger were offended by Nike’s false claims and actually led to them filing lawsuits against Nike. It is possible that if Nike had accepted responsibilities for its actions and took immediate steps to correct them, the company would not have made so many enemies.
One of the few groups to likely benefit from Nike’s actions is overseas factory workers. The first party to respond to criticism from Ballinger and other activists was the Indonesian government itself. In January 1992, Indonesia raised the official minimum daily wage from 2100 rupiah to 2500 rupiah (US$1. 24) (Hitting the Wall). A bad consequence would result from Nike actually deciding to close many of these factories due to pressure from governments, their agencies and other groups. Many factory worker could be out of a job. Religious groups are strong supporters of right-doing.
Nike decision to make and publicize false claims would be met with much disdain from religious groups and organizations. These groups encourage individuals and organizations to make ethical and moral decisions. Advertising/media companies are likely to experience bad consequences especially in the short-term. Nike’s action discouraged other companies from making certain claims through the media. These companies may come to view the media as causing more bad than good and therefore require their services less. This will result in less revenue overall or from companies operating in certain industries such as apparel.
It is also likely for the very opposite to happen and advertising/media companies to actually increase their revenues. In this case, Nike continued its use of the media to make statements though false through various advertising media. In most public debate, honest mistakes and statements that are true but misleading are constitutionally protected. A journalist or scientist who writes “Studies show product X cures baldness” can’t be sued, at least unless his statement is a knowing lie. If speakers could be sued based on allegedly misleading assertions, the risk and cost of litigation would often deter them from saying even true things.
Nike’s actions placed the spotlight on many other companies which operate overseas factories and/or use the media in an attempt to mislead consumers and the public. Some were more proactive in their response than Nike. Other shoe companies had been facing similar problems. Reebok, a chief competitor of Nike, also sourced heavily from Indonesia and South Korea. Like Nike, it too had been the subject of activist pressure and unflattering media. But unlike Nike, Reebok had moved aggressively into the human rights arena.
In 1988, it created the Reebok Human Rights Award, bestowed each year on youthful contributors to the cause of human rights, and in 1990 it adopted a formal human rights policy (Rosenzweig and Woo). Another bad consequence of Nike’s action is that it may have also led to greater regulations of the advertising and manufacturing industries. Overall, I end up with a negative score so I would conclude that Nike’s overseas labor practices and its use of the media to make false claims would be unethical and immoral. Another method I will use to evaluating the morality of Nike’s action is Deontological Ethics.
Deontology is an approach to ethics that determines goodness or rightness from examining acts, rather than third-party consequences of the act as in consequentialism, or the intentions of the person doing the act as in virtue ethics Deontologists look at rules and duties. For example, the act may be considered the right thing to do even if it produces a bad consequence, if it follows the rule that “one should do unto others as they would have done unto them”, and even if the person who does the act lacks virtue and had a bad intention in doing the act (Wikipedia).
We all have a duty to act in a way that does those things that are inherently good as acts for example “truth-telling”. Roughly speaking, deontologists of all stripes hold that some choices cannot be justified by their effects — that no matter how morally good their consequences, some choices are morally forbidden (Alexander and Moore, 2007). Immanuel Kant’s theory of ethics (Kantian Ethics) is considered deontological for several different reasons. First, Kant argues that to act in the morally right way, people must act according to duty (deon).
Second, Kant argued that it was not the consequences of actions that make them right or wrong but the motives of the person who carries out the action. Kant’s argument that to act in the morally right way, one must act from duty, begins with an argument that the highest good must be both good in itself, and good without qualification. The act we are evaluating is Nike’s use of the media to mislead or lie to the public and its consumers about its overseas labor practices.
Even though Deontology does not take into consideration the consequences to the affected groups and individuals of Nike’s act, it does place high values on whether Nike’s action – lying, was right. Nike intentionally tried to mislead the public and therefore under Deontological ethics, its actions are also unethical and immoral. IV. Social Responsibility Section Social responsibility can be defined as taking an active part in the social causes and civic life of one’s community and society (Business Ethics).
