GBSB Global Business School

GCO130 – Ethics and Responsibility (Online)

Professor Elene Jgerenaia

Spring 2022
Assignment 1
Please take case of Nike sweatshops. Discuss what were the red flags, what was unethical and
what was non-compliant. Please view the company from a stakeholder approach and propose
solutions.

Aml Mohammed Miftah Albarghouti

Claudia Kühr
Robin Daniel Bos
Jacques Albert Crouquet

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Introduction
Headquartered in Oregon, United States, we have identified “Nike, Inc.” to have existing
difficulties when addressing ethics and compliance in their business operations. In detail, Nike
counts with various stakeholders yet their most important one is having their rightful laws and
regulations breached. Particularly, Nike’s suppliers referred as it’s ‘sweatshops’ are in East
Asian regions such as Indonesia, Taiwan, China and South Korea. Thanks to Nike’s influential
impact in today’s modern culture this event can jeopardize Nike’s integrity and trustworthiness
for future investors as “institutional investors own over 50% of the company” (YahooFinance,
2021).

Despite Nike’s incredible success in the textile industry, its sweatshops have been under
investigation for over 20 years. With their first scandal dating back to 1996 involving child labor
and dangerous working conditions. Although this led to investments in CSR (Corporate Social
Responsibility), it is believed Nike is not living up to the legal standards of integrity and
compliance they once agreed to. Therefore, we deem it necessary to highlight Nike’s socio
economic ‘red flags’ through this investigation, as propose a solution to redirect the future
destiny of the company towards one that reflects the key pillars of ethicality being philanthropic
and economic responsibility.

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Stakeholder Identification

We have identified Nike’s sweatshops to be suppliers, meaning it falls under the sector of
‘Functional Stakeholders’ in the organization. Further, by using the ‘Power Interest matrix’ we
can reference Nike’s sweatshops as having low power but have high interest to abide by the
organization’s production KPIs (Key Performance Indicators) and quality standards. Thus, we
can see Nike is at fault as they are not keeping its suppliers informed of basic working standards
including minimum employee wage, minimum legal working ages and basic hygiene levels,
among others. In addition, although this sector may not have high decision-making power, they
ought to have their ethical interests respected by its parent company, Nike.

Power Interest matrix of Nike suppliers

Figure from Researchgate.com

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Identification of red flags

Initially the red flags were challenging to discover, Nike had taken precautions to ensure
that nobody could see what was going on. It was common knowledge that the work conditions as
well as the wages were far below reasonable, especially for the people of the western world. The
unethicality of it all was visible, yet somehow went unnoticed. Since Nike controlled the first
and final phases of the supply chain, they maintained complete control over its process
(Greenberg, J., & Knight, G. 2004). This allowed them to cover up anything that they did not
want to be shown and instead focus on their CSR efforts. The line between unethical and non-
compliance is sometimes very vague, as is the case in this situation.

Unethical and non-compliant practices in the organization

When shown living conditions, wages, child labor and the relentless working hours,
naturally people would consider it unethical. However, the legality of it becomes a different
question as the example of wages is a frequently brought up topic. According to Ballinger (2009)
44% of the workers at the Nike factory did not earn the minimum wage of $0.87, which only
covered about 68% of a person’s basic needs. This is a strong indication that not only were there
unethical practices, they were passing onto illegality at several stages. Another example of this is
the use of the code of conduct by Nike. In most cases such a code is a positive element for
employees, however in this case it banned employees from speaking out about the activities
going on at their workplace with severe punishments consequently for not following this code.

Seeing the work conditions more in detail, Nike has faced serious criticism for sourcing
its products in overseas sweatshop factories of low-income countries in the 1990s. Sweatshops
are known for violating the right to reasonable wages and overtime laws. According to Williams
(2020) the conditions in the factories were highly abusive with verbal and physical abuse, sexual
harassment, undrinkable water, forced overtime and poverty-level wages (p. 151). Moreover, in
an Ernst & Young audit from 1997 it was reported about serious health and safety problems in a
Vietnam factory where workers were exposed to toxic chemicals above the legal limit without
protective clothing and resulting in numerous cases of employee diseases (Greenhouse, 1997). It
was found out that the concentration exceeded up to 177 times above acceptable standards
(Wazir, 2001). Nike was also accused of using child labor to manufacture its products
(Schanberg, 1996). The practices in the factory did not only violate Nike’s code of conduct in

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terms of being non-compliant, but it is also perceived as highly unethical and as a serious human
rights matter (McCall, 2001). After the sweatshop scandal was revealed, Nike announced
improvements in overcoming unethical and non-compliant practices in factories for example by
involving non-governmental organizations in monitoring and making inspection results public
and transparent (Wazir, 2001).

