Team 4

Brendan Zanetti

Anna Zakrepine

Brief Integrative Case 1.2 pp87-88

Advertising or Free Speech?The Case of Nike and Human Rights

MISSION STATEMENT: TO BRING INSPIRATION AND INNOVATION TO EVERY ATHLETE* IN THE WORLD.

* IF YOU HAVE A BODY, YOU ARE AN ATHLETE.

Blue Ribbon Sports, the original Nike, Inc., was founded in 1964 by Bill Bowerman and Phil Knight

Blue Ribbon Sports hired Carolyn Davidson to design their classic "swoosh" logo in 1971 for $35, The Nike swoosh embodies the spirit of the winged goddess who inspired the most courageous and chivalrous warriors at the dawn of civilization.

Blue Ribbon Sports founded their "Nike" (pronounced NI-KEY), named after the Greek Goddess of Victory,

Today, Global leader in the production and marketing of sports and athletic merchandise including shoes, clothing, and equipment;

Known for off-shore manufacturing, accused of using sweatshops.

Nike Inc.

“On the playgrounds of america , every

kids’ goal is to score: in pakistan, where

children stitch soccer balls for six cents an hour, their goal is to

survive”

Life Magazine 1996

Ban of Nike products in some universities like University of Oregon;

CEO Phil Knight withdrew his donation of $30 million after the school announced joining the Workers Rights Consortium;

Nike hired more compliance officers in 2003 to monitor all the overseas operations to comply with the its published corporate code of conduct.

Reputation was ruined;

Consequences

In 2002, a lawsuit was filed against Nike Inc in California’s Supreme Court.

The lawsuit was based on the fact that Nike Inc used false information and misled everyone when publicly denying its direct participation in abusive labor conditions overseas.

Nike Inc countered by stating their announcements were protected under First Amendment - Free Speech.

The court stated that Promotion of Company’s Reputation persuades to purchase its products, and, therefore, considered Advertising. Hence, all the promotion of the reputation and the product should be factual.

Marc Kasky v. Nike Inc

In 2003, Nike Inc filed appeal to US Supreme Court to decide whether

1. Nike’s statements about working conditions overseas were in fact “commercial speech” ;

2. A private individual Marc Kasky has the right to sue at all;

Marc Kasky v. Nike Inc Continued…

Kasky’s supporters: California state and 17 other states, Ralph Nader’s Public Citizen Organization, CA ’s AFL/CIO, and CA’s attorney general;

Nike Inc’s supporters: American Civil Liberties Union, the Business Roundtable, the US Chamber of Commerce, other MNC’s like Microsoft, Exxon/Mobil, and Bush administration.

The case was dismissed as “improvidently granted”.

Nike Inc decided to pay more attention to it CSR by donating $1 million to tsunami relief in 2004;

The company advocated fair wages and better working conditions in its outsourced operations;

Established Nike Foundation which supports Millennium Development Goals;

In the US Nike Inc has worked with Head Start (2005) and Special Olympics Oregon (2007);

Created NikeGO to promote physical activity among youth;

Committed to efforts such as Hurricane Katrina relief;

Promotes Literacy with grants made by Nike School Innovation Fund.

Nike Inc & Corporate Social Responsibility

1. What ethical issues faced by MNC’s in their treatment of foreign workers could bring allegations of misconduct in their operations?

2. Would the use of third party independent contractors insulate MNCs from being attacked? Would that practice offer MNCs a good defensive shield against charges of abuse of “their employees”?

3. Do you think that statements by companies that describe good social and moral conduct in the treatment of their workers are part of the image those companies create and therefore are part of their advertising message? Do consumers judge companies and base their buying decisions on their perceptions of corporate behavior and values? Is the historic “made in” question (e.g. “Made in the USA”) now being replaced by a “made by” inquiry (e.g. “Made by Company X”, or “Made for Company X by Company Y”)?

4. Given the principles noted in the case, how can companies comment on their positive actions to promote human rights so that consumers will think well of them? Would you propose that a company a) do nothing b) construct a corporate code of ethics c) align itself with some of the universal covenants or compacts prepared by inter nations agencies?

5. What does Nike’s continued financial success, in spite of the lawsuit, suggest about consumers’ reactions to negative publicity? Have American media and NGOs exaggerated the impact of a firm’s labor practices and corporate social responsibility on its sales? How should managers of an MNC respond to such negative publicity?

Questions for Review

Advertising or Free Speech?The Case of Nike and Human RightsBrief Integrative Case 1.2 pp87-88

1. What ethical issues faced by MNC’s in their treatment of foreign workers could bring allegations of misconduct in

their operations?

There are a good number of ethical issues MNC’s might face that could bring allegations of misconduct. Even in recent time we have seen a number of MNC’s that

have come under fire for a number of reasons. Some popular topics include deplorable and substandard working/living conditions, long hours, sub-par wages, etc.

