How to make ethical decisions in a company

1. OBJECTIVE

The main objective of writing this report is to help students gain a deeper understanding regarding the course CBEB 3101 Business Ethics. Through this course, we get to learn how to make ethical decisions in a company. Some of the principles that we have learned are the principle of utilitarianism and principle of rights. By writing this report, we get to learn how to apply the theories learned in lectures into real life cases and situations. Different situations have different theories and principles. We also get to learn the proper steps in the decision making model, which are determine the facts, identify the ethical issues involve, identify stakeholders and consider the situation from their point of view, consider available alternative, consider how a decision affects stakeholders, make a decision and monitor outcomes.

Besides that, we get to build stronger relationships among our group members. All the time spent together discussing and analyzing the case study helps to strengthen our bond and molds us into becoming a more responsible person in the future. We also get to see the corporate world from a different point of view, whereby being ethical is very important.

2. INTRODUCTION

Phil Knight and Bill Bowerman are the founders of Blue Ribbon Sports in the year 1964. Later, it was renamed as Nike in the year 1978 whereby it received its name from the Greek goddess of victory. Nike has become the world’s major supplier for athletic shoes and sport apparels.

As to remain competitive in the market, Nike searched for cheaper resources and markets. Therefore, Nike had shifted its production to lower manufacturing cost countries such as Japan, Korea and Taiwan. Later in the 1980s, production had moved to Southern China. However, as Japan’s economic started expanding, the manufacturing cost increased. Therefore, Nike shifted its contracts to Vietnam, Indonesia and China.

Starting from the mid 1990s, there were criticisms from human right protectors and media regarding labour health and safety conditions, low wages and discrimination in the hiring and firing process. Therefore, Nike started to take actions as to rescue its reputation.

Since 1991, Nike’s corporate social responsibility practices started evolving. As time passed, Nike revised its code of conduct and became more ethical in its manufacturing practices. In 1998, Nike’s revenues and stock prices had decreased dramatically. Due to that, Nike laid off 1600 workers. Nike then immediately started to launch several public relations campaigns as to reduce the damage to its reputation.

A code of conduct was implemented with Global Alliances to review all of Nike’s factories. On August 1996, Nike Corporation joined the Apparel Industry Partnership to draft a code of conduct for the usage of the whole industry. In 1998, audit tools were developed to increase the transparency in order to evaluate the compliance with the company standard, Nike’s Code Leadership Standards by those subcontractors. In addition, Bike had disclosed the names and locations of its subcontractors’ factories in the year 2000. The reason for disclosing its supply chain was to enhance monitoring and make changes.

The Corporate Responsibility Board was developed during the year 2001. The purpose of the board is to review the policies and activities and therefore, make recommendations to the board of directors regarding labour and environmental practices.

The organizational environment of Nike is a competitive market. In order to remain competitive, Nike had moved the production to poorer nation countries where low cost labour was attainable. Therefore, Nike subcontracted its production to other countries without proper regulation on the working conditions of workers and wages.

Simple time line of events

Year

Descriptions

1964

Phil Knight and William Bowerman founded Blue Ribbon Sports.

1965

Jeff Johnson signed an agreement with Blue Ribbon Sports to be a full time employee.

1966

Jeff Johnson opens the first Blue Ribbon Sports retail outlet in Santa Monica, California. Phil Knight and William Bowerman signed a formal written Partnership.

1967

Company was incorporated and named as Blue Ribbon Sports Inc.

1971

Swoosh trademark is created by a graphic student named Carolyn Davidson for a fee of $35.

Jeff Johnson dreams of Nike, the Greek goddess of victory.

1972

Litigation on distribution and broke the business relationship between Blue Ribbon Sports and Onitsuka Tiger.

1973

Romanian tennis star Ilie Nastase was the first professional athlete who signed the endorsement contract with Blue Ribbon Sports to wear Nike Shoes.

1977

Blue Ribbon Sports starts the first US track and training club called Athletics West.

