MGT 672 CUNY Brooklyn College The Case of Nike and Human Rights Discussion

Brief Integrative Case 1.1
Advertising or Free Speech? The Case
of Nike and Human Rights
Nike Inc., the global leader in the production and marketing of sports and athletic merchandise including shoes,
clothing, and equipment, has enjoyed unparalleled worldwide growth for many years. Consumers around the world
recognize Nike?s brand name and logo. As a supplier to
and sponsor of professional sports figures and organizations, and as a large advertiser to the general public, Nike
is widely known. Nike was a pioneer in offshore manufacturing, establishing company-owned assembly plants
and engaging third-party contractors in developing countries.
In 1996, Life magazine published a landmark article
about the labor conditions of Nike?s overseas subcontractors, entitled ?On the Playgrounds of America, Every
Kid?s Goal Is to Score: In Pakistan, Where Children Stitch
Soccer Balls for Six Cents an Hour, Their Goal Is to Survive.? Accompanying the article was a photo of a 12-yearold Pakistani boy stitching a Nike-embossed soccer ball.
The photo caption noted that the job took a whole day,
and the child was paid US$0.60 for his effort. Up until
this time, the general public was neither aware of the wide
use of foreign labor nor familiar with the working arrangements and treatment of laborers in developing countries.
Almost instantly, Nike became a poster child for the questionable unethical use of offshore workers in poorer
regions of the world. This label continued to plague the
corporation as many global human interest and labor
rights organizations have monitored and often condemned
Nike for its labor practices around the world.
In the years following, Nike executives were frequent
targets at public events, especially at universities where
students pressed administrators and athletic directors to
ban products that had been made under ?sweatshop? conditions. Indeed, at the University of Oregon, a major gift
from Phil Knight, Nike?s CEO, was held up in part
because of student criticism and activism against Nike on
campus.1
Nike took immediate action to repair its damaged
brand. In 2001, the company established a Corporate
Responsibility and Sustainability Committee to ensure
that labor practices were ethical across its supply chain.
By 2003, the company employed 86 compliance officers
(up from just three in 1996) to monitor its plant operations
and working conditions and ensure compliance with its
published corporate code of conduct. In 2005, Nike
became the first among its peers to release a complete
listing of all of the overseas factories that it contracts for
labor. That same year, Nike released the pay scales of the
factory workers and addressed actions it was taking to
further improve conditions. Even so, the stigma of past
practices?whether perceived or real?remained emblazoned on its image and brand name. Nike found itself
constantly defending its activities, striving to shake this
reputation and perception.
In 2002, Marc Kasky sued Nike, alleging that the company knowingly made false and misleading statements in
its denial of direct participation in abusive labor conditions abroad. Through corporate news releases, full-page
ads in major newspapers, and letters to editors, Nike
defended its conduct and sought to show that allegations
of misconduct were unwarranted. The action by the plaintiff, a local citizen, was predicated on a California state
law prohibiting unlawful business practices. He alleged
that Nike?s public statements were motivated by marketing and public relations and were simply false. According
to the allegation, Nike?s statements misled the public and
thus violated the California statute. Nike countered by
claiming its statements fell under and within the protection of the First Amendment, which protects free speech.
The state court concluded that a firm?s public statements
about its operations have the effect of persuading consumers to buy its products and therefore are, in effect, advertising. Therefore, the suit could be adjudicated on the
basis of whether Nike?s pronouncements were false and
misleading. The court stated that promoting a company?s
reputation was equivalent to sales solicitation, a practice
clearly within the purview of state law. The majority of
justices summarized their decision by declaring, ?because
messages in question were directed by a commercial
speaker to a commercial audience, and because they made
representations of fact about the speaker?s own business
operations for the purpose of promoting sales of its products, we conclude that these messages are commercial
speech for purposes of applying state laws barring false
and misleading commercial messages? (Kasky v. Nike
Inc., 2002). The conclusion reached by the court was that
statements by a business enterprise to promote its reputation must, like advertising, be factual representations and
that companies have a clear duty to speak truthfully about
such issues.2
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Part 1 Environmental Foundation
In January 2003, the U.S. Supreme Court agreed to
hear Nike?s appeal of the decision in Kasky v. Nike Inc.
from the California Supreme Court. In particular, the U.S.