Take for example the recent Foxconn (Apple iPhone manufacturer) revelation about how workers are treated and expected to work/live or the recent Bangladeshi

factory tragedies. They are both prime examples of the ramifications MNC’s face by not completing due diligence and making the wrong choice when it comes to an

ethical concern.

In today’s business world, most public companies have “bosses” to answer to—their shareholders. What do shareholders want? They want to see returns on their

investment through profits and efficiently run companies. It is no secret that the cost of doing business is increasing in all areas. In an effort to maximize profit,

reduce waste, streamline for efficiency...these companies search out the most cost effective solution to creating/servicing their goods/services which ultimately has

lead them to outsourcing. When you combine outsourcing with the company objectives of cost-cutting and profit maximization, you come to an interesting crossroads.

Costs can only be cut down so far before you reach an area where comprises are made. Combine company objectives with a foreign countries relaxed laws and

regulations, you have an optimal environment to do business in—from a business perspective. It’s almost as if that particular combo is a breeding ground for ethical

misconduct by an MNC. Why? Because it’s easier to commit wrongdoing and get away with it there than it would be in the MNC’s home country. This does not make

such practices acceptable.

http://www.cnn.com/2013/10/24/opinion/bangladesh-garment-workers/

http://www.dailymail.co.uk/news/article-2207759/2-000-Foxconn-staff-riot-iPhone-5-sweatshop-China-guard-beats-worker.html

Advertising or Free Speech?The Case of Nike and Human RightsBrief Integrative Case 1.2 pp87-88

2. Would the use of third party independent contractors insulate MNCs from being attacked? Would that

practice offer MNCs a good defensive shield against charges of abuse of “their employees”?

Human rights issues are among the most important ones to consider for MNCs these days. There is no universal standard on what is considered right or

wrong because all the countries are different. Their standards, culture and other factors all play a major role in deciding whether the MNC treats the

employees right or wrong. If the Multinational company decides to outsource some jobs to a third world country, it may face various difficulties. Labor

policies are different in each nation, especially the difference is seen between the developed and underdeveloped countries. Some companies use such

labor for economical reasons. In recent years the issues of abusing the employees (long working hours, low wages, and child labor) have come to public

attention and this is why some companies use third party independent contractors. This practice will not prevent the MNCs from being attacked by public

activists (NGOs) if any information about workers’ abuse will emerge. Reputation plays a very important role in the company’s overall image. It helps

increase sales of certain products and establish loyal consumer base. Once the image is ruined by associating with any of the human rights issues, it is

really hard to correct. One example is using child labor in certain nations. It may be a norm in that society because the survival of a whole family may

depend on it but multinational company should not engage in these practices. They should be advocates against this and promote better working conditions

for adults. In the case of Nike Inc. and child labor in Pakistan the company should have never get involved in such practice. It ruined its reputation. On the

contrary, MNCs may also use third party independent contractors as a defensive shield against charges of abuse of “their employees”. I believe, this may

help them win the case in court depending on the labor regulations but the connection to the company will only worsen their image and be considered

unethical.

Advertising or Free Speech?The Case of Nike and Human RightsBrief Integrative Case 1.2 pp87-88

3.Do you think that statements by companies that describe good social and moral conduct in the treatment of their workers

are part of the image those companies create and therefore are part of their advertising message? Do consumers judge

companies and base their buying decisions on their perceptions of corporate behavior and values? Is the historic “made in”

question (e.g. “Made in the USA”) now being replaced by a “made by” inquiry (e.g. “Made by Company X”, or “Made for

Company X by Company Y”)?

Absolutely, good social and moral conduct of an MNC is considered a part of their advertising message. An MNC offering a great product/service is the base of what

consumers are looking for in today’s market. Is doing the bare minimum enough anymore? No. It is safe to say that consumers are now looking to these companies

and wondering what “added value” do you bring to me, the country...the world? What do you do besides make something and turn a profit on it? MNC’s better have a

good answer and track record to prove that they live up to these standards. In addition, some, not all consumers base their buying decisions based on how ethical and

socially responsible they are.

For example, two industries/companies to light when you think about how intertwined an MNC’s CSR policy and track record is with its advertising message. Those

two are Banking (Bank of America), and Oil companies (BP). Not too long ago, Bank of America launched campaigns outlining how they give back and contribute to

the communities they do business in. So, there was one for each major market (NYC, BOSTON, LA, etc.) and they outlined the specific projects or initiatives they

contributed to. Why do this? Because studies showed BOA that the perception of the company was that it didn’t care about anything except making money, got bailed

out, and steals people’s homes. They wanted to appear to the public as if they are more than just a bank.