1978

Blue Ribbon Sports officially change its name to Nike.

1981

Nike begins promotional efforts in China by supplying the national basketball team with sports apparel and footwear.

1988

Nike acquired Cole Haan which is the producer of men’s and women’s footwear, outerwear and accessories.

1993

Nike introduced a program called Reuse A Shoe which collects athletic shoes and makes athletic courts and fields.

1995

Reuse A Shoe began to collect old shoes from Nike retail stores.

1998

Phil Knight set standards for Nike subcontracted factories: minimum age, air quality, mandatory education programs, expansion of microloan program, factory monitoring and increase the transparency of Nike’s corporate social responsibility practices.

1999

Bill Bowerman died at the age of 88.

2001

Nike developed a Corporate Responsibility (CR) Board to review the policies and make recommendations to the board of directors on labour and environment practices.

2002

Nike partnered with National Recycling Coalition to set up the drop off stations in Europe and Australia.

2004

Phil Knight stepped down as CEO and president of Nike but continues to work as chairman in Nike.

2. ISSUES AND ANALYSIS

Issue 1: Nike’s Manufacturing Practices on “Sweatshop”

Summary

To be competitive in the market as well as keeping the manufacturing costs low, Nike had shifted its contract to low labour cost countries such as China, Vietnam Indonesia, Pakistan and etc. Nike’s reputation was damaged especially due to accusations on human and labour rights violations by labour rights activists and the mainstream media. The accusations were deficiencies in working environment, health and safety conditions and low wages and indiscriminate in hiring and firing practices in the factories. Roberta Baskin’s CBS had reported about the conditions in Nike’s manufacturing factories in Indonesia. Even though subcontracted work to poor nations had created employment, the pay was “merely $1.60 a day to Vietnam factory workers when the living wage is around $3 per day” (Hill, 2009). In this situation, is it ethical for Nike to treat its labourers this way?

Analysis

We can evaluate the practices by using these principles:

Utilitarianism

Utilitarianism is a moral theory whereby we should act in ways that produce the most pleasure or happiness for the greatest number of people affected by our actions. By using utilitarian reasoning, the following are the good and bad consequences:

Good Consequences

Bad Consequences

Increase profitability of the company.

Labourers welfare are ignored.

Shareholders wealth is maximised.

Company reputation has been affected badly by those practices.

Customers’ loyalty towards the company becomes a doubt.

From the overall consequences, even though increasing profit of the company can ensure the shareholders’ wealth, it is more important to take care of their employees’ welfare and gain trust and maintain a profitable relationship with its customers. This is because employees and customers are the primary stakeholders of the company who have the ability to influence the business of the company and especially those whose continual association is necessary for a firm’s survival. Therefore, in the long term, it is found that the unethical practices of Nike had negatively influenced stakeholders and changed the perception of the shareholders towards the company.

Principle of Rights

The basic human rights under Kantian are the rights that are the result of particular roles, special relationships or specific circumstances. Nike as an employer should consider the rights of its employees to have a safe working environment and a competitive wage instead of being a sweatshop labour. Although Nike is doing a much better job with foreign labour relations compared to other corporations, Nike should not be comparing itself to other companies. Rather, it should be holding itself to the absolute highest ethical standards it can attain.

Principle of Duty

Based on this principle, rightness of our actions depends on whether we perform our duties. If we fail to carry out our duties in the society, our acts are considered unethical or wrong. In our opinion, we feel that all the contractual factories in developing countries or any further subcontracted out work of Nike has a moral duty to ensure the health and financial well-being of all the people who work for it.

Categorical Imperative

Principle of universalizability mentions that we should treat others the way we want to be treated. Nike’s management team should put themselves in the labourer’s shoes and they will find out that they would not want their employers to violate their rights to have safe working conditions and fair wages. As a result, Nike’s practice on sweatshop labour is wrong. Therefore, it has to work on its corporate responsibilities to make sure its practices have improved.