Supreme Court agreed to rule on whether Nike?s previous
statements about the working conditions at its subcontracted, overseas plants were in fact ?commercial speech?
and, separately, whether a private individual (such as
Kasky) has the right to sue on those grounds. Numerous
amici briefs were filed on both sides. Supporters of Kasky
included California, as well as 17 other states; Ralph
Nader?s Public Citizen Organization; California?s AFL/
CIO; and California?s attorney general. Nike?s friends of
the court included the American Civil Liberties Union,
the Business Roundtable, the U.S. Chamber of Commerce, other MNCs including Exxon/Mobil and Microsoft, and the Bush administration (particularly on the
grounds that it does not support private individuals acting
as public censors).3
Despite the novelty of this First Amendment debate
and the potentially wide-reaching effects for big business
(particularly MNCs), the U.S. Supreme Court dismissed
the case (6 to 3) in June 2003 as ?improvidently granted?
due to procedural issues surrounding the case. In their
dissenting opinion, Justices Stephen G. Breyer and Sandra
Day O?Connor suggested that Nike would likely win the
appeal at the U.S. Supreme Court level. In both the concurring and dissenting opinions, Nike?s statements were
described as a mix of ?commercial? and ?noncommercial? speech.4 This suggested to Nike, as well as other
MNCs, that if the Court were to have ruled on the substantive issue, Nike would have prevailed.
Although this case has set no nationwide precedent
for corporate advertising about business practices or
corporate social responsibility (CSR) in general, given
the sensitivity of the issue, Nike has allowed its actions
to speak louder than words in recent years. As part of
its international CSR profile, Nike has assisted relief
efforts (donating $1 million to tsunami relief in 2004)
and advocated fair wages and employment practices in
its outsourced operations. Nike claims that it has not
abandoned production in certain countries in favor of
lower-wage labor in others and that its factory wages
abroad are actually in accordance with local regulations,
once one accounts for purchasing power and cost-ofliving differences.5 The Nike Foundation, a nonprofit
organization supported by Nike, is also an active supporter of the Millennium Development Goals, particularly those directed at improving the lives of adolescent
girls in developing countries (specifically Bangladesh,
Brazil, China, Ethiopia, and Zambia) through better
health, education, and economic opportunities.6 Environmental impact is also a key component of Nike?s
CSR profile. The company has focused on preserving
water in the areas where its products are manufactured,
incorporating new technology that minimizes the
amount of water needed for dyeing processes. Nike has
pledged to eliminate all hazardous chemicals from its
supply chain by 2020.
As part of its domestic CSR profile, Nike is primarily
concerned with keeping youth active, presumably for
health, safety, educational, and psychological/esteem reasons. Nike has worked with Head Start (2005) and Special
Olympics Oregon (2007), as well as created its own community program, NikeGO, to advocate physical activity
among youth. Partnering with then First Lady Michelle
Obama, Nike worked to implement the ?Let?s Move?
campaign (2013) into schools across the U.S. Nike also
sponsors Project Play (2014), which aims to reshape the
direction of youth sports by encouraging children to stay
involved and feel included. Furthermore, Nike is committed to domestic efforts such as Hurricane Katrina relief
and education, the latter through grants made by the Nike
School Innovation Fund in support of the Primary Years
Literacy Initiative.7
Despite Nike?s impressive CSR profile, if the California State Supreme Court decision is sustained and sets a
global precedent, Nike?s promotion or ?advertisement? of
its global CSR initiatives could still be subjected to legal
challenge. This could create a minefield for multinational
firms. It would effectively elevate statements on human
rights treatment by companies to the level of corporate
marketing and advertising. Under these conditions, it
might be difficult for MNCs to defend themselves against
allegations of human rights abuses. In fact, action such as
the issuance and dissemination of a written company code
of conduct could fall into the category of advertising declarations. Although Kasky v. Nike was never fully resolved
in court, the issues that it raised remain to be addressed
by global companies.
Also to be seen is what effect a court decision would
have on Nike?s financial success. Despite the publicity of
the case, at both the state and Supreme Court levels, and
the lingering criticism about its labor practices overseas,
Nike has maintained strong and growing sales and profits.
The company has expanded its operations into different
types of clothing and sports equipment and has continued
to choose successful athletes to advertise its gear. Nike
has shown no signs of slowing down, suggesting that its
name and logo have not been substantially tarnished in
the global market.
Questions for Review
1. What ethical issues faced by MNCs in their treatment
of foreign workers could bring allegations of misconduct in their operations?
2. Would the use of third-party independent contractors
insulate MNCs from being attacked? Would that
practice offer MNCs a good defensive shield against
charges of abuse of ?their employees??
Brief Integrative Case 1.1 Advertising or Free Speech? The Case of Nike and Human Rights
3. Do you think that statements by companies that
describe good social and moral conduct in the treatment of their workers are part of the image those
companies create and therefore are part of their
advertising message? Do consumers judge companies
and base their buying decision on their perceptions
of corporate behavior and values? Is the historic
?made in? question (e.g., ?Made in the USA?) now
being replaced by a ?made by? inquiry (e.g., ?Made
by Company X? or ?Made for Company X by Company Y?)?
4. Given the principles noted in the case, how can companies comment on their positive actions to promote
human rights so that consumers will think well of
them? Would you propose that a company (a) do
101
nothing, (b) construct a corporate code of ethics, or
(c) align itself with some of the universal covenants
or compacts prepared by international agencies?
