Why Can't Nike - "Just Do It?"

 

For the past decade Nike’s business journey is characterized by two distinctive qualities - business growth and learning to take responsibility. Since 2003 they have exceeded the Dow, split their stock in 2007 and weathered the global financial crisis better than most. They are now reclaiming their former wealth showing an aggressive steady climb over the last six months. This is a testament to Nike’s sound business basics, good products and superb marketing.

Nike is one of the pioneers of outsourcing manufacturing overseas. This is one of their major engines for profit. Cheap labor allows for high profit margins in shoes and apparel. Over the last twenty years they have moved manufacturing to various countries to catch the wave of the lowest labor costs. Today it is estimated that their supply chain funds the employment of over 800,000 people primarily located in Malaysia, Indonesia, Vietnam,Thailand and China. 

During 1990’s Nike held center stage as a company whose partners engaged in child labor, employee abuses, and sweatshop working conditions. Nike’s initial response was characterized by adamant denial and aggressive self-defense. They did not own the manufacturing and could not be held responsible for labor practices in countries outside the United States. This was legally and technically true. Human rights activists had another view. For the next decade Nike would engage in a policy of monitoring and beleaguered enforcement of violations against Nike’s Code of Conduct.

In 2006 Nike made a bold move to be more transparent and turned over its monitoring data to Richard Locke of MIT’s Sloan School. Locke spent three months just organizing the data, which suggested to him that Nike had not been trying to actively learn from it.  Locke’s final conclusions would state that despite "significant efforts and investments by Nike ... workplace conditions in almost 80% of its suppliers have either remained the same or worsened over time."

Expanding Corporate Responsibility

Today Nike is engaged in new series of projects, which are bringing results to the bottom line and external accolades from environmentalists. Using quality methodology and new design techniques they are committed to reduce over $800 million dollars of annual product waste and to use environmentally friendly materials. This led to Nike being rated third in the top 100 companies in 2008 committed to Corporate Social Responsibility. (However in 2009 they dropped to 23 primarily based on CRO placing more weight on human rights.)

Even more significant, Eguenia Levinson in her article Citizen Nike reports that for the first time Nike is thinking about its deeper connection to it’s supply chain. Nike is realizing that as they make decisions they drive behavior inside manufacturing plants.  

When the employees in Beaverton, Oregon link themselves and their work processes to their outsourcing partners plants, a new set of possibilities are open for consideration. Seeing the creation of a shoe as a full process and specifically seeing how design decisions directly impact manufacturing is new to Nike’s way of thinking. Further learning how the use of hazardous glues effects safety in plants or even how last minute design changes or delays impact schedules and drive overtime and working conditions inside plants sometimes leading to Code of Conduct violations. This is a tremendous leap from twenty years ago when they said they had no connection to their manufacturing partners. This learning brings about another level of cooperation and responsibility.

Leadership Bubble of Self-Interest

Yet Nike’s business still operates within the bubble of self-interest. This is the predominate filter which drives what possibilities are open for consideration. Now to be fair, Nike is no different than their competitors or the majority of American businesses. What we are learning from Nike’s behavior and other companies engaged in sustainability efforts is that there is room for change. The bubble of self interest can be expanded, if and when the new behavior is carefully couched in terms of how this is “good for business.”

An expansion of the bubble of self-interest for any business is a significant change in the right direction, especially in the area of sustainable growth practices. However this stance still limits a company’s ability to explore other options.

The prime example of this is paying “living wages.” For the past fifteen years Nike has refused to consider setting the standard in it’s Code of Conduct to pay living wages to it's workers. They do agree to pay the country's minimum wage. However, in many countries minimum wage does not equate to living wages. It is a known fact that many countries like Indonesia arbitrarily set minimum wage low to attract foreign companies.  

A second example is seeing the connection between competitive outsourcing, based on driving lower prices, and how it drives specific work practices in a factory. Richard Read of the Oregonian wrote specifically about this issue last August. In his article he quotes Jeffrey Ballinger, a longtime anti-Nike activist, who says "If Nike put four factories in competition for 100,000 Air-whatever shoes, they can't go back and say, 'Give the workers Saturdays off,' because the contractor needs to make money." Scott Nova, the executive director of the Worker Rights Consortium which monitors labor rights in foreign countries who says “factory owners are being asked to do two mutually contradictory things: improve standards and cut prices. The factories do everything they possibly can to hold down labor costs, and they hope nobody catches them for violating labor standards.” This is another example how the competitive nature of the stance of self-interest sustains extremely negative working conditions.

The stance of self-interest also drives behavior and prevents people or companies from direct involvement in learning and discovery. 

If we go back ten to fifteen years when Nike began their more active inquiry into the state of working conditions, the did so by hiring outside resources to do the work for them. As they began to learn more of what was happening, they would put plants on notice. Much as a health inspector might do.  Their initial follow-up cleared up the worse cases of sweatshop management and child labor. However until recently their follow-up always been characterized by patience.