Besides that, principle of ends means that we must respect humanity and never exploit others to achieve our own benefit or purpose. Nike’s act of exploiting other human beings such as the sweatshop practice is to serve its own interest which is to maintain low manufacturing cost.

Principle of Equal Liberty

Each person has an equal right to be treated equally under the principle of equal liberty. Obviously, Rawls would disagree with Nike’s labour and business practices as it is unethical for Nike to overwork its employees or perhaps pay them meager wages just so it can supply shoes to America. Besides that, in order to fulfill the expectation as an employer, it is necessary to appreciate individual diversity and become more dedicated to offering equal opportunity to each individual.

Issue 2: Nike’s Manufacturing Practices on Child Labours

Summary

In this issue, Nike’s contracted factories hire children to work overtime at below minimum pay as the children are not capable to make right decisions and unable to differentiate pros and cons of certain matters. Hence, children have been exploited to work for the subcontracted factories. The issue being is: whether it is ethical for Nike to hire child labours to reduce manufacturing cost?

Analysis

Utilitarianism

Based on utilitarianism, below is the comparison of good and bad consequences of this issue:

Good Consequences

Bad Consequences

Nike gets cheap labour and low cost facilities and therefore, low cost of production allows Nike to set lower price on its product to attract more consumers.

Children suffer psychological and physical harms.

Bring in foreign investments and job opportunities and therefore, alleviate poverty level for the countries that Nike are operating in.

Denied opportunities for children’s education.

Extremely low pay still cannot alleviate poverty of the countries.

From the overall consequences to the entire society, Nike had violated the theory of utilitarianism As one of the largest multinational companies, Nike should have carefully evaluated the outcome of using low cost labours. From the analysis, hiring child labours to serve its own interest to keep low labour cost is unethical.

Principle of Rights

Children have their right to get their education instead of working as they are under age according to the law of the country. Therefore, Nike should not hire child labour which violates their right to stay in school and receive education.

Categorical Imperative

Under the principle of universalizability, Nike should put itself into the situation of the child and will realize that it also does not want to work under such working conditions with such a low pay.

Nike also should not exploit the children to serve its own interest to keep the low labour cost because the act is unethical according to the principle of means.

Principle of Equal Liberty

Children in Nike’s contracted factories’ countries should be given an equal opportunity and treated as the children in other country as they are underage to work and supposed to have their education.

Issue 3: Contract between Nike and University of North Carolina

Summary

In order to work on CSR after the incident which deeply affected the company’s reputation, Nike had entered into a social contract with the University of North Carolina. Nike’s contract requires all UNC athletes to wear its brand. In this issue, whether is it ethical to bind all UNC athletes under the contract?

Analysis

Utilitarianism

Based on this concept, there are some benefits from the contract, such as, Nike has pumped in money which brings pleasure to the athletic department and the student athletes by virtue of wearing Nike’s brand, improving Nike’s reputation and rebuilding their confidence in public. However, the university should consider how the contract would affect the academic integrity and goals of the institution. It is more important to look at the issue from the perspective of athletes and the institution which will bring more consequences to the firm.

Rawl’s theory of individual liberty

Under this theory, it will disagree with the contract for the lone reason being the athletes have lost their individual rights to chose whether or not to wear Nike’s brand. Even if the institution has maximized pleasure for itself, at the same time it infringes on the choice of its athletes. There is no right for the social institution to take away a basic individual right. Besides that, Nike also should not restrict the individual’s right to have their own choice to wear other company’s brand.

Principle of Duty

According to this principle, the University also has a moral responsibility to itself and Nike. It is morally obligated to use its position of power to encourage Nike to work harder to improve its business practices. Besides that, it also has a moral obligation to back out of a contract with any corporation that lacks ethical business integrity.

