Description
This week’s discussion is about Corporate Social Responsibility (CSR), focusing on the brief case study about Nike (p.101 in the textbook).
Nike pioneered offshore manufacturing by hiring third-party contractors in developing nations to work in its company-owned plants. Among other workers, the contractors hired minors at low pay in” sweatshops.” When the news became public in 1996, Nike faced negative public opinion, and then it established a Corporate Responsibility and Sustainability Committee to ensure that labor practices were ethical across its supply chain.
After that, Nike was sued for allegedly knowingly making false and misleading statements in denying its direct participation in the abusive labor conditions abroad in manufacturing its products. The case was dismissed for procedural issues by the U.S. Supreme Court. Thereafter, Nike has worked on building its CSR profile through relief efforts and advocating fair wages and employment practices in its outsourced operations.
Thinking about Nike’s corporate practices, if you were to start a company that outsourced labor in order to reduce manufacturing costs, what decisions would you make to combine commercial objectives with social goals to improve the impact of corporate social responsibility efforts? How might the two conflict?
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Chapter 3
Ethics, Social Responsibility,
and Sustainability
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Learning Objectives
• Examine ethics in international management
and some of the major ethical issues and
problems confronting MNCs
• Discuss some of the pressures on and actions
being taken by selected industrialized
countries and companies to be more socially
and environmentally responsive to world
problems
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Learning Objectives (continued)
• Explain some of the initiatives to bring greater
accountability to corporate conduct and limit
the impact of corruption around the world
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Sustaining Sustainable Companies
• Shift in focus from traditional marketresponsive strategies to broader approaches
– Help incorporate business and social or
environmental goals
• Triple bottom line approach
– Simultaneously considers social, environmental,
and economic sustainability
– Could help harness business and managerial skills
to impact human and environmental conditions
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Ethics
• Study of morality and standards of conduct
• Victim of subjectivity as it yields to the will of
cultural relativism
– Cultural relativism – Belief that:
• Ethical standard of a country is based on the culture
that created it
• Moral concepts lack universal application
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Ethical Dilemmas
• Dilemmas arising from conflicts between
ethical standards of a country and business
ethics are most evident in:
– Employment and business practices
– Recognition of human rights, including women in
the workplace
– Corruption
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Corporate Social Responsibility (CSR)
versus Ethics
CSR
Ethics
• Actions taken by a firm to
benefit society beyond
the requirements of the
law and the direct
interests of the firm
• Based more on voluntary
actions
• Study of or the learning
process involved in
understanding morality
• Area of ethics has a
lawful component and
implies right and wrong
in a legal sense
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Ethical Theories and Philosophy
Kantian
philosophical
traditions
Aristotelian
virtue ethics
Utilitarianism
Eastern
philosophy
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Kantian Philosophical Traditions
• Entities have responsibilities based on a core
set of moral principles that go beyond those
of narrow self-interest
• Reject consequences as morally irrelevant
when evaluating the choice of an agent
• Ask one to consider choices as implying a
general rule, or maxim
– Must be evaluated for its consistency as a
universal law
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Aristotelian Virtue Ethics
• Focus on core, individual behaviors and
actions and how they express and form
individual character
• Consider social and institutional arrangements
and practices in terms of their contribution to
the formation of good character in individuals
• For Aristotle, moral success and failure largely
come down to a matter of right desire, or
appetite
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Aristotelian Virtue Ethics (continued)
• Virtue theory
– States that one’s formation is a social process
– Relies heavily on existing practices to provide an
account of:
• What is good
• What character traits contribute to pursuing and
realizing the good in concrete ways
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Utilitarianism
• Form of consequentialism
• Favors the greatest good for the greatest
number of people under a given set of
constraints
• Acts are morally correct if they maximize
utility
– Attained when the ratio of benefit to harm is
greater than the ratio resulting from an alternative
act
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Eastern Philosophy
• Broadly includes various philosophies of Asia
– Indian philosophy, Chinese philosophy, Iranian
philosophy, Japanese philosophy, and Korean
philosophy
• Holds that:
– People are an intrinsic and inseparable part of the
universe
– Attempts to discuss the universe from an
objective viewpoint are inherently absurd
