Nike's Ethical Challenges

Categories: Ethics Nike The Bystander Effect

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You don’t want your company’s image to be associated with something negative in the worse way possible, through brand name association. Many companies strive to create not only a great image of their company but also a creating a brand that is specifically memorable of a product such as companies like Scotch (a 3M product) and Xerox. The ultimate goal of companies is to have their brand name be directly associated with a product because it helps create a sense of differentiation in the market (Lerman & Garbarino, 2002).

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Using the example of Scotch and the term “Scotch Tape,” we can see how a consumer looking for tape in their local convenience store would see the various tape brands and notice and remember Scotch as a reliable and well known company. What happens when the brand identity recalls negative connotations dealing with that particular organization? What if Scotch Tape was recalled and it was no now known as a product that helps spread deadly viruses.

This sort of brand recognition could effectively cripple the image a company, in this case 3M, has been working on for decades.

Though brand recognition can be mostly associated with solely the name, slogans can be just equally important. Nike’s slogans “Just Do It” is a familiar statement of recognition associated with Nike (Epstein, 2003). Though a huge asset and association with Nike products, the “Just Do It” slogan began to become an association to a company lost in ethical value. Though many believe Nike to be in the business of making shoes and sneaker, the production of footwear makes up a very small percentage of Nike’s overall production which also includes apparel (Locke, Kochan, Romis, & Qin, 2007).

How does a company so large and well known manage to have an ethical dilemma? According to Nike, their history started with Phil Knight investing in the idea that he can get quality footwear made in Japan to compete with the quality German footwear brands at the time (Nike's History, 2013). The question really at hand is, at what cost will Nike ensure quality? Throughout the 1990’s Nike’s image began to be associated with underpaid workers, child labor and poor working conditions (Locke, Kochan, Romis, & Qin, 2007).

Though Nike’s production is vastly globalized the majority of its supply chain remains though hundreds of independent suppliers. Whether coming from manufactures making parts of their footwear division of anything related to apparel, the majority of production is done through independent factories and companies in Nike’s supply chain (Locke, Kochan, Romis, & Qin, 2007). The question then becomes, does Nike owe any responsibility for the problems and issues within those factories?

In the mid 90’s Nike’s response to the accusations of low-paid and child labor to be out of their control since Nike themselves did not manage or employee the workers and/or factories (Locke, Kochan, Romis, & Qin, 2007). Nike at that point felt that they had no moral or financial obligation to the conditions of the factories involved in their supply chain since they were specifically suppliers and not Nike owned premises. This was the beginning of the negative connation associated with Nike’s brand in the mid-90’s.

The real question for Nike is whether or there is a social and ethical obligation on their part to the workers and families employed by the factories. When looking at Nike’s ethical dilemma from a utilitarian approach, part for the teleological theories of ethics, we try to see how society or the stakeholders involved are affected as a whole by Nike’s practices. If we are to compare Nike’s production issues on its stakeholders, the end result would show that there is a negative effect on Nike’s community of stakeholders while leaving a positive effect on Nike’s bottom line.

Each and every decision that an organization does should be analyzed by the effect on all parties and if there is a negative outcome an analysis should be done to see which decision will create the most positive value for everyone. The effect of lower wages, child labor and factory safety issues is the larger negative effect of Nike’s production (Schilling, 1998). Though these factories are not specifically run by Nike, they are still important stakeholders in the general scheme of Nike’s production. As Nike’s production begins to increase, so does the negative effect on the employees of the factories contracted with Nike proportionately.

Henry Ford famously stated that “…any system or country work with low wages and high prices…the prices eat up the wages and don’t leave anything over,” explaining that it did not make sense that an employee wasn’t able to afford the product that he/she was creating and could barely live off the wage itself. This is a direct parallel explanation of Nike’s dilemma in the sense of low wages where the bottom line comes first and the employees cannot afford the sneakers they make. Going back to Nike’s response to the ethical situations of its contracted factories, we look at the deontological approach.

To recap, Nike’s approach to the conditions of its supply chain partners’ employment conditions was to take no part as it is not their responsibility (Locke, Kochan, Romis, & Qin, 2007). We can somehow connect this approach with a similar idea of the Bystander Effect which explains the phenomenon of individuals not pursing a conflict because of the assumption that someone else will help or is in the process of helping (Kirwan-Taylor, 2013). Though this is not necessarily the direct approach of Nike, the similarity lies in what action taken is the correct moral obligation of the organization or the individual.

Nike’s actions showed that the right approach was not theirs to take and this is where the dilemma starts. On an ethical level the community, in this case factory workers, drives your business and they are just as a part of the “Nike Brand” as any other stakeholder in the supply chain. Dismissing its ethical responsibility to take the “right” course of action ended up giving Nike a brand identity that is associated with “slave labor,” paying workers pennies on the dollars and dismissing concerns for safety of the individuals who are a part of making Nike’s product (Locke, Kochan, Romis, & Qin, 2007).

Nike’s name changed from a “Just Do It” mentality to a negative one. Not until the late 90’s did Nike finally step forward and require its contracted factories to increase the minimum wage of workers and start the process of fixing what the Nike brand was supposed to mean (Laabs, 1998). Prior the 1990’s The United States (US) developed administrative agencies to help protect workers in the US such as the Occupational Safety and Health Administration (OSHA) and regulations such as the Fair Labor Standards Act (FLSA).

Since these services and rules became part of the US backbone, one can come to the conclusion that American businesses are known for their compliance and fair labor standards. As a community of organizations, there is a set standard in place by the government of company-employee relations and companies rely on the fact that every company will follow the same practices. As a community, there is a set of virtues, or virtue ethics, which is seen as a standard. When a company such as Nike outsources its production to overseas markets it can be seen as an action to avoid certain regulations and community standards.