Issue 4: Enhancing Nike’s images by using endorsers

Summary

In this issue, Nike has signed with some well-known athletes as its endorsers to project a better athletic image for itself. For example. Nike has signed an endorser contract with famous basketball legend, Micheal Jordan. According to the contract, Nike has created more revenue from his fans with launching more new series of producst. In return, Nike paid 20 million per year to Micheal Jordan as its endorser. At the same time, labourers at its contract factories were paid low wages which was just above the minimum standard. In this issue, is it ethical for Nike to pay its labors and endorses unfairly?

Analysis

Utilitarianism

Based on this principle, it solely benefits the company and the endorser while the labourers suffer from low wages. It is more beneficial to every party if Nike can use the money paid to the endorser and spend some on its employees’ welfare. Therefore, we think that Nike is unethical to pay its endorser such a large amount of money instead of taking care of its employees’ welfare.

Principle of Right

Under this issue, the employees have the right to get fair wages and deserve to get better treatment.

Principle of Universalizability

It is unethical for Nike to treat its employees as an end for themselves and never only as a mean to its own ends.

Principle of Justice

Employees should have fair wages and deserve to get their welfare whereby Nike should treat them equally with its endorsers. It is unfair to pay the endorsers so high but not taking care of its employees’ welfare.

Actions taken

From the case study we know that the corporate culture in Nike did not have a strong ethical focus which was to encourage its employees of the factories in many other countries to practice the ethical behaviours in the past. However, Nike then implements some efforts to instil ethical behaviours and practices and later became an ethical corporate in the industry after going through some critical period with negative issues on its business practices.

In our opinion, we feel that Nike has used the integrity-based approach which is a value-driven approach with emphasis on employee responsibility for ethical conduct. It is a better approach which the employees are instructed to act with integrity and conduct business dealings honestly. Besides that, Nike may set goals of an integrity-based approach as it is a broader and more expansive application to the firm. For example, maintaining brands and reputation by ensuring the good quality of products and honesty to its consumers, and creating a better working environment for employees whereby the safety of employees is emphasized.

Furthermore, we think that currently Nike focuses on the stakeholder theory instead of shareholder theory in its firm. All the stakeholders groups and their well being should be taken into account whenever the company wishes to take any significant managerial decision but not merely focus on financial and economic relationships with owners.

In the past decade, Nike has taken CSR as its social contract. For example, University of North Carolina had entered into a corporate sponsorship agreement with Nike. On the other hand, Nike also undertook CSR because of its enlightened self-interest where CSR activities bring commercial returns to the firm. Especially after the damage by the media to the company’s reputation, Nike started to undertake CSR activities in order to enhance its reputation and rebuild its good image. However, Nike now meets its standard for being a good corporate citizen after making progress for years.

Corporate Social Responsibility

It is a reactive concept where businesses try to do the minimum to fulfil the expectation of stakeholders. In the article, there are some discussions on Nike’s CSR practices:

Environmental Sustainability

Nike had developed ReUse-A-Shoe Program and then expanded it by partnering with the National Recycling Coalition to promote environmental-friendly practices and encourage consumer about this issue.

Code of Conduct

This is the first step taken by Nike to improve the working conditions in its factories. It complies with the principle of justice, fulfils the duties as an employer to reach the desired level of employer responsibility. Other than comply with the laws and regulations, the company also strives to satisfy the expectation as a leader.

Factory Transparency

This is the corporate social responsiveness undertaken by Nike as it is the proactive actions where the firm anticipate the needs of stakeholders and try to fulfil those needs before the stakeholders demand them to do so. Nike had publicly disclosed its supply chain as it believes that can be more successful in monitoring and making changes as once issues have been uncovered, not only in its own factories but in an industry-wide basis. Furthermore, implementation of Balanced Scorecard for its suppliers helps the firm better assess factory compliance with the code of conduct.

Corporate Responsibility Board

Nike developed a Corporate Responsibility Board in 2001 to review policies and activities and make recommendations to the board of directors regarding certain important fields. Through the effort of the CR board, there were significant improvements in its business practices whereby the employees are now aware of their rights and have the opportunity to be educated and well-trained.

