Social Problems of the Company

Introduction

There are many stories published regarding Nike’s Corporate Social Responsibility (CSR) efforts in the last 20 years. Starting with Phil Knight, Nike’s visionary, the company through its CSR journey has overhauled the company from a period of time it was known for “slave wages, forced overtime, and arbitrary abuse” to a world class leader in the utilization of both social and environmental strategies to foster innovation, growth and sustainability, currently Nike is viewed among global CSR leaders. From the beginning, Nike combined innovation in their designs with low-cost manufacturing by independent contractors in low-wage countries.

Footwear and apparel in the athletic industry space have always been highly competitive, Nike ranks first or second in global market share in most major product categories, the challenge as with most global companies is to maintain that leadership position. The objective of this paper is to look at key aspects of Nike’s CSR journey to continue a leadership position as well and sustainable future.

Nikes Views and Goals

Nike’s business model combined innovative shoe design with low-cost manufacturing by independent contractors in low-wage countries. Nike scientists and designers worked together with elite athletes to create and test innovative prototypes. Shoe production was outsourced—initially to contractors in Japan, then to Korea and Taiwan in the 1970s, then to China, Malaysia, and Indonesia in the 1980s, and so on as wages and costs rose in one source country after another, (Paine, L., Hsieh, N., & Adamsons, L., 2016). The message simple, design the best most innovative products, manufacture at low cost sell at high price, reap growth and profit. Global expansion was also a keen strategic goal while focus paid to customer facing tactics. The company being an athletic focused provider of footwear and apparel focused geographically and by sport—action sports, running, basketball, football (soccer), men’s training, women’s training, and sportswear. As with many companies during this time, Nike was focused on Asia Pacific markets mainly China and driving a direct-to-consumer business model no matter the channel. Lastly, Nike was to continuing to grow its digital business platforms.

Nike’ executive team was quite engaged in innovating towards environmental and social concerns, using CSR as strategic versus a defense play was key. The leadership team envisioned a day when every product would represent a closed-loop system that generated no waste, and sustainability would be synonymous with performance, (Paine, L., Hsieh, N., & Adamsons, L., 2016).

Evolution of Views and Goals

Nike’s leadership team dating back to the early 1990s started its CSR when a “groundswell of criticism over labor practices at contract factories making Nike products threatened the company’s brand with its core consumers, particularly college students” (Paine, L., Hsieh, N., & Adamsons, L., 2016). Nike as well as its direct competitors were structuring their operations in low cost Asian regions, creating new global pressures as both consumers and critics alike came down on business practices of corporations utilizing contract manufacturers (driving costs down/profitability up) lacking basic controls, treating employees inhumanely and paying them poorly for the value being provided.

The disconnect between what’s perceived outside an organization, in this case the perceived disconnect between Nike to what people see and feel on the inside, creates complacency (complacency goes up, urgency goes down) (Kotter, J., 2008). At first, Nike responded defensively to these outside pressures, arguing that it was not responsible for the actions of its suppliers and that wages and working conditions should be seen in the context of the manufacturing countries, not measured against U.S. standards. Internally, executives at the time thought the critics were just radical troublemakers (driving internal complacency) who didn’t understand how good the contract factories really were, while in truth an urgent strategy and plan was needed. (Paine, L., Hsieh, N., & Adamsons, L., 2016).

Moral leadership is, 'providing values or meanings for people to live by, inspiration to act and motivate, to hold oneself accountable. ' When you don’t see someone stepping up to provide purpose and doing what is best for the greater good, leaders should step up (Blank, 2019). This aspect of leadership is key to Nike CSR vision and how its leaders stood up to acting and owning up to its social and corporate responsibilities. The CSR evolution started with Knight the visionary leader being an authentic and responsible executive, acknowledging that “the Nike name had become synonymous with slave wages, forced overtime, and arbitrary abuse” (Paine, L., Hsieh, H., & Adamsons, L., 2013) and vowed (authentic) to change that equation. (Senik, 2009) mentioned 'the things said and do are actual beliefs', Knight at this time affirmed Nike commitment to improving factory working conditions (the things said are his beliefs).