Nowhere is it documented that a practice evolved in Nike for executives or even middle level managers to go to their manufacturing facilities and for a week or even a day work the same jobs, under the same conditions, with the same hours as the women on the factory floor. 

It would seem that a decade of slow to little change might have sped up considerably if one executive had personally experienced breathing problems, chemical skin irritations, suffered from heat stroke or exhaustion, been verbally or physically harassed. No executive at Nike has tried to live on a weekly wage that is paid in the factories. 

Nor it is documented anywhere that a regular practice of surveying employees or holding focus groups with employees and learning from this data is used. It would seem the authentic listening or interviewing of employees has been left to journalists and human rights activists. Historically Nike has relied on other measures having factories self report the age of employees, hours worked, overtime, pay practices and days off. More recently they focus on safety practices and air quality.

Behaviors that create high contact and connection are consistent with abandoning self-interest and adopting a true learning position, which in turns always leads to being influenced. The value of the stance of self-interest is that it limits the influence others have on you, because you are less connected and your are committed to certain ways of doing business which are unquestioned.

Nike is now recognized as a leader in Corporate Social Responsibility. Yet today we have a host of global problems, which cannot be solved by institutions that operate from a stance of self-interest, even Nike’s more expanded version of self-interest.

Self-Interest and the Millennium Development Goals

I would imagine that only a handful of American and European business executives could name the United Nations’ Millennium Goals and a many would not even know what the Millennium Goals are. Why should they? The Millennium Goals are not in their bubble of self-interest. To directly support the Millennium Goals requires people (leaders) and institutions (governments and businesses) to step out of their bubble of self-interest. 

The Millennium Development Goals are End Poverty and Hunger, Universal Education, Gender Equality, Child Health, Maternal Health, Combat HIV/AIDS, Environmental Sustainability, and Global Partnership.

Nike’s improvement projects do contribute directly to Environmental Sustainability. At the same time their unwillingness to dialogue and take responsibility for not paying living wages directly contributes to the status quo of sustaining poverty and preventing gender equality (remember that 80% of the people who produce NIKE shoes and apparel are young women) Without the active involvement of business, countries are not capable of meeting the Millennium Development Goals. The problems are too large, too complex, too interconnected.

Nike is the market leader controlling approximately 45% of the global market in shoes. They have a growing revenue stream of 18.6 billion dollars, a sales increase of 52% since 2004, a gross margin of 45%, and a net income of 1.88 billion.  

So why can’t Nike “Just Do It?”

In regards to working conditions Nike says they personally can't shift industry conditions, without help from other companies, governments and workers' rights groups. According to Erin Dobson, Nike's director of corporate-responsibility communications. "The real way to address this is for the brands to collaborate and agree on a core set of standards. Our monitors aren't going to catch everything." Of course the deeper fear, which has been stated over the last fifteen years, in more direct ways, is that by paying living wage without competitors agreeing to the same standards Nike will lose some of its competitive advantage.

Yet there is nothing preventing Nike from creating a goal to wherever possible award contracts to companies who pay living wage. Of course this might be in direct conflict with their goal of awarding contracts to the suppliers who bid at the lowest cost in and industry, which competes on the low cost of its labor. Ironically because Nike is dominates the market many of its competitors copy or follow its lead. Companies like Adidas frequently award contracts to the same suppliers Nike already is using. Since Nike has never experimented with paying living wage their fear is untested. The industry may follow. Nike might generate extraordinary good will leading to increased sales and customer loyalty.

Nike just doesn’t do it because they still work within a bubble of self-interest surrounded by an industry, which operates in a larger bubble of self-interest. And currently the pressure is off on human rights. The public has cooled to this issue in regards to Nike and there halo of good will created by Nike’s aggressively publicized their green efforts does not invite criticism. So in large part Nike doesn’t do it because we don’t ask them to do it.

  So how does all this change. The answer is through one person at a time. The degree of freedom for CEO’s to operate in a larger field of self interest is proven by Nike. However it is only when leaders abandon self-interest for themselves and their companies that we see a new form of leadership emerge. In this form of leadership business success is possible as negative cycles of harm to the environment and humans cease, and being of service to becomes a predominate characteristic.

 A Lesson in Leadership 

The Haudenosaunee or as they are more commonly known The Iroquois Confederacy understoodthe importance of leaders abandoning self interest. Each new chief followed these principles and was held accountable by the people of the tribes. They were told:

“In all of your deliberations in the Confederate Council, in your efforts at law making, in all your official acts, self interest shall be cast into oblivion.  Cast not over your shoulder behind you the warnings of the nephews and nieces should they chide you for any error or wrong you may do, but return to the way of the Great Law that is just and right.  Look and listen for the welfare of the whole people and have always in view not only the present but also the coming generations, even those whose faces are yet beneath the surface of the ground -- the unborn of the future Nation."

Comments

[Jim Keady]

If you are interested in learning the latest about how consumers, investors and workers are fighting against Nike's exploitative labor practices, please visit www.teamsweat.org.

Peace, Jim Keady

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