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Nike CEO Mark Parker would surely agree that any examination of Nike’s business–society relationship needs to include a look at the massive scale of the company’s operations. With annual revenues in the neighborhood of $20 billion, a strong presence in every continent except Antarctica, and billions of products sold since its founding in the 1960s, Nike is one of the world’s largest and most visible corporations. (Starting right now, see how long you can go without seeing a Nike logo.) In addition to the 36,000 employees who work directly for the company, another 800,000 work in the 900 contract factories across nearly 50 countries that manufacture the company’s products. With millions of shoes, garments, sporting goods, and other “Swoosh”-branded products rolling off those production lines every month, the company oversees a vast supply chain that sources a wide variety of natural and synthetic materials and uses almost every mode of transportation imaginable. It’s safe to say that Nike and the global community are stuck with each other—and Nike needs a vibrant, stable world economy as much as the global community needs Nike to be a well-managed and well-behaved corporate citizen. Workplace conditions and sustainable manufacturing are two issues in particular that highlight the impact Nike has on stakeholders and the considerable investments the company continues to make toward improving its entire “business ecosystem.” In the matter of workplace conditions, the first wave of improvement efforts focused on building monitoring systems so that companies such as Nike could get a better sense of how workers were being treated in contract factories. Across a number of industries, some of these “sweatshop” factories had been accused of forcing employees to work 24 hours or more at a time, employing young children in unsafe conditions, or virtually imprisoning workers in conditions that have at times been compared to slavery. Mattel, Reebok, Patagonia, Liz Claiborne, and Gap are among the other industry leaders that have been working at improving monitoring of contract factories. However, Nike began to realize that setting standards and monitoring operations weren’t improving conditions in its contract factories sufficiently, and the company is now working closely with vendors to improve their operations and practices. As the company explains, “What we’ve learned, after nearly a decade, is that monitoring alone hasn’t solved the problems. And many of the problems are recurring in the industry. Our focus now is getting to the root of the problems.” A key part of that effort is an in-depth auditing process conducted by Nike inspectors, who look for evidence of compliance with Nike’s own environmental safety, and health codes. Nike inspectors examine factory operations and interview supervisors as well as employees to make sure contract manufacturers are living up to the expectations outlined in Nike’s Code of Conduct. Nike doesn’t leave compliance to chance, either. The company’s Code Leadership Standards is a comprehensive manual that describes exactly what a factory needs to do to meet Nike’s standards. If a factory is out of compliance, Nike teams work with local management to help them figure where their processes are breaking down and how to improve. In the area of sustainable manufacturing, Nike calls its efforts “considered design,” which it describes as “reducing or eliminating toxics and waste, increasing the use of environmentally preferred materials and using Nike’s innovation to create a future with more sustainable products.” For example, the company’s materials experts have worked for years to analyze and document the environmental impact of a wide variety of garment and shoe materials, and its designers now have a handy software tool to help them choose fabrics and other components that maximize product performance and resource sustainability. After spending several million dollars developing it, Nike released this tool for free public use to help other companies improve their design practices. (You can try this software yourself, actually—it’s the Environmental Design Tool featured in the Real-Time Updates Learn More item on page 80.) Recycling is another area of concentration for the company. Nike collects and grinds up millions of pairs of worn-out sneakers every year to produce shock-absorbing materials that are used in running tracks, tennis courts, playgrounds, and other playing surfaces. Nike designers are also ramping up their use of recycled polyester from discarded plastic bottles, keeping hundreds of millions of them out of landfills. Fabric manufacturing uses enormous volumes of water, and Nike has had a water stewardship program in place since 2001 to help factories minimize water usage and to do a more responsible job of “borrowing” water, as the company phrases it. Given the number of factories it works with worldwide, Nike figures its efforts to improve water stewardship influence the usage of more than 500 billion gallons of water a year. Even with the considerable investments it has made and the measurable progress that has come from those efforts, the scale of its operations and the visibility of its brand ensure that Nike will continue to attract the attention of stakeholders and advocacy groups. For example, Greenpeace recently launched a “detox challenge” publicity campaign in which the environmental advocacy group challenged Nike and arch-rival Adidas to reduce the discharge of toxic fabric-treatment chemicals from contract factories in China. Nike’s response included a comprehensive report on its progress toward eliminating toxic chemicals from the manufacturing process—efforts that had been underway for more than a decade. These included the process research and chemistry patents it has freely shared with other manufacturers through the GreenXchange intellectual property collaborative and an offer to work with Greenpeace and other NGOs on water usage issues. Parker talks frankly of the lessons Nike has learned along the way. Reflecting on pressure the company received in the 1990s from worker rights groups, he says, “Our critics were smart (and right) to focus on the industry leader.” After first defending conditions in the factories as just the way business was done in those countries, the company realized that change was needed, and it had to be fundamental change affecting every part of the company. Parker now welcomes collaboration with stakeholders and promotes the value of transparency, so that affected groups can see what the company is doing, and the company can learn from anybody who has great ideas to share. “For all the athletic and cultural and financial successes of the company,” he says, “I believe our work in sustainable business and innovation has equal potential to shape our legacy.”35 Question 1. This chapter covers three factors that influence ethical decisions: cultural differences, knowledge, and organizational behavior. How have these factors shaped Nike’s CSR actions over the past two decades? 2. How does Mark Parker’s phrase “sustainable business” relate to sustainable manufacturing? 3. Is it ethical for NGOs to put pressure on just one company in an industry when they are trying to effect change across the entire industry, given that responding to that pressure is likely to cost that one company more than its competitors?