The company following in Knight’s commitment, hired Maria Eitel to lead Corporate Responsibility to drive Knights vision statement. Eitel chosen as Nike’s first vice president of corporate responsibility targeted community affairs, environmental and labor practices and created Nikes corporate responsibility department. It is clear to see from Knight the Moral Leader and visionary through his “new thinking”, to Bowerman and “Just do It” to Parker and “the Innovation Kitchen” to Eitel that Nike meant to change, innovate, be a responsible company and grow creating a true paradigm to lead not mandate. It was vital to innovate, change and become socially conscious for Nike to be the Leader. Jones continuing down the Nike’s Moral Leadership Journey, worked on tactics to bring group’s together with common core goals: moving beyond the policing stage, increasing transparency and cooperation with the outside world, integrating corporate responsibility into the fabric of the business, and establishing the corporate responsibility group as a “hotbed of talent and innovation”, driving the new contract, (Rousseau, 1996).

At its early stages, like many companies going through change focused on “putting out fires”—addressing the basic code-of-conduct violations or labor issues in contract factories. Discussions often revolved around how an incident had been handled or, if it was still pending, what could or should be done. Over time, the committee began to differentiate between truly isolated incidents and those that were part of a larger pattern.

Nike, a systems perspective - Social issues are very complex and require complex thinking to achieve success. We naturally think in systems. Reimagining the system – very hard to create solutions to challenge, drives single solutions to fix problem (creating stovepipe of solutions) making it hard to address the big problems. Leaders need to create linkage between stovepipes, push people away from ego and passionately lead with big ideas to address complex issues. (Bond, A., 2012). A prime example of a systems solution was Jones’s and the realization: one could solve a worker’s rights issue by monitoring every single factory 24 hours a day (stovepipe) for whether they’re wearing personal protective equipment (PPE), or Nike could think systemically and drive a solution to reduce the need to wear PPE at all facilities. Over time Nike brought in outside consultants to drive system change, focussing Nike impacts on major global trends including population growth, water, energy, climate change, the Internet, health issues, and governance.

Critical events

Conway’s retirement, Knight and Parker anoints Phyllis Wise it’s next committee chair. At the time of Wise’s start, several Nike Honduran subcontractors closed their doors, eliminating 1800 jobs without notice and refusal to pay out owed severances. Nike having no legal responsibility for contractors’ financial obligations to their workers publicly (complacent in nature) claimed it would not cover the severance obligations. This stance created mounting social pressure for Nike to step up and compensate the displaced workers. Not only in Honduras but on-going worker abuse allegations in other regions continued to impact Nike and its competitors. Examples included allegations of long-time Nike contract factories in Malaysia housing its workers, largely migrants from China, Bangladesh, India, Indonesia, Myanmar, Nepal, and Vietnam, in deplorable facilities, garnishing their wages to pay for work permits and “recruitment fees,” and withholding their passports to prevent them from leaving. (Paine, L., Hsieh, H., & Adamsons, L., 2013)

The financial crisis of 2008 had consumers rethinking their purchases. Nike profits dropped as the recession took its toll, (BBC, 2009). Greenpeace also jumps on the lack of corporate responsibility bandwagon, issuing the report “Dirty Laundry,” focusing on textile facilities run by a Nike contractor. Greenpeace alleged and environmental concern that wastewater from one of the plants contained as many as 53 organic toxins as well as man-made chemicals, including nonylphenol, a known hormone disruptor that was restricted in many countries but legal in (China. Paine, L., Hsieh, H., & Adamsons, L., 2013).

Effects of Critical Events

Environmental impacts including potential water shortages, created a sense of Urgency for Nike as the company realized impacts to its entire value chain. Environmental impacts would affect 1.5B by 2025 including water related stress due to scarcity of supply. Some of the greatest shortages were expected in the Asia Pacific region, where much of Nike’s manufacturing capacity was located. Global demand for water, was forecast to rapidly increase including sources of supply including farming (potential affect to Nike). Nike labor and human factor investigations revealed that the same root causes of societal factors such as weak law enforcement and poor education, also are prevalent within industry, Nike determined its own systems contributed to these factors.

Nike’s Response to Critical Events

Honduras plant closures caused Nike to react with a sense of urgency. (Kotter. J., 2008) describes urgency as a combination of thoughts feelings and behavior (hyper alertness) to make something happen. Dedication to want to create change drives urgent action. Nike brainstormed ways to assist the displaced workers without setting a precedent. As in Nike norm, an innovative arrangement was made for the worked to be paid a severance by the Honduran government. Nike in turn, focused on providing both vocational training and health coverage to the workers. In other regions, Nike met with local factory management, continuing the urgency of social responsibility, demanded improved conditions for workers, including reimbursement of withheld wages and placement into improved living establishments in weeks not months.

