Just Think About It! Utilitarian Ethics Behind Nike’s Questionable Corporate Comeback


The Facts

Just Sew It! Oops… I mean Do It! This Nike phrase along with their iconic swoosh logo is recognizable all over the world. In the past ten years, their stock price has risen 124%.[1] They earned the number one spot in the apparel and accessories sector in performance rankings. In 2013, Nike placed 22nd in CR Magazine’s 100 Best Corporate Citizens list, which recognizes elite performance of US public companies and was simultaneously named America’s Most Innovative Company.[2] Yet they’ve also faced vicious criticism since the 1980s about horrific sweatshop conditions in their supply chain in addition to abuse and violation of factory workers’ rights. When the criticism started getting heavier and heavier, with increased public outcry, Nike launched a campaign to reverse their image and fix this flaw. This was the start of an incredible comeback for a company that had college campuses protesting across the country. But despite their comeback, the same allegations kept coming up. How does it make sense that Nike was able to turn itself around?

The Breaking Point

On November 8, 1997 the headline of the New York Times read, “Nike Shoe Plant in Vietnam Called Unsafe for Workers.” In a leaked memo prepared by the companies auditors, the article reported workers were being exposed to an illegally high level of carcinogens and forced to work 65+ hours a week for only $10, a violation of Vietnamese law.[3] While attempting to spend as little money and attention as possible on their supply chain conditions, Nike was also spending millions of dollars on professional athlete sponsorships and endorsements. Although this was not the first allegation of Nike allowing sweatshop like conditions, it was the first detailed report issued about the company who repeatedly denied any involvement with the issue. Over the next few years, as more allegations arose, Nike started to take a nosedive as they slowly became known as the most hated company in America.[4]

In 1998, a noticeable shift occurred in Nike’s corporate culture. In a speech that May, the company’s then CEO Phil Knight (who had just risen to become the 6th richest man in the US the year before) made bold statements that reverberated around the country and the world. Coupled with promises to raise wages for factory workers across the globe and adopt US safety and regulatory standards in all 165 factories to improve conditions, Knight also admitted that “The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse. I truly believe the American consumer doesn’t want to buy products made under abusive conditions.[5]” It was a make or break moment for Nike as the world paid closer attention than ever.

The Turnaround

Soon after Knight’s speech, Nike took their first significant step on this oath through creating the “Fair Labor Association,” a multi-stakeholder, independent monitoring group that works to “combine the efforts of business, civil society organizations, and colleges and universities to promote and protect workers’ rights and to improve working conditions globally through adherence to international standards.[6]” Among other things, the NLA frequents factories with unannounced visits to assess the working conditions and treatment of workers. Although the NLA was a crucial first step for Nike, it was still met with much criticism. One report showed their code of conduct allowed contractors to surpass the maximum number of hours if it’s during “extraordinary business circumstances,” which is not clearly defined. It also bans child labor only for children under the age of 14, and has been criticized because “companies get to choose their external monitors, who examine only 5% of the company’s factories and are not required to disclose the locations of inspected factories.”[7]

To further help reverse its image, Nike completed 600 factory audits between the years of 2002 and 2004. These audits included repeat visits to factories with histories of conduct or regulation violations. The International Labor Review published a quantitative analysis of these audit results which found that although Nike’s suppliers were “performing above average in terms of their Audit scores (65 percent), there exists tremendous variation in audit scores (hence working conditions) across factories in the world. Some factories appear to be in almost complete compliance with Nike’s code of conduct while others suffer from endemic problems with poor wages, excessive working time, harassment, etc.[8]

Despite the ongoing critique, humans rights activists were satisfied enough to admit Nike’s impressive change in how they dealt with labor issues. Instead of publicly denying all allegations, as was their pre-1998 strategy, Nike addresses issues head on and works with human rights groups, labor associations, and auditors to find solutions.[9] In 2005, they became the first company in the entire industry to publicly release a complete list of all the factories they’ve worked with.