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Human Rights Issues
• Present challenges for MNCs
– Absence of universally adopted standards of what
constitutes acceptable behavior
• Basic rights
– Life, freedom from slavery or torture, freedom of
opinion and expression, and a general ambiance
of nondiscriminatory practices
• Women’s rights and gender equity can be
considered a subset of human rights
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Issues Faced by Women in the
Workplace
• Most still experience the effects of a glass
ceiling
– Lack of promotions to upper management
positions
– Partially due to social factors and perceived levels
of opportunity or lack thereof
– Pervasive throughout the world
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Issues Faced by Women in the
Workplace – Examples
• Japan
– Women employees are subject to sexual
harassment, two-track recruiting processes, and
unequal opportunities for growth
• France, Germany, and Great Britain
– Witnessed an increase in the number of women in
managerial positions but only in low-level
managerial positions
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Labor Policy Issues
Political, economic, and cultural differences interfere with the
establishment of a universal foundation for employment practices
Difficulty in deciding working conditions, expected consecutive
work hours, and labor regulations
Frequent offshoring due to differences in labor costs
Ensuring that all contractors along the global supply chain are
compliant with company standards
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Labor, Employment, and Business
Practices in China
• Workers are not paid well
– Forced to work 12-hour days, seven days a week
to meet demand
– Some cases involve the usage of child labor
• Example – Foxconn
– 2010 – Issue of low wages headlined after a
number of workers committed suicide
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Environmental Protection
and Development
• Poor countries are more focused on improving
the welfare of their citizens
• Environmental Kuznets Curve (EKC)
– Relationship between per capita income and the
use of natural resources and/or the emission of
wastes has an inverted U-shape
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Environmental Kuznets Curve (EKC)
• Reasons behind the inverted U-shape of the
EKC
– Composition of production and/or consumption
– Preference for environmental quality
– Institutions that are needed to internalize
externalities
– Increasing returns to scale associated with
pollution abatement
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Figure 3.1 – Environmental Kuznets
Curve
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Environmental Protection
and Development (continued)
• United Nations Climate Change Conference,
2015
– Tried to achieve an international consensus on
environmental reform
– Adopted the Paris Agreement
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Phenomena in Response to
Globalization
• Difficulty in attempts to balance
organizational and cultural roots
• Offshoring low-cost labor-intensive practices
• Transferring a large percentage of current
employees of all types to foreign locations
– Creates issues related to corporate citizenship
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Reconciling Ethical Differences
across Cultures
• Integrative Social Contracts Theory (ISCT)
– Attempts to navigate a moral position that does
not force decision makers to engage exclusively in
relativism versus absolutism
– Offers one framework to help reconcile
fundamental contradictions in international
business ethics between home and host countries
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Corporate Social Responsibility (CSR)
• Social, economic, and environmental
expectations of each company are based on
the desires of the stakeholders
– Pressurize MNCs to pay greater attention to CSR
• Nongovernmental organizations (NGO)
– Private, not-for-profit organizations
– Seek to serve society’s interests by focusing on
social, political, and economic issues
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Nongovernmental Organizations
• Urge MNCs to be more responsive to a range
of social needs in developing countries
• Activism has helped generate substantial
changes in corporate management, strategy,
and governance
• Regarded as counterweights to business and
global capitalism
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Nongovernmental Organizations
(continued)
• Collaborate with MNCs on social and
environmental projects
– Contribute to the well-being of the community
and to the reputation of the MNC
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Responses to Social and Organizational
Obligations
• MNCs follow codes of conduct, including the
U.N. Global Compact, the Global Reporting
Initiative, and “SA8000” standards
– Commit to maintain certain standards in their
domestic and global operations
– Help offset the concern that companies move jobs
to avoid higher labor or environmental standards
– Contribute to raising the standards in the
developing world
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Responses to Social and Organizational
Obligations (continued)
• Fair trade
– Organized social movement and market-based
approach
– Aims to help producers in developing nations
obtain better trading conditions and promote
sustainability
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Sustainability
• Development that meets humanity’s needs
without harming future generations
• Helps companies recognize that dwindling
resources will eventually halt productivity