Nike CEO Mark Parker would surely agree that any examination of Nike’s business–society relationship needs to include a look at the massive scale of the company’s operations. With annual revenues in the neighborhood of $20 billion, a strong presence in every continent except Antarctica, and billions of products sold since its founding in the 1960s, Nike is one of the world’s largest and most visible corporations. (Starting right now, see how long you can go without seeing a Nike logo.) In addition to the 36,000 employees who work directly for the company, another 800,000 work in the 900 contract factories across nearly 50 countries that manufacture the company’s products. With millions of shoes, garments, sporting goods, and other “Swoosh”-branded products rolling off those production lines every month, the company oversees a vast supply chain that sources a wide variety of natural and synthetic materials and uses almost every mode of transportation imaginable. It’s safe to say that Nike and the global community are stuck with each other—and Nike needs a vibrant, stable world economy as much as the global community needs Nike to be a well-managed and well-behaved corporate citizen. Workplace conditions and sustainable manufacturing are two issues in particular that highlight the impact Nike has on stakeholders and the considerable investments the company continues to make toward improving its entire “business ecosystem.” In the matter of workplace conditions, the first wave of improvement efforts focused on building monitoring systems so that companies such as Nike could get a better sense of how workers were being treated in contract factories. Across a number of industries, some of these “sweatshop” factories had been accused of forcing employees to work 24 hours or more at a time, employing young children in unsafe conditions, or virtually imprisoning workers in conditions that have at times been

compared to slavery. Mattel, Reebok, Patagonia, Liz Claiborne, and Gap are among the other industry leaders that have been working at improving monitoring of contract factories. However, Nike began to realize that setting standards and monitoring operations weren’t improving conditions in its contract factories sufficiently, and the company is now working closely with vendors to improve their operations and practices. As the company explains, “What we’ve learned, after nearly a decade, is that monitoring alone hasn’t solved the problems. And many of the problems are recurring in the industry. Our focus now is getting to the root of the problems.” A key part of that effort is an in-depth auditing process conducted by Nike inspectors, who look for evidence of compliance with Nike’s own environmental safety, and health codes. Nike inspectors examine factory operations and interview supervisors as well as employees to make sure contract manufacturers are living up to the expectations outlined in Nike’s Code of Conduct. Nike doesn’t leave compliance to chance, either. The company’s Code Leadership Standards is a comprehensive manual that describes exactly what a factory needs to do to meet Nike’s standards. If a factory is out of compliance, Nike teams work with local management to help them figure where their processes are breaking down and how to improve. In the area of sustainable manufacturing, Nike calls its efforts “considered design,” which it describes as “reducing or eliminating toxics and waste, increasing the use of environmentally preferred materials and using Nike’s innovation to create a future with more sustainable products.” For example, the company’s materials experts have worked for years to analyze and document the environmental impact of a wide variety of garment and shoe materials, and its designers now have a handy software tool to help them choose fabrics and other components that maximize product performance and resource sustainability. After spending several million dollars developing it, Nike released this tool for free public use to help other companies improve their design practices. (You can try this software yourself, actually—it’s the Environmental Design Tool featured in the Real-Time Updates Learn More item on page 80.) Recycling is another area of concentration for the company. Nike collects and grinds up millions of pairs of worn-out sneakers every year to produce shock-absorbing materials that are used in running tracks, tennis courts, playgrounds, and other playing surfaces. Nike designers are also ramping up their use of recycled polyester from discarded plastic bottles, keeping hundreds of millions of them out of landfills. Fabric manufacturing uses enormous volumes of water, and Nike has had a water stewardship program in place since 2001 to help factories minimize water usage and to do a more responsible job of “borrowing” water, as the company phrases it. Given the number of factories it works with worldwide, Nike figures its efforts to improve water stewardship influence the usage of more than 500 billion gallons of water a year. Even with the considerable investments it has made and the measurable progress that has come from those efforts, the scale of its operations and the visibility of its brand ensure that Nike will continue to attract the attention of stakeholders and advocacy groups. For example, Greenpeace recently launched a “detox challenge” publicity campaign in which the environmental advocacy group challenged Nike and arch-rival Adidas to reduce the discharge of toxic fabric-treatment chemicals from contract factories in China. Nike’s response included a comprehensive report on its progress toward eliminating toxic chemicals from the manufacturing process—efforts that had been underway for more than a decade. These included the process research and chemistry patents it has freely shared with other manufacturers through the GreenXchange intellectual property collaborative and an offer to work with Greenpeace and other NGOs on water usage issues. Parker talks frankly of the lessons Nike has learned along the way. Reflecting on pressure the company received in the 1990s from worker rights groups, he says, “Our critics were smart (and right) to focus on the industry leader.” After first defending conditions in the factories as just the way business was done in those countries, the company realized that change was needed, and it had to be fundamental change affecting every part of the company. Parker now welcomes collaboration with stakeholders and promotes the value of transparency, so that affected groups can see what the company is doing, and the company can learn from anybody who has great ideas to share. “For all the athletic and cultural and financial successes of the company,” he says, “I believe our work in sustainable business and innovation has equal potential to shape our legacy.”35

Question

1. This chapter covers three factors that influence ethical decisions: cultural differences, knowledge, and organizational behavior. How have these factors shaped Nike’s CSR actions over the past two decades?

2. How does Mark Parker’s phrase “sustainable business” relate to sustainable manufacturing?

3. Is it ethical for NGOs to put pressure on just one company in an industry when they are trying to effect change across the entire industry, given that responding to that pressure is likely to cost that one company more than its competitors?

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