Our Solution

The key solution to the many violations is transparency. Nike needs to increase
transparency in its supply chain to boost their ethical responsibility and traceability (Doorey,
2011). Nowadays, stakeholders are not prepared to place trust in a brand without detailed data of
the product’s operations. Starting from disclosing the names and locations of its suppliers, to
publicly sharing information about product quality, safety standards, material sourcing, labor
practice and sustainability.

Nike has defended that its use for hundreds of international subcontractors makes it
difficult to prevent violations Although utilized extra international monitoring and oversighting
measures to ensure factories were not exploiting their workers. According to Genevieve & Jane,
(2016), traditional third -party audit regimes have not only been argued to have extremely
limited results, but also shown insufficient Therefore, Nike should explore new forms of
monitoring labor problems in the supply chain such as obtaining feedback from workers using
online reporting platforms (Steinmeyer, 2017). There have been some developments in this
domain where workers are connected with managers, providing work-sourced reporting, and thus
reducing workplace violations. Along with audits, this shall improve and bring more ethicality
into the process.

According to Dey, A., LaGuardia, P., & Srinivasan, M. (2011), a “green’ company image
is dominating now from the consumer value prospective. Although price and quality remain
important to consumers, more socially relevant attributes such as energy efficiency and health
benefits have been a priority. Significant efforts are to be made to reduce the company’s social
and environmental imprint. Sustainability is a challenge yet resolvable. Due to its massive
operations and supply chain, Nike shall look deeper into more sustainable manufacturing in
terms of reducing GHG by using renewable energy for factories and transportation. Also, the
company should consider reducing the production of too much, manage the waste and adopt a
closed-loop business where 100 % would be recycled. Moreover, to reduce fresh water usage in
textile dyeing and finishing.

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Conclusion

In conclusion, we have identified the largest ‘red flag’ to be Nike’s supply chain being
located far away from its headquarters and decision-making institution. Being their most
important stakeholder for its success, their sweatshops located in East Asia introduce a
paradoxical theme that goes against Nike’s external image being sustainability, positivity and
healthy lifestyle. Whereas internally, they are currently practicing unethical and uncompliant
working practices for their employees.

As a result, from investments in CSR, we expect to see an initial decrease in legal

problems, textile waste and an increase in employee retention, interest of investors and improved
operations and safety. Additionally, Nike may expect an initial drop in shareholder value as it
will have a drop in production caused by interruption of employee exploitation yet, will count
with a long-term overall operations growth, which will lead towards stable company growth and
greater transparency.

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 References
Armonk, NY: M. E. Sharpe (2006). Nike: Managing Ethical Missteps to Leadership in
Employment Practices. https://harbert.auburn.edu/binaries/documents/center-for-ethical-
organizational-cultures/cases/nike.pdf
Ballinger, J. (2009). Finding an anti-sweatshop strategy that works. Dissent magazine.
https://www.dissentmagazine.org/article/finding-an-anti-sweatshop-strategy-that-works
Dey, A. LaGuardia, P. & Srinivasan, M. (2011) "Building sustainability in logistics operations:
a research agenda.
https://www.researchgate.net/publication/235286876_Building_sustainability_in_logistics_op
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Doorey, David J. The transparent supply chain: From resistance to implementation at Nike and
Levi-Strauss. Journal of Business Ethics, vol. 103, no. 4, 2011, pp. 587–603,
http://www.jstor.org/stable/41476046. Accessed 4 May 2022.
Greenberg, J., & Knight, G. (2004). Framing sweatshops: Nike, global production, and the
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Greenhouse, S. (1997, November 8) Nike Shoe Plant in Vietnam Is Called Unsafe for Workers.
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id=PxgeCwAAQBAJ&pg
Schanberg, S. (1996, March 28) Six Cents an Hour. Life Magazine. https://laborrights.org/in-the-
news/six-cents-hour-1996-life-article

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Steinmeyer, A. (2016, June 30). A 'symphony' of worker feedback adding new level of
transparency to supply chains. https://sustainablebrands.com/read/supply-chain/a-symphony-
of-worker-feedback-adding-new-level-of-transparency-to-supply-chains
Wazir, B (2001, May 20) Nike accused of tolerating sweatshops. The Guardian.
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Williams, M. (2020) Strategizing against sweatshops. Temple UniversityPress

https://ereader.perlego.com/1/book/2042741/1

SimplyWallSt. (2021). What kind of investors own most of Nike, inc. (NYSE:NKE)? Yahoo!
Finance. https://finance.yahoo.com/news/kind-investors-own-most-nike-154744928.html