They continued to highlight their change in strategy and increased transparency by issuing a 108-page report in 2005 about factory conditions and fair pay. Although there was overall improvement, the report openly admitted significant problems in factories such as physical and verbal abusive treatment, restricted access to toilets and water in 25-50% of factories, wages below the legal minimum in 25% of all factories, and punishment of workers refusing to work overtime.[10] Again, Nike faced both heavy criticism and praise for the report. The Human Rights Organization praised Nike for an “important step forward,” but continued to question “what the company is doing and change the picture and give workers more rights.[11]” Nike’s transparency was an important step in their comeback, but the problems were still simply not going away.

This trend continues today, as Nike continues to post audit data and social responsibility reports with the help of outside organizations to identify and work to solve issues surrounding their supply chain. Yet incidents still occur, such as factory managers at a plant in Indonesia throwing shoes, kicking, slapping, and verbally abusing workers.[12] Nike’s transparency is admirable, especially in an industry that is plagued with similar issues but not quite as targeted. But is their transparency and intent to solve labor rights enough? Have they really acted ethically? After all, it’s been 16 years since the CEO promised change and the company is still criticized. To answer these questions, we must approach the issues from a utilitarian set of ethics.

Did They Deserve it?

The utilitarian set of ethics is the best way to understand Nike’s reaction and decisions surrounding their use of sweatshops. Utilitarianism is a form of consequentialism that believes “morality is all about producing the right kinds of consequences.[13]” In simpler terms, the “ethical” course of action under utilitarianism is the one that maximizes benefits for the greatest number of people while minimizing suffering. I contend that under these principles, Nike did not act ethically. Although Nike turned a new corner with their transparent and open policy in dealing with allegations of using factories with sweatshop like conditions, they were unable to enact meaningful change and significantly improve these conditions. Instead, they found a way to make consumers feel better about their products without actually fixing the core problems.

In the years after 1998, when Nike switched from a “deny, deny, deny” PR strategy to one of transparency and a convincing will to change, the company took off. The stock price shot up and the company took a dominant role in the industry. In fact, since Nike’s new strategy began their stock has increased over 845% (blue), compared to Reebok’s 310% gain (Red, Nike’s closest competitor) and the overall market’s 113% gain (green) exhibited below.[14]

This shows that at least for Nike, the strategy greatly helped their market share and overall financial health, and as such they were greatly benefited in the long run. Also, a few years after Nike created the Fair Labor Association, competitors such as Puma and Adidas followed in their footsteps, also subjecting themselves to the same standards and inspection of factory conditions overseas as well as mirroring, to an extent, Nike’s strategy of being open and transparent about supply chain issues.

If this led to significant improvements, Nike would have undoubtedly acted ethically from a utilitarian perspective. Not only did they help their business, but they set an industry standard of transparency and intent to fix sweatshop conditions that other apparel giants could follow. This would have minimized worker suffering while maximizing benefits for the companies involved, as well as consumers worried about social responsibility. However, their strategy has actually proven to do little to help the underlying issues. In fact, a study of the entire apparel industry shows that the monitoring schemes set up to eliminate sweatshops, such as Nike’s and the ones imitating it, “have done little to ameliorate the plight of workers in the apparel industry and mainly serve as public relations exercises for brand name manufacturers designed to deflect criticism from social consumers and NGO activists back home.”[15] Since this study proves that in reality, Nike’s efforts have had only a minor impact on actually fixing the issues, the majority of these workers are not actually being benefited at all. From a utilitarian perspective the benefits of the company’s success and consumer satisfaction are vastly outweighed by the negative consequences and suffering of the hundreds of thousands of workers employed by Nike and other industry giants that followed their strategy.

Another independent study of Nike’s strategy agrees with this claim. An article by Richard Locke entitled Does Monitoring Improve Labor Standards? Lessons From Nike states that for labor conditions to be actually improved, “a more systemic approach will be needed, one that combines external (countervailing) pressure–be it from the state, or unions, or labor-rights NGOs–with comprehensive and transparent monitoring systems and a variety of “management systems” interventions aimed at eliminating the root causes of poor working conditions.[16]” Nike’s approach fell short of being adequate enough to enact meaningful change.