Similarly, you will see the same thing in BP, after the oilrig accident in the Gulf. Not long after that incident, BP rolled a campaign touting that they “accept

responsibility” and are going to work tirelessly and devote vast amount of resources to ensure the Gulf community gets back to some level of normalcy. After that, you

soon had representatives of the bordering Gulf States that outline the benefits of coming to each one for vacation and how BP made the recovery possible. The CSR

message companies create and promote are very much a part of their advertising message because today’s consumers demand it.

http://about.bankofamerica.com/en-us/partnering-locally.html#fbid=q04a2Er5oaX

http://www.bp.com/en/global/corporate/gulf-of-mexico-restoration/committed-to-the-gulf.html

Advertising or Free Speech?The Case of Nike and Human RightsBrief Integrative Case 1.2 pp87-88

4.Given the principles noted in the case, how can companies comment on their positive actions to promote

human rights so that consumers will think well of them? Would you propose that a company a) do nothing b)

construct a corporate code of ethics c) align itself with some of the universal covenants or compacts prepared

by international agencies?

Corporate social responsibility is an important factor to consider for MNCs today. The companies are expected to act in a way that would benefit the

society not only in what is required by law but also in some extra actions. There are various ways how companies can comment on their positive actions to

promote human rights so that consumers will think well of them. We believe as long as the message they convey consists of factual information and is

truthful, it will help the consumers think positively of them. When choosing from the above options in order to have a positive image MNCs should definitely

construct a corporate code of ethics and maintain certain agreements on a global scale. The examples are U.N. Global Compact, The Global Reporting

Initiative, and the social accountability “SA8000” standards. Under these codes of conduct and agreements MNCs need to maintain the minimum level of

social standards in the workplace and communities in all of the MNC’s operations domestic or overseas. However, if the MNC aligns itself with some of the

universal covenants or compacts prepared by international agencies, it will firstly save time in doing a research of what is right or wrong in any given region.

In addition, the association with a well known international agency that supports human rights will only help the company’s image and people will have a

better perception of it. So the last two options in combination will help promote human rights so that consumers will think well of MNCs.

Advertising or Free Speech?The Case of Nike and Human RightsBrief Integrative Case 1.2 pp87-88

5. What does Nike’s continued financial success, in spite of the lawsuit, suggest about consumers’ reactions to

negative publicity? Have American media and NGOs exaggerated the impact of a firm’s labor practices and corporate social

responsibility on its sales? How should managers of an MNC respond to such negative publicity?

Nike’s continued success would suggest that while it’s important for some people to know how socially responsible they are, it’s not imperative to all of its customers how

responsible they are. The amount of people who actually follow and live by, make decisions on how socially responsible a company is, is relatively small. These individuals make

up a very small portion of Nike’s customer base. If Nike’s customer base is somewhere in the billions (assumed) of numbers of people, and only 1 million are out opposing Nike as

whole, you’ll find that the activists and negative publicity will fall on deaf ears or fade very quickly. It ’s not large enough of a movement (the opposition) to make a meaningful

impact on Nike’s bottom line. The reality is, Nike has built an incredible brand and reputation for itself. These faux pas PR issues come and go in the blink of an eye because it ’s

headline news for a week, tops, and then no one hears about them again. Nike creates and manufactures great products. However, when you go to the store and you look at one

of their products, more than likely you aren’t looking at it and immediately thinking about all the questionable and horrible things some people endured to make them. You are

probably thinking about whether or not it is comfortable, functional, and affordable. That’s the reality of buying a Nike product.

Have the media and NGO’s exaggerated the impact of CSR on it’s sales? Well that depends on how you look at the situation and what the claimed impact is. If you were to say

that the negative PR would hurt Nike’s sales, you’d be lying. If it does negatively impact sales, it’s short lived. People remember for a moment and then forget for long periods of

time. If you were to say that it positively impacts sales, you’d be lying. No one goes out and buys a product from a company that is notorious for having terrible CSR policies and

track record just for that reason alone. The point here is that negative publicity isn’t going to impact sales in any measurable way for a long period of time. Positive publicity would

though, most likely. The only way to hurt Nike’s bottom line is to get ALL of their customers to turn on them and stop buying, which will never happen. Nike is enjoying a “too big to

fail” attitude.

The managers of an MNC that come under fire should and usually do mitigate risk and losses through tactful PR maneuvers. You ’ll find that they almost never ignore an immediate

PR issue. Typically, they address the issue in a roundabout way by touting their positive stance on the issue and supplying facts or details about related positive things they have

done in the past. It appears to be a tried and true method of dealing with negative PR issues. It gives the MNC a chance to express its view and position on the issue and not

admit to any wrongdoing while promoting the positive attributes of the company. It ’s a win-win for the company but leaves the general public hanging and wondering what the truth

is, if it is ever discovered.