• World Economic Forum, Davos, Switzerland
– Focused on how sustainable consumption can be
used to ease problems related to the need for
rapid business scaling
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Corporate Governance
• System by which businesses are directed and
controlled
– Specifies distribution of rights and responsibilities
among stakeholders
– Spells out rules and procedures for corporate
decision-making
• Provides the structure for setting company
objectives and means for attaining those
objectives and maintaining performance
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Corporate Governance (continued)
• Rules and regulations differ among countries
and regions
– The UK and U.S. systems are outsider systems
because of dispersed ownership of equity among
a large number of outside investors
– Many continental European countries are insider
systems in which ownership is more concentrated
• Differences in legal systems affect
shareholders’ and other stakeholders’ rights
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Corporate Governance: Crony Capitalism
• Occurs in nations with:
– Less well-developed legal and institutional
protections
– Poor property rights
• Emerges where weak corporate governance
and government interference can lead to:
– Poor performance
– Risky financing patterns
– Macroeconomic crises
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Foreign Corrupt Practices Act (FCPA)
• Makes it illegal for U.S. companies and their
managers to attempt to influence foreign
officials through:
– Personal payments
– Political contributions
• In complying with the provisions, U.S. firms
must be aware of changes in the law
– Makes FCPA violators subject to Federal
Sentencing Guidelines
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Other Anticorruption Measures
• Formal agreement by many industrialized
nations to outlaw the practice of bribing
foreign government officials
– Includes nations that belong to the Organization
for Economic Cooperation and Development
(OECD)
– Fails to outlaw most payments to political party
leaders but does indicate growing support for
antibribery initiatives
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Other Anticorruption Measures
(continued)
• Organization of American States (OAS) InterAmerican Convention Against Corruption
– Established by Latin American countries
• Transparent Agents Against Contracting
Entities (TRACE) standard
– Developed as a means of preventing the shift of
corrupt practices to suppliers and intermediaries
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International Assistance
• Governments and corporations are
collaborating to provide assistance to locales
through global partnerships
• Recent study identified the top priorities
around the world for development assistance
– Uses a cost-benefit analysis of where investments
would have the greatest impact
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Table 3.3 – Copenhagen Consensus
Development Priorities
Source: Copenhagen Consensus 2012.
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U.N. Sustainable Development Goals
• Poverty – End poverty in all its forms
everywhere
• Food – End hunger, achieve food security and
improved nutrition, and promote sustainable
agriculture
• Health – Ensure healthy lives and promote
well-being for all at all ages
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U.N. Sustainable Development Goals
(continued 1)
• Education – Ensure inclusive and equitable
quality education and promote lifelong
learning opportunities for all
• Women – Achieve gender equality and
empower all women and girls
• Water – Ensure availability and sustainable
management of water and sanitation for all
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U.N. Sustainable Development Goals
(continued 2)
• Energy – Ensure access to affordable, reliable,
sustainable, and modern energy for all
• Economy – Promote sustained, inclusive, and
sustainable economic growth; full and
productive employment; and decent work for
all
• Infrastructure – Build resilient infrastructure,
promote inclusive and sustainable
industrialization, and foster innovation
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U.N. Sustainable Development Goals
(continued 3)
• Inequality – Reduce inequality within and
among countries
• Habitation – Make cities and human
settlements inclusive, safe, resilient, and
sustainable
• Consumption – Ensure sustainable
consumption and production patterns
• Climate – Take urgent action to combat climate
change and its impacts
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U.N. Sustainable Development Goals
(continued 4)
• Marine ecosystems – Conserve and sustainably
use the oceans, seas, and marine resources
for sustainable development
• Ecosystems – Protect, restore, and promote
sustainable use of terrestrial ecosystems;
sustainably manage forests; combat
desertification; halt and reverse land
degradation; and halt biodiversity loss
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U.N. Sustainable Development Goals
(continued 5)
• Institutions – Promote peaceful and inclusive
societies for sustainable development; provide
access to justice for all; and build effective,
accountable, and inclusive institutions at all
levels
• Sustainability – Strengthen the means of
implementation and revitalize the global
partnership for sustainable development
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In the International Spotlight – Cuba
• Would you advise a company to become an
early investor in Cuba?