Haines contends that “of all the things a person might do at any given moment, the morally right action is the one with the best overall consequences.”[17] In Nike’s case, they had an incredible opportunity to act ethically and change their entire industry. Instead, they tricked consumers into believing Nike was trustworthy and solving problems through nothing more than an elaborate PR campaign. Not only did Nike not help their factory workers, but their consumers faced negative consequences as well. As a result, they have a misplaced sense of trust in a company and product that presented the public with a murky image self-labeled as ‘transparent.’ Behind this image Nike could fix just enough to maintain the illusion. From the continued plight of factory workers to the misconstrued image given to consumers, the consequences of Nike’s decisions certainly outweigh the benefits of their impressive financial success.

Are we Sure?

Well… no. I was able to find one piece of research that deviates in its conclusion of Nike’s efforts. While papers such as Locke and Winston’s claim that Nike’s strategy was nothing more than a PR campaign that did little to help workers (pointing mainly to the continued instances of neglect, abuse, and sweatshop conditions), one piece took a different route. In 2005, two authors named Denis Arnold and Laura Hartman co-authored a paper titled, “Beyond Sweatshops: Positive Deviancy and Global Labor Practices.” Their goal was to determine whether apparel companies could deviate from industry norms to respect basic rights of workers and remain economically competitive. They concluded that it was indeed possible, and pointed specifically to Nike as the golden example. Arnold and Hartman show the audit committees, global labor practice teams, research firms, safety initiatives, document releases, and Nike’s Corporate Responsibility Board member to prove their point.[18] They claim that Nike’s original scope of responsibility began and ended with employees on a company level (i.e. employed by Nike). Yet with the changes implemented, “Nike has demonstrated positive ethical deviance at a systems level” (i.e. all employees, including external supply chain workers). The authors then contend that because their scope of responsibility is now so broad, the corporation has acted ethically from a utilitarian perspective by maximizing the benefits for the greatest amount of people with no consequences.

I for one don’t buy it, and believe that Arnold and Hartman did not accurately apply true utilitarian ethics. To give them credit, Haines may agree with the authors’ strategy of not focusing too much on results, such as the incidents continuing to occur. After all, Haines stated that “it would be misleading to say that consequentialism is the view that morality is all about results.”[19] However, Haine also says that consequences of an action include everything the action brings about. I would argue that this action brings about a continued suffering of thousands of migrant workers, despite the broadened scope of responsibility. Therefore, I still maintain that Nike does not maximize the benefits for the greatest number of people while minimizing suffering.

Works Cited

Greenhouse, Steven. (November 8, 1997). Nike Shoe Plant In Vietnam Is Called Unsafe for Workers. The New York Times. Web. http://www.nytimes.com/1997/11/08/business/nike-shoe-plant-in-vietnam-is-called-unsafe-for-workers.html

Nisen, Max. (May 9, 2013). How Nike Solved its Sweatshop Problem. Business Insider. Web. http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5

Mission Statement, Fair Labor Association. http://www.fairlabor.org/our-work/mission-charter

Fisher, J. (January 01, 2006). Free Speech to Have Sweatshops? How Kasky v. Nike Might Provide a Useful Tool to Improve Sweatshop Conditions. Boston College Third World Law Journal, 26, 2, 267-310.

LOCKE, R., KOCHAN, T., ROMIS, M., & QIN, F. (March 01, 2007). Beyond corporate codes of conduct: Work organization and labour standards at Nike’s suppliers.International Labour Review, 146, 21-40.

Aaron Bernstein, (September 19, 2004) Nike’s New Gameplan for Sweatshops. Bloomberg Business Week, http://www.bloomberg.com/bw/stories/2004-09-19/online-extra-nikes-new-game-plan-for-sweatshops.