Companies such as Nike have an obligation to both their shareholders and stakeholders. These companies should have a greater responsibility to society. Nike’s practices were socially irresponsible and immoral and will most likely have negative long term effects for other companies as well as for the media. The presence of companies such as Nike operating in developing countries can actually be seen as furthering progress in these countries, providing jobs and wages to people who formerly had neither. However, in the public view, the social implications were navoidable. It is most interesting to note that despite the criticism, Nike insisted that labor conditions in its contractors’ factories were not —could not — be Nike’s concern or its responsibility. And even if labor violations did exist in Nike’s contracting factories, stated the company’s general manager in Jakarta, “I don’t know that I need to know. ” It goes without saying that Nike’s company line on the issue was clear and stubborn. The company simply could not be held responsible for the actions of independent contractors.
Such a belief lacks social responsibility. The fact that these factories were unmistakably associated with Nike, the company should have owned up to its mistake rather than lie about it. Nike’s clearly demonstrated that its main focus was profit. Another example of Nike’s total disregard for its social responsibility is that several years after the accusations against its practices, the company maintained that workers in its Indonesian factories earn twice the country’s minimum wage.
This claim was proven false when 10,000+ workers went on strike several times at Nike Indonesian factories because they did not even receive the new minimum wage. During the strike, Nike told the press that its factories pay Indonesian workers the bare minimum wage. Furthermore, Nike provided misinformation about its overseas factories to its own shareholders. By September 1996, many Vietnamese newspapers published articles about 15 women workers who were hit on the head by a Nike factory supervisor. But at a shareholders meeting at Nike’s headquarters, Mr.
Knight minimized the story into an incident involving only one worker who was hit in the arm by a supervisor. In the same speech, Mr. Knight also tried to minimize a sexual abuse incident involving a factory manager and two women workers at another Nike factory, Tae Kwang Vina (Thuyen Nguyen). Nike’s actions have a big impact on society. The company’s decision to knowingly provide misinformation to the public will forever be a dark cloud over its head. I believe it is fair to say that Nike has realized its mistakes and are taking appropriate steps to correct them.
For example, in a press release, Knight announced the formation of a new department and praised Nike’s recent initiatives regarding fair labor practices, such as participation in Clinton’s AIP, membership in the organization Business for Social Responsibility, and an ongoing dialogue with concerned non-governmental organizations (NGOs). “Every year we continue to raise the bar,” said Knight. “First by having Ernst & Young audits, and now with a group of Nike employees whose sole focus will be to help make things better for workers who make Nike products” (Hitting the Wall).
Businesses can improve their public image when they act socially responsible. An enhanced social image should attract more customers and investors and thus provide positive benefit for the firm (Business Ethics). For example, to become more socially responsible and thereby improving its public image, Nike could start providing free educational classes for its overseas workers and/or their children to teach them skills to better themselves. Nike could further implement a policy to promote these workers to better paying positions.
Nike could take this a step further by providing scholarships to children of its overseas factories workers who show potential and a desire to further their education. Nike could also implement certain health and insurance benefits for its overseas workers and their dependence. The company could charge a minimal fee for this if it shows the workers the benefits. An acceptable insurance program could see Nike paying dependents of a worker who is seriously injured or dies on the job between six months to a year of that worker’s wages.
The world, particularly developed countries is now placing significant emphasis on the eradication of poverty. Nike could join in this effort by implementing a microcredit program for its overseas factory workers. This credit facility could assist workers with education for their children, home purchase or construction and small business development. By employing any one or a combination of these suggestions, Nike would be demonstrating its commitment to being socially responsible.
By being socially responsible, the company will be seen as caring for its workers, appreciating its customers, respecting its shareholders and committed to society. V. Conclusion Nike’s decision to make false claims regarding its overseas labor practices birth legal, ethical/moral and social responsibility implications. The company’s actions were deemed illegal by the California Supreme Court which ruled that it participated in commercial speech when it made those claims. Using both Utilitarian and Deontological ethics, it was determined hat Nike’s decision to use the media to mislead the public and its consumers was unethical and immoral. The company’s complete failure to consider the impact its actions will have on society meant it acted socially irresponsible. When Phil Knight conceived the idea for his company, he decided he would shave costs by outsourcing all manufacturing. There would be no in-house production, no dedicated manufacturing lines. Rather all products would be made by independent contracting factories, creating one of the world’s first “virtual” corporations — a manufacturing firm with no physical assets.
