Corporate Social Responsibility and Ethics.
In the past, Nike has had issues with the conditions of its labour in the Far East. Its overseas factories include countries in Asia such as Malaysia and Cambodia as well as Taiwan. In the past, there have been many issues that have been in the public eye. One of the main issues Nike has faced has been that of child labour and sweatshops. In an interview with Moore and Knight (cited in Buchholtz & Carroll, 2011: 392), it was suggested that children as young as 14 were working in these factories for as little as 30₵ an hour. ‘The International Labour Office resolution on age of employment, concerning minimum age for admission to employment, recommends that no person below 15 years be considered for employment’ (Pangargi, 2013:1). There are certain factors that contribute to reasons for child labour. Pangargi (2013) argues that poverty, natural disasters, family size, immoral employers, schooling problems, inadequate law enforcement, the global economy and the violating of codes of conduct all play a role in why child labour is allowed to persist. Education for children is vital in their childhood. Pangargi (2013) states that the International Labour Organisation (ILO) states that developing countries would be economically advantaged by sending children to school instead of to work, as the children would learn vital skills such as literacy that would help them get skilled jobs with higher wages. Children who work in sweatshops do not get the necessary skills required to become a success in other trades.
According to a newspaper article in the Daily Mail (2011), Nike workers have stated that supervisors frequently throw items at them, slap them in the face and kick them whilst verbally abusing them. Looking at Kohlberg’s levels of moral development, the child labour force in Nike’s factories abroad appear to be at a pre-conventional level. This means they seek rewards and they react to punishment. Employees will understand the rules and understand how their actions can define the behaviour of other employees.
The Pyramid of Corporate Social Responsibility states that ‘the social responsibility of business encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organisations at a given point in time’ (Buchholtz and Carroll 2012, p. 34). The model highlights what a socially responsible company should endeavour to work towards; making a profit, obeying the law, being ethical and being a good corporate citizen. According to Guiling (2013), legal responsibilities merge with economic responsibilities; even though earnings are important to a company, legal guidelines should be established to ensure fairness. Also, legal guidelines state that businesses are required to comply with laws and regulations set by the government. However Nike workers are paid a very low wage and are expected to work excessive overtime to enhance output of goods. Nike has previously stated if it paid its workers a high wage, there was the possibility that it would have to close the factory resulting in unemployment and poverty. Blowfield (2014) said that Nike employed children but when their jobs were terminated, the children turned to prostitution to make a living. As shown in the SWOT analysis in Appendix A, Nike’s supply chains need to be competitive; therefore Nike pays factory workers lower wages and offers less favourable working conditions. A weakness in the SWOT is Nike’s strong brand potential being seen as exploitative and greedy.
The CSR pyramid suggests that being ethical is doing what is right and being fair to employees and the environment. However, Thomas Nguyen, founder of Vietnam Labor Watch made an observation about one of Nike’s factories: ‘Workers were allowed only one toilet break and two drinks of water during each eight hour shift’ (Buchholtz & Carroll, 2011:393). These rules for employees are not ethical and basic human rights are being violated. Workers have a right to be treated fairly. Deontology is concerned with what people do and emphasises the value of every human being. Kant maintains that each person is entitled to be treated with dignity and is valuable; no one should ever be demoralised or manipulated (Buchholtz & Carroll, 2012). Good ethical practices according to a deontological view, involve giving equal respect to all human beings.
Herzberg’s motivation-hygiene theory in the workplace suggests that ‘the most important motivators were achievement and recognition …the hygiene factors (dissatisfiers) were supervision, salary and working conditions’ (Cole, 2004:37). If Nike workers were dissatisfied with their working conditions, then they probably would not work to their full potential. However, if Nike conducted a training plan for employees this could help with employees’ motivation factors. ‘Training can increase the confidence, motivation and commitment of staff’ (Mullins, 2010:503). Implementing this training plan along with set targets could help employees to grow and develop within Nike and, in return, the company would become more professional and grow and develop as a successful, ethical business.
Nike however, must understand its ethical responsibility. Ethical responsibilities include working conditions, human rights and shareholder satisfaction. In the CSR pyramid, ethical responsibilities are ‘doing what is right, fair and just’ (Buchholtz & Carroll, 2011:37). Ethical responsibilities are not legal requirements but are qualities expected by the community and governments.
Blowfield (2014) stated that Nike justified its actions by offering low prices to consumers, high profits for the company and jobs for people, which is better than no job at all. Nike believes people are free to choose where they work and instead of working in Nike’s factories they are free to work in fields or do babysitting for a living for, according to Nike, a lower salary. ‘Nike claimed that an assistant supervisor in a Chinese subcontracted factory earned more than a surgeon with 20 years’ experience’ (Buchholtz & Carroll 2012: 392).