Teather, David, (April 14, 2005) Nike Lists Abuse at Asian Factories. The Guardian. Web. http://www.theguardian.com/business/2005/apr/14/ethicalbusiness.money

Daily Mail Reporter. (July 11, 2012). Nike Workers ‘Kicked, Slapped, and Verbally Abused’ at Factories. Web. http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5

Haines, William. “Consequentialism.” William Haines, The University of Hong Kong, n.d. Web. 23 Nov. 2014

Winston, M. E. (July 29, 2005). Monitoring Sweatshops: Workers, Consumers, and the Global Apparel Industry (review). Human Rights Quarterly, 27, 3, 1124-1128.

Locke, R. M., Qin, F., & Brause, A. (January 01, 2007). Does Monitoring Improve Labor Standards? Lessons from Nike. Industrial & Labor Relations Review, 61, 1, 3.

Arnold, D. G., & Hartman, L. P. (July 01, 2005). Beyond sweatshops: positive deviancy and global labour practices. Business Ethics: a European Review, 14, 3, 206-222.

[1] Retrieved from Yahoo Finance

[2] Retrieved from Nike, Inc. Nike Company Website. http://www.about.nike.com

[3] Greenhouse, Steven. (November 8, 1997). Nike Shoe Plant In Vietnam Is Called Unsafe for Workers. The New York Times. Web. http://www.nytimes.com/1997/11/08/business/nike-shoe-plant-in-vietnam-is-called-unsafe-for-workers.html

[4] Greenhouse, 1997

[5] Nisen, Max. (May 9, 2013). How Nike Solved its Sweatshop Problem. Business Insider. Web. http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5

[6] Mission Statement, Fair Labor Association. http://www.fairlabor.org/our-work/mission-charter

[7] Fisher, J. (January 01, 2006). Free Speech to Have Sweatshops? How Kasky v. Nike Might Provide a Useful Tool to Improve Sweatshop Conditions. Boston College Third World Law Journal, 26, 2, 267-310.

[8] LOCKE, R., KOCHAN, T., ROMIS, M., & QIN, F. (March 01, 2007). Beyond corporate codes of conduct: Work organization and labour standards at Nike’s suppliers.International Labour Review, 146, 21-40.

[9] Aaron Bernstein, (September 19, 2004) Nike’s New Gameplan for Sweatshops. Bloomberg Business Week, http://www.bloomberg.com/bw/stories/2004-09-19/online-extra-nikes-new-game-plan-for-sweatshops.

[10] Teather, David, (April 14, 2005) Nike Lists Abuse at Asian Factories. The Guardian. Web. http://www.theguardian.com/business/2005/apr/14/ethicalbusiness.money

[11] Teather, David, Nike Lists Abuse at Asian Factories

[12] Daily Mail Reporter. (July 11, 2012). Nike Workers ‘Kicked, Slapped, and Verbally Abused’ at Factories. Web. http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5

[13] Haines, William. “Consequentialism.” William Haines, The University of Hong Kong, n.d. Web. 23 Nov. 2014

[14] Retrieved from Yahoo Finance.

[15] Winston, M. E. (July 29, 2005). Monitoring Sweatshops: Workers, Consumers, and the Global Apparel Industry (review). Human Rights Quarterly, 27, 3, 1124-1128.

[16] Locke, R. M., Qin, F., & Brause, A. (January 01, 2007). Does Monitoring Improve Labor Standards? Lessons from Nike. Industrial & Labor Relations Review, 61, 1, 3.

[17] Haines, William. “Consequentialism.” William Haines, The University of Hong Kong, n.d. Web. 23 Nov. 2014

[18] Arnold, D. G., & Hartman, L. P. (July 01, 2005). Beyond sweatshops: positive deviancy and global labour practices. Business Ethics: a European Review, 14, 3, 206-222.

[19] Haines, William. “Consequentialism.” William Haines, The University of Hong Kong, n.d. Web. 23 Nov. 2014

Paper 2 Orrson

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One thought on “Just Think About It! Utilitarian Ethics Behind Nike’s Questionable Corporate Comeback”

  1. Well, what evidence did either the naysayers or the “positive deviancy” researchers find? That would go further to convincing me about either measurable improvements or a minimal investment in window-dressing (the investment being all the audits, monitoring, and so on.”

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