Then, the money saved through outsourcing would be poured into marketing (Hitting the Wall). While this strategy yielded significant profits for Nike (from a 1972 level of $60,000 to a startling $49 million in just ten years), they were also responsible for the company’s most challenging times. Nike’s response to the allegations of unfair overseas labor practices was considered unethical and later led to a lawsuit. Nike failed in its attempts to deny its involvement with the poor working conditions found at many of the factories used to manufacture its products.
Nike claims it has no control over the subcontracting of its products in these countries and factories. This is obviously not good enough and socially irresponsible. The company needs to take responsibility for its own actions and more importantly admit when it has done something wrong. How can Nike prevent a repeat of this incident? Nike should implement programs and initiatives to make its actions more transparent. The company needs to consider the implications of its actions to society during decision-making. The well-being of its employees and other stakeholders should take priority to bottom-line.
Nike needs to be more proactive in responding to and resolving important issues. Though many of its factories are located overseas, a large portion of its market is in America so it is important to consider America’s position on issues occurring in these countries. Nike received a lot of bad publicity from its overseas labor practices and then for lying about those claims. The company will always be remembered for this incident. If Nike uses the lessons learned from this incident, the company will come out on top.
Nike will set new standards in overseas labor practices and in corporate accountability. The company will therefore become more socially responsible and its commitment to society will be a guide and likely prevent a repeat of its conduct highlighted in this paper. The moment you decide to lie, you are very likely to continue lying to cover your tracks. Soon, like Nike you might find yourself in a web of deceit created by your own hands and may very well lead to your destruction. References Cavico, Frank J and Mujtaba, Bahaudin G. (2009, 2005). Business Ethics: The Moral
Foundation of Effective Leadership, Management, and Entreprenuership. New York: Pearson Custom Publishing Cavico, Frank J and Mujtaba, Bahaudin G. (2008). Legal Challenges for the Global Manager and Entreprenuer. Iowa: Kendall/Hunt Publishing Company Spar, Debora L. (2002). Hitting the Wall: Nike and International Labor Practices. Massachusetts: HBS Press. Cohen, Dana Eisman and McBride, Sabina. (1999). Athletic Footwear Association: Athletic Footwear Outlook. New York: Donaldson, Lufkin & Jenrette Volokh, Eugene. (2003). Nike and the Free-Speech Knot. rom the Wall Street Journal. Retrieved November 14, 2009 from http://www. law. ucla. edu/volokh/nike. htm Schwarz, Adam. (1991). Running a Business Far Eastern Economic Review, June 20, 1991, p. 16. Juma, Mamatjan. (2009). Child Labor Alleged at Factory. Retrieved November 29, 2009, from http://www. rfa. org/english/news/uyghur/underageworkers-05112009162537. html Deontological ethics. (n. d. ). In Wikipedia. Retrieved November 9, 2009, from http://en. wikipedia. org/wiki/Deontological_ethics#cite_note-11 Ballinger, Jeff. (1992). The New Free-Trade Heel.
Harper’s Magazine. Retrieved November 11, 2009 from http://www. harpers. org/archive/1992/08/0000971 Nike Shoe Production in the Third World—The Facts. (n. d. ). Third World Traveler. Retrieved November 30, 2009, from http://www. thirdworldtraveler. com/Boycotts/ NikeThird_facts. html Worked to Death (n. d. ). Hazard Magazine. Retrieved November 30, 2009, from http://www. hazards. org/workedtodeath/workedtodeath3. htm Rushford, Greg. (1997). Nike Lets Critics Kick It Around. The Wall Street Journal. Retrieved on October 29, 2009 from http://www. ushfordreport. com/Articles/WSJArticles/ ManagersJournalNike. htm Rosenzweig, Philip M. and Woo, Pam. (1994). International Sourcing in Footwear: Nike and Reebok. HBS Case 394-189. Boston: HBS Press Alexander, Larry and Moore, Michael. (2007). Stanford Encyclopedia of Philosophy: Deontological Ethics. Retrieved on 15 November 2009 from http://plato. stanford. edu/ entries/ethics-deontological/ Nguyen, Thuyen (n. d. ) VIETNAM LABOR WATCH (n. d. ) Nike spins … Retrieved from http://www. zpub. com/notes/znote-nike. html on October 29, 2009.