There are a couple of actions Nike can take to improve the conditions of its workers in developing countries. Nike can follow the rules of the Fair Trading Act 1973 and The Fair Labor Association 2012. Worthington and Britton (2009) state that the Fair Trading Act 1973 stresses the importance of considering issues relating to employment, trade and the overall industrial structure. Fill (2009) argues that the Fair Trade Act is designed to be fair and have more balanced trading provisions with producers in developing countries. These standards may help companies such as Nike to be more responsible and understand the impact of the sweatshops on their workers. UNICEF ‘works in more than 190 countries with families, local communities, business partners and governments, to help every child reach their full potential’ (UNICEF 2014). These supporting organisations are in place to help children get an education and a higher standard of living with a better future.
The Fair Labour Association (2012) believes that all goods should be produced fairly and ethically. The role of the Association is to monitor and improve labour conditions worldwide. Many companies have joined the FLA on a voluntary basis but they must meet certain labour conditions. The consequences of those who have not yet joined could be damage to their image and reputation. Nike joined the FLA in 2002; however in 2009 there was evidence that the company was not protecting its workers from verbal abuse by managers in its factories in Turkey. Since this finding, the FLA has ensured that Nike manages the situation but also trains its management on how to treat its staff ethically and respectfully.
In the 1990s, Nike introduced fire escapes and water sprinklers. It also installed a code of conduct in its factories known as ‘SHAPE’: safety, health, attitude, people, and environment. This strategic move was to show the press and stakeholders that Nike was looking after its workers. Nike (2014) suggests the root cause of nonconformity issues focuses on employee wellbeing, pay and grievance systems according to local law and Nike’s Code of Leadership Standards. Blowfied (2014) also stated that between 2002 and 2004, Nike had over 600 audits carried out in its overseas factories to ensure EH&S was being exercised efficiently.
According to Fill (2009) a chief executive officer’s (CEO) role is to communicate effectively with a variety of audiences. This audience includes stakeholders. ‘A visible CEO can improve the overall reputation of the organisation’ (Fill 2009, p. 908)
Stakeholders ‘are individuals and/or groups who are affected by or affect the performance of the organisation in which they have an interest’ (Worthington & Britton, 2009:259). Nike’s stakeholders are customers, shareholders, suppliers, employees, the community, the government and other organisations or pressure groups. These are the stakeholders that have an interest in Nike, irrespective of whether Nike has a particular interest in them.
The stakeholder map below identifies the priorities of stakeholders:
- Shareholders must be kept satisfied as it is their money that is being put into Nike. They have high interest in the company and keep track of shares, profits and dividends.
- Customers also have high interest in Nike and must be managed closely as they have high power. Without customers, Nike would simply go out of business. Nike must remain innovative and ensure it continuously brings out competitive products to keep the customers happy and remains in a strong market position.
- Employees and suppliers have high interest in Nike as they want to be kept informed about the business strategy but they have low power. Nike can obtain employees easily and can dominate the supply chain by looking for alternative suppliers.
- Finally, the community and pressure groups have low power and low interest in Nike but they want to be informed of Nike’s behaviour.
In the past, Nike has displayed a teleological approach to its stakeholders. This has been an attitude of Nike considering their interests and not following laws or rules which could restrain its conduct and influence its corporate culture. The CEO has the responsibility for the business and is accountable. The CEO has a leadership role with people who want to follow.
Milton Friedman’s (1970) argued that a business has only one social responsibility – to use its resources and engage in activities intended to increase profits as long as it stays within the rules. Fill (2009) suggests this type of approach highlights the fact that managers and directors have as a prime duty the maximising of their wealth. Friedman (1970) argued that managers should solely look after shareholders wealth. Evidently an organisation’s key objective is to make profits and please its shareholders. Friedman (1970) suggests that the CEO’s responsibility is to make a profit, not support charitable work. CEOs must ensure they enhance their profits for their shareholders but consult them if they want to invest or support any organisations or projects. The money ultimately belongs to the shareholder.
Utilitarianism is a theory in normative ethics. ‘Utilitarianism forces us to think in stakeholder terms: what would produce the greatest good in our decision, considering stakeholders such as owners, employees, customers and others’ (Buchholtz & Carroll, 2011:276). According to Crane and Matten (2010) utilitarianism is an action which is morally correct if it results in the most good for the greatest number of people. The CEO should carry some personal responsibility for Nike’s alleged misdeeds in the past. The CEO is informed and knows what is going on in the organisation. The CEO must be aware of and understand any issues that there may be within the company and address them as soon as possible. The CEO should communicate with the staff on a regular basis to keep them informed about of what the company expects of them. The CEO should operate with a utilitarian mind-set and focus on actions that will generally produce the most good. The CEO should also base company rules on utilitarianism, producing codes of conducts that produce the most good within the business.