5. What does Nike?s continued financial success, in
spite of the lawsuit, suggest about consumers? reactions to negative publicity? Have American media
and NGOs exaggerated the impact of a firm?s labor
practices and corporate social responsibility on its
sales? How should managers of an MNC respond to
such negative publicity?
Source: This case was prepared by Lawrence Beer, W. P. Carey
School of Business, Arizona State University as the basis for class
discussion. It is not intended to illustrate either effective or ineffective
managerial capability or administrative responsibility.
ENDNOTES
1. ?Nike CEO Retracts University Donation over
Human Rights,? SocialFunds.com, May 3,
2000, www.socialfunds.com/news/print.
cgi?sfArticleId=237.
2. Marc Kasky v. Nike Inc., No. 994446, 02 C.D.O.S.
3790 (Cal., San Francisco Superior Ct. 2002),
http://law.justia.com/cases/california/supremecourt/4th/27/939.html (accessed November, 15, 2016).
3. Linda Greenhouse, ?Free Speech for Companies on
Justices? Agenda,? New York Times, April 20, 2003,
p. A17.
4. Linda Greenhouse, ?Nike Free Speech Case Is
Unexpectedly Returned to California,? New York
Times, June 27, 2003, p. A16.
5. ?Nike and child labour ? how it went from laggard
to leader,? www.mallenbaker.net/csr/CSRfiles/nike.
html (accessed November 16, 2016).
6. Nike Inc., ?Nike Foundation Secures Footing in
Helping to Reach Millennium Development
Goals,? press release, www.nikebiz.com (accessed
September 15, 2005).
7. Nike Inc., ?Nike Announces $200,000 Grant to
Hillsboro Schools,? press release, www.nikebiz.
com (accessed March 6, 2007).
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Chapter 3
Ethics, Social Responsibility,
and Sustainability
Insert Photo Credit Here
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Learning Objectives
? Examine ethics in international management
and some of the major ethical issues and
problems confronting MNCs
? Discuss some of the pressures on and actions
being taken by selected industrialized
countries and companies to be more socially
and environmentally responsive to world
problems
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Learning Objectives (continued)
? Explain some of the initiatives to bring greater
accountability to corporate conduct and limit
the impact of corruption around the world
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Sustaining Sustainable Companies
? Shift in focus from traditional marketresponsive strategies to broader approaches
? Help incorporate business and social or
environmental goals
? Triple bottom line approach
? Simultaneously considers social, environmental,
and economic sustainability
? Could help harness business and managerial skills
to impact human and environmental conditions
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Ethics
? Study of morality and standards of conduct
? Victim of subjectivity as it yields to the will of
cultural relativism
? Cultural relativism – Belief that:
? Ethical standard of a country is based on the culture
that created it
? Moral concepts lack universal application
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Ethical Dilemmas
? Dilemmas arising from conflicts between
ethical standards of a country and business
ethics are most evident in:
? Employment and business practices
? Recognition of human rights, including women in
the workplace
? Corruption
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Corporate Social Responsibility (CSR)
versus Ethics
CSR
? Actions taken by a firm to
benefit society beyond
the requirements of the
law and the direct
interests of the firm
? Based more on voluntary
actions
Ethics
? Study of or the learning
process involved in
understanding morality
? Area of ethics has a
lawful component and
implies right and wrong
in a legal sense
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Ethical Theories and Philosophy
Kantian
philosophical
traditions
Aristotelian
virtue ethics
Utilitarianism
Eastern
philosophy
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Kantian Philosophical Traditions
? Entities have responsibilities based on a core
set of moral principles that go beyond those
of narrow self-interest
? Reject consequences as morally irrelevant
when evaluating the choice of an agent
? Ask one to consider choices as implying a
general rule, or maxim
? Must be evaluated for its consistency as a
universal law
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Aristotelian Virtue Ethics
? Focus on core, individual behaviors and
actions and how they express and form
individual character
? Consider social and institutional arrangements
and practices in terms of their contribution to
the formation of good character in individuals
? For Aristotle, moral success and failure largely
come down to a matter of right desire, or
appetite
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Aristotelian Virtue Ethics (continued)
? Virtue theory
? States that one?s formation is a social process
? Relies heavily on existing practices to provide an
account of:
? What is good
? What character traits contribute to pursuing and
realizing the good in concrete ways
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Utilitarianism
? Form of consequentialism
? Favors the greatest good for the greatest
number of people under a given set of
constraints
? Acts are morally correct if they maximize
utility
? Attained when the ratio of benefit to harm is
greater than the ratio resulting from an alternative
act
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Eastern Philosophy
? Broadly includes various philosophies of Asia
? Indian philosophy, Chinese philosophy, Iranian
philosophy, Japanese philosophy, and Korean
philosophy
? Holds that:
? People are an intrinsic and inseparable part of the
universe
? Attempts to discuss the universe from an
objective viewpoint are inherently absurd
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Human Rights Issues
? Present challenges for MNCs
? Absence of universally adopted standards of what
constitutes acceptable behavior
? Basic rights
? Life, freedom from slavery or torture, freedom of
opinion and expression, and a general ambiance
