How well and how responsibly do you think she has handled these issues to date? What advice would you give her about how she should now proceed? What principles should guide the company’s policies and practices? What opportunities, constraints, and risks does the firm face? What are the scope and limits of its social responsibilities?
There are two aspects to look at how Nike has acted:
1) The intension with which it has acted: any corporate’s acts are a manifestation of the values of individuals responsible for making decisions. In my view the most relevant reading that applies to Nike is Kant’s philosophy of acting in good will to others and out of moral duty. Kant believes people should respect the rights and dignity of others. However, by having a supplier selection criterion, which focuses on lowest cost and does not include any information on how the goods are manufactured, by who, where they come from, and how the supplier manages such a low cost, Nike has committed a serious oversight of its duties and moral responsibilities. In the process it has acted in sheer self-interest and has ignored the workers’ rights and dignity. It becomes even more important in Nike’s case because it commands a really high bargaining power and could have easily got any information it wanted.
Even though, Nike has done a commendable job at course correcting in response to the public criticism – by employing outside firms to monitor compliance and improving internal work conditions for employees and sourcing organic materials – it is a reactionary act, which was perhaps necessary to save its tarnished image and restore lost consumers’ faith in the company as a responsible corporate citizen. It wasn’t done out of good will.
Another relevant reading here is the Ring of Gyges by Plato. By saying that it does not set policies at the suppliers’ factories and that it’s their business to run, Nike has tried to create its own ring of Gyges and be invisible by passing the bug, of taking care of the employees involved, on to it suppliers.
Confucius would likely approach this situation from the perspective of – how would the company like to be treated if the roles were switched? In other words, if Nike was the supplier and the suppliers were the large and powerful shoe making companies. This perspective, along with the virtues of goodness, benevolence, and love towards others suggest that Confucius would advice Nike to be considerate of the work conditions at the suppliers’ factories and the workers’ health proactively.
2) The impact/ value Nike’s actions created: to assess the impact its actions created, the most relevant readings in my views are John Stuart Mill’s utilitarian perspective and Porter and Kramer’s philosophy of creating shared value. From Mill’s utilitarian perspective, doing the right thing in this situation would mean finding a solution to the problem, or structuring the transaction in such a way that it creates the most benefit for all parties involved. Whereas creating shared value would mean a focus on developing technologies and work practices to improve competitiveness and supporting suppliers to create and overall bigger pie of revenues and profits to benefit all the parties involved. However, by employing children and not providing healthy work atmosphere in Indonesia and other supplier countries, Nike has risked the workers’ life and reduced their overall productivity in the system. Thus, it has destroyed the over all value for personal short-term gains. Moreover, by using its negotiation power in the value chain and focusing only on lower costs, Nike has captured a comparatively larger pie for itself, at the cost of workers’ life. Nike being a leader in the industry, with such a high brand value, has acted irresponsibly and has set a bad precedence by ignoring the socio political aspect of doing business. This has put company’s image and consumers’ trust in the company at risk, which could lead to destruction of overall value for the company in the long run.
The two most relevant readings that provide guidance for Nike’s future course of actions and the principles on which Nike’s future policies and practices could be based on are A new era of Business by McKinsey consultants and Creating Shared Value by Porter and Kramer. According to A new era of Business reading, what consumers value the most are environment, pensions, health, price, safety and human rights. Hence Nike need to be able to proactively predict and handle the new risks that arise from changing societal expectations because these social and political forces have the power to fundamentally change the industry landscape and decide a company’s fait. Nike needs to change its attitude towards these dimensions and view them not as damage control areas but as business opportunities. Nike can be more aware and engaged in sociopolitical issues by incorporating them in their strategic decision-making process and derive benefits from these by creating new products and markets for unmet social needs and new consumer preferences.
According to Creating Shared Value reading, societal needs, not just conventional economic needs, define markets and societal harms can create internal costs for firms. And hence, its important for companies to adopt a shared value perspective, which focuses on improving operating practices and innovation to enhance competitiveness and strengthening the clusters of supporting suppliers and other institutions, to increase efficiency, yields, quality and sustainability. This leads to a bigger pie of revenues and profits for everyone. In line with shared value perspective, Nike could perhaps invest in wellness, education and training programs for workers through out its supply chain and save on healthcare costs, inefficiencies, and defects. Further, it could also proactively invest in innovation to find ways to reduce pollution and improve productivity, which in turn would create a positive cycle of company and community prosperity and enhance the company’s brand equity going forward.
Opportunities, constrains and risks:
Nike is faced with an opportunity to change its strategic direction towards socio political situation. Having faced with the roadblock once, the company has now come in the limelight. It would make a business sense for Nike to use this attention to gain a credible image by doing credible things. In doing so, Nike could take some guidance from Apple and AstraZeneca and publish information about its socially responsible initiatives to communicate directly with the consumers.
In terms of risks and constrains, Professor David Vogul’s article “The Limits of the Market for Virtue” is quite relevant. As Prof. Vogul suggests in the reading, its difficult to measure and assess the impact of responsible behavior on companies’ bottom-line. Thus the impact of responsible behavior on corporate earnings may be overshadowed by other business risks and opportunities and hence socio political dimension may not get a place in the company’s strategic decision-making process. Nike may face similar obstacles as well ad it makes it difficult for the executives to make a business case for and to improve a company’s corporate social conduct.
Another constrain it faces is that even though consumers, investors and employees may claim to prefer responsible firms, in reality few people are willing to pay more money for responsibly produced goods, as has been witnessed by the modest market shares of ethical brands. Additionally, usually consumers are unaware and hardly reject a company’s products because of the company’s social or environmental policies. This offers little incentive for the company’s management to actually dedicate efforts and resources to focus on socio political issues beyond what is required by law and regulations.
Limits and scope of social responsibilities:
Social responsibility is an open ended and continuously evolving field. Companies like Nike can no longer get away by saying that they are creating jobs which are better than the alternatives. Due to globalization and increasing consumer awareness, firms like Nike extremely vulnerable to reputation risks and NGO pressures. Being a market leader, Nike has more responsibilities to act as if it would like other firms to act and set a good precedence.