According to Buchholtz and Carroll (2011) a management that is moral looks at the business from a broader perspective and considers all stakeholders equally; management that is immoral is usually self absorbed and focuses on profit maximisation. The CEO must maintain a form of management that is highly moral and lead by example by implementing ethical training, codes of conduct and a mission statement for the company. However, Friedman (1970) suggests that the CEO should be an individual who should have social responsibilities such as a commitment to charity, church and country. A CEO can be both ethical and run a succesful business. Company ethics has to do with what is right and what is wrong within a company; ‘however, ethical behaviour must be strongly supported from the top to retain credibility, and may prove difficult to live up to!’ (Cole, 2004:250).
‘Act in such a way that you treat humanity whether in your own person or in the person of another, always at the same time as an end and never simply as a means’ (Kant, cited in Gupta, 2010:90). This normative deontology ethics theory implies that everyone has self-worth and should never be exploited or manipulated. The CEO must take responsibility for misdeeds in the past, such as health and safety / working issues for employees in overseas Nike factories. Deontology ethics suggests that if people want to act morally then duty and laws should be enforced and followed. For example, a CEO who was applying an egoism normative theory, would be only interested in his/her own interests – the company’s profits. However, with all the negative press in the news over the past decades regarding sweatshops in overseas factories, the CEO will have to forsake his/her own needs and clean up Nike’s image.
Blowfield (2014) stated that Phil Knight, the CEO founder of Nike in 1998, said that consumers do not want to purchase products that are made under abusive conditions. Society has a view on how businesses should be run and usually the consumer wants products that are reasonably priced but made in ethical conditions. According to Dowson and Robinson (2012) deontological principles include fairness such as ‘a fair day’s wage for a fair day’s work, respect for colleagues and consistency’. As the CEO, deontological principles should be followed to resolve the abuse in the overseas factories. The CEO should take responsibility for offences and follow Kantianism principles. Following these principles, the CEO should focus on understanding and satisfying the customers’ needs and acting in good faith, with the best intentions.
Overall, the CEO should consider the above normative theories and also apply the Venn model for ethical decision making (cited in Buchholtz & Caroll, 2011:241). This is a combination of ethical, economic and legal responsibility. According the Buchholtz and Carroll (2011), this translates into when management says ‘go for it’ the action is profitable, but in accordance with the law and representing ethical behaviour.
Corporate social responsibility (CSR) refers to the view that organisations should act ethically in ways that contribute to economic development, the environment, the quality of workers lives, local communities, and the wider society (Andrzej, 2013:67). According to Worthington and Britton (2009), the concept of CSR gives rise to how a company such as Nike should conduct itself. Donaldson and Preston (1995) argue that organisations should adopt an ethical stance that supports social and environment issues. This could be good for businesses and attract socially responsible stakeholders.
Nike’s suppliers are based in the eastern part of the world. They currently have factories in Indonesia, China, Taiwan, Pakistan and Malaysia. This is largely due to lower manufacturing costs for Nike products. Nike’s values in the UK are different from values in other parts of the world. In the past, Nike has been called to account in the press for their sweatshops overseas. Even though Nike outsources its overseas companies and so does not own them, the company still needs to ensure the companies operating under the Nike brand have an ethical responsibility as this will be highlighted even more in the press. According to Blowfield (2014) in 1997, Andrew Young audited one of Nike’s outsourced factories and concluded that everything was in order. In reality, it wasn’t. Students and college teams in the USA started protesting against Nike for their failings. College teams and basketball teams are among Nike’s biggest consumers.
‘Corporations have responsibilities that go beyond the production of goods and services at a profit’ (Baines et al., 2008:819). Looking at The Pyramid of Corporate Social Responsibility (Buchholtz & Carroll, 2011:38), both observing legal responsibilities and being philanthropic are important. According to Mullins (2010), corporate philanthropy and CSR have been
criticised as too being generous with other people’s money – usually the shareholders’. Philanthropy is concerned with human welfare and often involves the donation of money for social purposes such as funding local hospitals and schooling. These acts are not required or expected of Nike, but according to Buchholtz and Carroll (2011) communities would like organisations to contribute money and facilities. Society usually influences business. This can be interpreted as good corporate citizenship. According to Tolhurst and Pohl (2010), corporate citizenship is nice to have but not something that is expected automatically of a business.
However, according to De George (2006), Nike’s outsourcing to overseas factories has helped developing countries by the transfer of information, technology and knowledge and also has encouraged education in less developed countries. Aulakh (2013) wrote an article about children working in Bangladesh factories where it was revealed that about 2.3 million children had never been to school. Nike could work alongside the local governments in these countries to provide schooling and hospitals. However, Friedman (1970) argued that it would be undemocratic for businesses to use shareholders’ money in this way and public services should be supported by local governments or individual private donations. Friedman (1970) also states that corporations cannot hold responsibilities as only people have responsibilities and using this money to fund overseas activities should be the social responsibility of individuals, not businesses.