of nondiscriminatory practices
? Women?s rights and gender equity can be
considered a subset of human rights
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Issues Faced by Women in the
Workplace
? Most still experience the effects of a glass
ceiling
? Lack of promotions to upper management
positions
? Partially due to social factors and perceived levels
of opportunity or lack thereof
? Pervasive throughout the world
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Issues Faced by Women in the
Workplace – Examples
? Japan
? Women employees are subject to sexual
harassment, two-track recruiting processes, and
unequal opportunities for growth
? France, Germany, and Great Britain
? Witnessed an increase in the number of women in
managerial positions but only in low-level
managerial positions
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Labor Policy Issues
Political, economic, and cultural differences interfere with the
establishment of a universal foundation for employment practices
Difficulty in deciding working conditions, expected consecutive
work hours, and labor regulations
Frequent offshoring due to differences in labor costs
Ensuring that all contractors along the global supply chain are
compliant with company standards
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Labor, Employment, and Business
Practices in China
? Workers are not paid well
? Forced to work 12-hour days, seven days a week
to meet demand
? Some cases involve the usage of child labor
? Example – Foxconn
? 2010 – Issue of low wages headlined after a
number of workers committed suicide
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Environmental Protection
and Development
? Poor countries are more focused on improving
the welfare of their citizens
? Environmental Kuznets Curve (EKC)
? Relationship between per capita income and the
use of natural resources and/or the emission of
wastes has an inverted U-shape
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Environmental Kuznets Curve (EKC)
? Reasons behind the inverted U-shape of the
EKC
? Composition of production and/or consumption
? Preference for environmental quality
? Institutions that are needed to internalize
externalities
? Increasing returns to scale associated with
pollution abatement
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Figure 3.1 – Environmental Kuznets
Curve
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Environmental Protection
and Development (continued)
? United Nations Climate Change Conference,
2015
? Tried to achieve an international consensus on
environmental reform
? Adopted the Paris Agreement
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Phenomena in Response to
Globalization
? Difficulty in attempts to balance
organizational and cultural roots
? Offshoring low-cost labor-intensive practices
? Transferring a large percentage of current
employees of all types to foreign locations
? Creates issues related to corporate citizenship
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Reconciling Ethical Differences
across Cultures
? Integrative Social Contracts Theory (ISCT)
? Attempts to navigate a moral position that does
not force decision makers to engage exclusively in
relativism versus absolutism
? Offers one framework to help reconcile
fundamental contradictions in international
business ethics between home and host countries
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Corporate Social Responsibility (CSR)
? Social, economic, and environmental
expectations of each company are based on
the desires of the stakeholders
? Pressurize MNCs to pay greater attention to CSR
? Nongovernmental organizations (NGO)
? Private, not-for-profit organizations
? Seek to serve society?s interests by focusing on
social, political, and economic issues
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Nongovernmental Organizations
? Urge MNCs to be more responsive to a range
of social needs in developing countries
? Activism has helped generate substantial
changes in corporate management, strategy,
and governance
? Regarded as counterweights to business and
global capitalism
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scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Nongovernmental Organizations
(continued)
? Collaborate with MNCs on social and
environmental projects
? Contribute to the well-being of the community
and to the reputation of the MNC
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Responses to Social and Organizational
Obligations
? MNCs follow codes of conduct, including the
U.N. Global Compact, the Global Reporting
Initiative, and ?SA8000? standards
? Commit to maintain certain standards in their
domestic and global operations
? Help offset the concern that companies move jobs
to avoid higher labor or environmental standards
? Contribute to raising the standards in the
developing world
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Responses to Social and Organizational
Obligations (continued)
? Fair trade
? Organized social movement and market-based
approach
? Aims to help producers in developing nations
obtain better trading conditions and promote
sustainability
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Sustainability
? Development that meets humanity?s needs
without harming future generations
? Helps companies recognize that dwindling
resources will eventually halt productivity
? World Economic Forum, Davos, Switzerland
? Focused on how sustainable consumption can be
used to ease problems related to the need for
rapid business scaling
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Corporate Governance
? System by which businesses are directed and
controlled
? Specifies distribution of rights and responsibilities
among stakeholders
? Spells out rules and procedures for corporate
decision-making
? Provides the structure for setting company
objectives and means for attaining those
objectives and maintaining performance
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Corporate Governance (continued)
? Rules and regulations differ among countries
and regions
? The UK and U.S. systems are outsider systems
because of dispersed ownership of equity am