Philanthropy

Each year, Nike proactively donates product and contribution in cash to non-profit organizations and NGOs creating social changes through sports disaster relief efforts around the world.

Nowadays, Nike has focused on innovation, collaboration, transparency and advocacy to prepare the company to thrive in a sustainable economy. There are some important initiatives for the company that are included in the CR report which includes Considered Design, GreenXchange (GX), Lean and Human Resource Management (HRM), Sport for Social Change, Energy and Climate Change Strategy.

In 2008, Nike launched a footwear energy efficiency program with five contract manufacturers. Nike’s commitment to collaboration on this project has shown excellent early results where the contract factories absolute CO2 footprint was down 6 percent despite a 9 percent increase in production.

4. RECOMMENDATIONS

Due to the ethical issues discussed in the Nike case, we have come up with several recommendations on how to solve the problems occurred throughout the case. We hope that this can also serve as a guideline to other companies as well.

First of all, the company management should be stricter on the rules and standards set by themselves. This will make sure that they follow or obey the rules of the company. In this case, the top management of Nike in the US should ensure that all the other retail outlets or factories all around the world follow a standard procedure in everything that they do. This will help them in monitoring all the other outlets around the world. This can also help avoid the issue of poor conditions, child labour, widespread harassment and abuse that has happened in some countries. When other manufacturers all over the world know the standard and code of ethics that they should follow, they will not do what they have done that caused all the issues to arise. This is because they have a guideline to follow and they know that whatever procedure that they are doing will be monitored by the top management. The top management should make sure that they provide a healthy and safe workplace for all its employees. This is because their employees have the right to be in a healthy and safe workplace. A poor condition of the workplace is wrong and is one of the main allegations that Nike had to deal with.

Next, the management team and employees should also be sent for training once in awhile. This is important as it helps to establish a better corporate culture. This culture shapes the people who are members of the organization as it is a blend of ideas, beliefs, customs, traditional practices, company values, and shared meanings that help define and guide normal behaviour for everyone who work in a company. It is important to continuously train its employees so that the employees become more disciplined and responsible. They will always think of the best interest of the company and not be easily influenced by other factors that might bring the company down. This will help them have a sense of accountability and responsibility towards the company.

One of the main issues that Nike was facing was child labour. Therefore, we have come up with an idea that might help solve this problem. Nike began to offshore its production of footwear and other sporting equipment because it wanted to remain competitive and keep manufacturing cost at a low. To solve this, instead of using child labour, Nike can actually install and use machines in it production. At the beginning it might be a little costly but in the long run, it will help the company save a lot of money. It is not only faster, but it also helps Nike save money in the long run and the management does not have to worry about any child labour allegations or poor working conditions.

Besides that, the top management of Nike can also perform employee monitoring. The kind of employee monitoring meant over here is checking out the work done by the employees. They could perhaps send some spies or third parties to see how the employees perform their work but at the same time not let the employees know that they are being watched.

Lastly, the ethics and compliance system should also be improved. Currently, there is only one person in charge of ten factories and inspection is only done for about 25 percent of the factories. The top management should make sure that it inspects every factory. This can be done by setting up a chart or timeline whereby they have already discussed and come to an agreement on when and which factory should be inspected throughout the year. This is a more systematic approach and the management must make sure that they follow what they have drawn up.

CONCLUSION

Running a company as big as Nike is definitely not an easy job as the management has to satisfy not only the shareholders of the company, but the stakeholders too. No matter what has happened in the past, Nike has learned its lesson. Remaining competitive and keeping manufacturing costs at a low should not be the only objective of the company. Due to its negligence in certain areas, Nike’s allegations of poor conditions and child labour has become a global issue. This is not only bad for Nike’s image but it has permanently tarnished its reputation. However, Nike never gave up and has continued to win back the hearts of its stakeholders by carrying out a lot of CSR. Even though it may still have a long way to go in the area of corporate responsibility, it can be seen that it is slowly receiving good responses from the industry. Nike will always continue to be a major brand throughout the whole world.