Due to the impact of the 2008 economic downturn Nike again with an urgent System thinking strategy, (Bond. A., 2012) launched a full review of its business processes, folded Project Rewire and focused new goals of consumer facing, quicker innovation and reducing management layers.

To focus on water conservation, Nike invested in DyeCoo Textile Systems, a technology that developed a waterless process for dyeing polyester, the technology had a huge potential for water savings and energy while also reducing water supply chemical discharge. The Greenpeace report prompted Nike to urgently react, issuing the Nike offer to partner with Greenpeace, and others companies to promote improved water management as well as reducing / eliminating chemical inputs and processes in the footwear and apparel industry. Nike announced its commitment to zero discharge of hazardous chemicals by 2020. Nike next, put forth a “roadmap” outlining specific steps the company would take to reach that goal. Nike also continues its commitments through the expansion of the Nike Water Program to the public release of the Nike Materials Sustainability Index. In a proactive manner Nike provided training for vendors, worked on data exchange, and material screening and traceability measures.

Relationship to Views and Goals

CSR activities mitigate risk, enhance reputation, and contribute to business results, (Rangan, Chase and Karim, 2015). Nike views and goals were to align its social and environmental activities with its business purpose and values. It is apparent that Nike through Knight’s vision was committed to all aspects of it CSR plans. This can be realized by simply looking at Nike annual report statements from Nike not being responsible for basic social aspects in 1997 to four years later coming out and espousing two simple options: embracing sustainability as a core part of growth strategy, or eventually stop growing, (Paine, L., Hsieh, H., & Adamsons, L., 2013). Research suggests that the fit between company and CSR activities is a key variable for CSR success and argues that the higher the CSR fit, the more positive the consumers’ evaluations (Dongho Yoo and Jieun Lee, 2018). Knight espoused this belief turning to leaders from Bowerman and Parker the innovators, to Eitel and Conway leading the socially responsible side to ensure Nike would grow and sustain its place in industry. As stated by (Kotter, J. 2011) “when trying to communicate vision/strategy – it is easy to under communicate even when obvious.” How to communicate in a way that ties into vision is vital and is realized from Knight commitment, throughout the company appointing leaders to drive CSR to developing committees, Nike made a huge and clear statement on its commitment to the CSR journey.

Ramifications of Nike’s Response

After all the CSR progress, Nike’s has been soaring. The tide turning when the company faced its problems head on, the visions, statements and actions have allowed Nike to build up a lot of goodwill with its actions (Newell, A. 2015). While data doesn’t completely tell the overall value of CSR in Nike’s annual reports, the company has very positive trends in double digit growth evidenced in 2011 after several years of flat to negative growth for years 2008-2010. Another positive sign of Nike’s responses is evident in shareholder value of around 25% growth from stock price of $68.37 in 2008 to $84.45 a share in 2011.

Consumers and critics alike, found Nike an easy target as the world's best-selling brand and do to its lack of responsibility in its sub-contractor factories realized challenges to growth and profit. Nike now is known as being highly open with its commitment to being socially responsible as a result of social pressures. Being a leader in CSR, forced Nike’s competitors to react similar fashion, companies such as Puma, Addidas and Reebok all followed Nike’s lead to social responsibility.

Proactive Fashion

Kotter, J. 2011), stated “list all those that may be affected by change, break down into groups (note how many people) if change is to be successful how many each people will have to change their behaviour in a non-trivial way, strategies are different for changing 500 or 5000 people’. Nike was highly proactive is not only its vision from Knight but its mission as well. We can see this from the words of Ramallo Garcia stating “[It’s] basically going line by line, understanding all of the implications of every target and making sure that we have the solutions, people, systems, data, plans . . . and making sure that everything is in place that needs to be in place, (Paine, L., Hsieh, H., & Adamsons, L., 2013). Nikes from top down espoused CSR, it is evident in all aspects of Nike CSR practices that CSR is here to stay.

The effect of a global economy is drawing more and more companies into a focused CSR strategy, without even breathing the word 'boycott' campaigners were able to steer companies to a place they were happy with. “It was clear that the lessons of the 90s had been painfully learned, if there's a case to answer it's better to concede early rather than hoping it will go away.' (Birch. S., 2012). Nike while in the early stages maintained a non-responsible position of ownership for its partners/contractors realized better to concede. Nike should be applauded for its CSR journey to date, many challenges exist and will for years to come, Nike’s commitment to CSR will ensure a thriving and sustainable future.

References

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