As a community, Nike is the outsider who is using a loophole, outsourcing and/or outside contracting, to prevent itself from bearing the obligation to its labor community. Ethically speaking, Nike is using a backdoor approach to deter responsibility while the majority of the community of American companies are on the correct approach to practices involving workers. Does Nike have a legal obligation? The answer is probably no, however its practices are very transparent in comparison to especially those manufacturers that are built on the backbone of being “Made in USA.

Though we recognize that Nike does not have a legal obligation, the action for which Nike chose to take in the late 90’s was of an ethical dilemma and Nike was well aware of it. The issue was not seen as one of ethical responsibility on Nike’s part however because of the bad press Nike took a passive response to the situation. Nike required that a code of conduct be placed in each factory in its supply chain to address that certain issues should not continue to exist and to help show that they “care” as an organization thousands of miles away (Locke, Kochan, Romis, & Qin, 2007).

This action can best be compared to asking a color-blind individual to get you only the red or orange M&M’s. Though you in fact interacted with the color-blind individual, there is no merit to the action because it will create no outcome. Many individuals working in Nike’s supply chain are illiterate or underage which will clearly give no positive outcome of posting signs of how workers should be treated (Locke, Kochan, Romis, & Qin, 2007). Nike’s Ethical awareness of the situation is generally believed to include the simple fact that individuals are being employed thereby Nike helping the community economies.

To Nike, the benefit of a salary to the individuals outweighs the issues at hand, this being said in response to their lack of action. Nike was quite aware of the ethical dilemma at hand. Their moral reasoning or judgment is to attempt a small action that will help alleviate the media attention without sacrificing profits. Nike’s current policy is to act as a leader and continuously improve in rights of all employees, minimizing environmental impact, ensuring a safe and healthy workplace and the well-being of their employees (Hummels & Timmer, 2004).

The rigorous rules set upon Nike to its direct employees in the states is their only obligation and the statement of their policy can show to mean that they will go above and beyond to make sure there is not employment issues. However the dilemma at hand that summarizes all the trouble that Nike was gotten itself into is regarding the contracted employees. Until Nike is able to fit them under the same umbrella of their company policy on employee relations, Nike in fact is not pursing the right moral objective.

Though an ethical dilemma exists in the use of underpaid workers, underage workers to keep costs low, not every perspective offers the exact same view of what the potential ethical issue is. From a utilitarian approach, Nike’s business to its contractors offers a large number of jobs to be created and maintained and Nike taking the approach of moving its business back into the US may not be the greater good for the majority of stakeholders involved.

From the deontological approach, the path of righteousness or the correct path is to ensure quality labor standard, higher prices paid and minimum age requirements, which Nike attempted to accomplish, to correct the dilemma in place. This last approach may force Nike to look to factories elsewhere, places where Nike’s requirements can be met leaving hundreds if not thousands out of work. The issue at hand is which approach is necessarily the right one.

The utilitarian approach comes into conflict with the “righteousness path,” deontological approach, to this dilemma because of the stakeholders involved. Since the employees of these contracted plants make a large majority of the stakeholders affected by these ethical dilemmas the utilitarian approach would insist that anything benefiting these people, including letting things stay as they are so no jobs are lost, would be the right approach. Though on the contrary, the better for the greater good is not necessarily the right approach.

An ethical dilemma will still be at hand if Nike were to try to better the labor environment and keep all the same saving thousands of jobs. Nike has close to over 800 suppliers around the world making up over 500,000 workers (Locke, Kochan, Romis, & Qin, 2007). That is a lot of jobs saved, families in developing nations able to be fed and enhancing local economies. Using the righteous approach would force all children workers out of the workplace which may or may not be an essential source of income for many families.

The right thing to do in this situation is not necessarily for the greater good and that is where this conflict comes into play. Though a large American company like Nike had begun to take correct approach towards increasing wages, requiring certain age requirements in factories and ensuring factories comply with worker safety, their reactive approach to these issues stained the Nike brand name (Locke, Kochan, Romis, & Qin, 2007). Nike’s response was not made because of its values for company employees shared through the supply chain but because of the backlash of the public.

You would think that a company that began in the United States, who has strict employee and world place safety regulations, would share the “home-play advantage” throughout its supply chain. Nike’s delayed reaction, almost a decade of complaints later, explained the unwillingness to accept an ethical dilemma was at hand. Though there is a stigma with larger manufacturers of hiring sweatshop workers who are on the job for long hours, little pay and harsh conditions, many manufacturers had preemptively put regulations into place to ensure a positive approach to doing business overseas.

Nike’s approach to the situation began in the early 2000’s where there began a disclosure of factory conditions and worker pay (Doorey, 2011). Though Nike is not alone in the situation and is at the same level as companies like Adidas, Wal-Mart and Levi-Strauss, the policy and actions that an organization implements is what makes up their brand recognition, not a slogan like “Just Do It. ” One of the toughest moral judgments to make is usually understand the local economy in a foreign nation involved in the manufacturing process.

Are the low wages that manufacturers’ factories pay relative to the local economy and considered a living wage, or is it a sign of exploitation. There is no argument that the full picture is not always represented to large companies like Nike, such as the issues in Indonesia of child workers forging government records to show that they are of age to work in factories (Hummels & Timmer, 2004).

Regardless of the issues in ensuring 100% follow-through of Nike’s regulations for factories, Nike should take a forward step in investigating factory conditions, salaries and employment ages of their supply chain associates. In the end Nike’s brand image is entirely made up of all the stakeholders involved, from the customer who purchases the products to the individual overseas who sews the zipper onto the Nike jacket. Nike has a responsibility to all of them, direct employees or not.