• Do you think Airbnb’s investment in Cuba will
eventually see success and become a reliable
profit stream?
• Do you think Cuba will ultimately become an
attractive long-term tourist destination for
Americans?
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Review and Discuss
1. How might different ethical philosophies
influence how managers make decisions
when it comes to offshoring of jobs?
2. What lessons can U.S. multinationals learn
from the political and bribery scandals in
recent years, such as those affecting
contractors doing business in Iraq
(Halliburton) as well as large MNCs such as
Siemens, HP, and others? Discuss two
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Review and Discuss (continued 1)
3. In recent years, rules have tightened such
that those who work for the U.S. government
in trade negotiations are now restricted from
working for lobbyists for foreign firms
– Is this a good idea? Why or why not?
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Review and Discuss (continued 2)
4. What are some strategies for overcoming the
impact of counterfeiting?
– Which strategies work best for discretionary (for
instance, movies) versus nondiscretionary
(pharmaceutical) goods?
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Review and Discuss (continued 3)
5. Why are MNCs getting involved in corporate
social responsibility?
– Are they displaying a sense of social responsibility,
or is this merely a matter of good business?
Defend your answer
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Brief Integrative Case 1.1
Page 101
Advertising or Free Speech? The Case
of Nike and Human Rights
Nike Inc., the global leader in the production and marketing of sports and athletic
merchandise including shoes, clothing, and equipment, has enjoyed unparalleled
worldwide growth for many years. Consumers around the world recognize Nike’s
brand name and logo. As a supplier to and sponsor of professional sports figures
and organizations, and as a large advertiser to the general public, Nike is widely
known. Nike was a pioneer in offshore manufacturing, establishing companyowned assembly plants and engaging third-party contractors in developing
countries. As an early adopter of this manufacturing model, Nike has faced a
variety of ethical and moral challenges over the last three decades.
In 1996, Life magazine published a landmark article about the labor conditions
of Nike’s overseas subcontractors, entitled “On the Playgrounds of America, Every
Kid’s Goal Is to Score: In Pakistan, Where Children Stitch Soccer Balls for Six
Cents an Hour, Their Goal Is to Survive.” Accompanying the article was a photo of
a 12-year-old Pakistani boy stitching a Nike-embossed soccer ball. The photo
caption noted that the job took a whole day, and the child was paid US$0.60 for his
effort. Up until this time, the general public was neither aware of the wide use of
foreign labor nor familiar with the working arrangements and treatment of laborers
in developing countries. Almost instantly, Nike became a poster child for the
questionable unethical use of offshore workers in poorer regions of the world. This
label continued to plague the corporation as many global human interest and labor
rights organizations have monitored and often condemned Nike for its labor
practices around the world.
In the years following, Nike executives were frequent targets at public events,
especially at universities where students pressed administrators and athletic
directors to ban products that had been made under “sweatshop” conditions.
Indeed, at the University of Oregon, a major gift from Phil Knight, Nike’s CEO,
was held up in part because of student criticism and activism against Nike on
campus.1
Nike took immediate action to repair its damaged brand. In 2001, the company
established a Corporate Responsibility and Sustainability Committee to ensure that
labor practices were ethical across its supply chain. By 2003, the company
employed 86 compliance officers (up from just three in 1996) to monitor its plant
operations and working conditions and ensure compliance with its published
corporate code of conduct. In 2005, Nike became the first among its peers to
release a complete listing of all of the overseas factories that it contracts for labor.
That same year, Nike released the pay scales of the factory workers and addressed
actions it was taking to further improve conditions. Even so, the stigma of past
practices—whether perceived or real—remained emblazoned on its image and
brand name. Nike found itself constantly defending its activities, striving to shake
this reputation and perception.
In 2002, Marc Kasky sued Nike, alleging that the company knowingly made
false and misleading statements in its denial of direct participation in abusive labor
conditions abroad. Through corporate news releases, full-page ads in major
newspapers, and letters to editors, Nike defended its conduct and sought to show
that allegations of misconduct were unwarranted. The action by the plaintiff, a local
citizen, was predicated on a California state law prohibiting unlawful business
practices. He alleged that Nike’s public statements were motivated by marketing
and public relations and were simply false. According to the allegation, Nike’s
statements misled the public and thus violated the California statute. Nike
countered by claiming its statements fell under and within the protection of the
First Amendment, which protects free speech. The state court concluded that a
firm’s public statements about its operations have the effect of persuading
consumers to buy its products and therefore are, in effect, advertising. Therefore,
the suit could be adjudicated on the basis of whether Nike’s pronouncements were
false and misleading. The court stated that promoting a company’s reputation was
equivalent to sales solicitation, a practice clearly within the purview of state law.
The majority of justices summarized their decision by declaring, “because
messages in question were directed by a commercial speaker to a commercial
audience, and because they made representations of fact about the speaker’s own
business operations for the purpose of promoting sales of its products, we conclude
that these messages are commercial speech for purposes of applying state laws
barring false and misleading commercial messages” (Kasky v. Nike Inc., 2002). The
conclusion reached by the court was that statements by a business enterprise to
promote its reputation must, like advertising, be factual representations and that
companies have a clear duty to speak truthfully about such issues.2
In January 2003, the U.S. Supreme Court agreed to hear Nike’s appeal of the
decision in Kasky v. Nike Inc. from the California Supreme Court. In Page 102
particular, the U.S. Supreme Court agreed to rule on whether Nike’s
previous statements about the working conditions at its subcontracted, overseas
plants were in fact “commercial speech” and, separately, whether a private
individual (such as Kasky) has the right to sue on those grounds. Numerous amici
briefs were filed on both sides. Supporters of Kasky included California, as well as
17 other states; Ralph Nader’s Public Citizen Organization; California’s AFL/CIO;
and California’s attorney general. Nike’s friends of the court included the American
Civil Liberties Union, the Business Roundtable, the U.S. Chamber of Commerce,
other MNCs including Exxon/Mobil and Microsoft, and the Bush administration
(particularly on the grounds that it does not support private individuals acting as
public censors).3
Despite the novelty of this First Amendment debate and the potentially widereaching effects for big business (particularly MNCs), the U.S. Supreme Court
dismissed the case (6 to 3) in June 2003 as “improvidently granted” due to
procedural issues surrounding the case. In their dissenting opinion, Justices Stephen
G. Breyer and Sandra Day O’Connor suggested that Nike would likely win the
appeal at the U.S. Supreme Court level. In both the concurring and dissenting
opinions, Nike’s statements were described as a mix of “commercial” and
“noncommercial” speech.4 This suggested to Nike, as well as other MNCs, that if
the Court were to have ruled on the substantive issue, Nike would have prevailed.
Although this case has set no nationwide precedent for corporate advertising
about business practices or corporate social responsibility (CSR) in general, given
the sensitivity of the issue, Nike has allowed its actions to speak louder than words
in the years since. As part of its international CSR profile, Nike has assisted relief
efforts (donating to tsunami relief in 2004 and Haiti earthquake relief in 2010) and
advocated fair wages and employment practices in its outsourced operations. Nike
claims that it has not abandoned production in certain countries in favor of lowerwage labor in others and that its factory wages abroad are actually in accordance
with local regulations, once one accounts for purchasing power and cost-of-living
differences.5 The Nike Global Community Impact Fund (formally called the Nike
Foundation), a nonprofit organization supported by Nike, is also an active supporter
of the Millennium Development Goals, particularly those directed at improving the
lives of adolescent girls in developing countries (specifically Bangladesh, Brazil,
China, Ethiopia, and Zambia) through better health, education, and economic
opportunities. The Nike Global Community Impact Fund partners with more than
five dozen international partners to distribute donated products and funding to a
variety of causes across the globe.6 Environmental impact is also a key component
of Nike’s CSR profile. The company has focused on preserving water in the areas
where its products are manufactured, incorporating new technology that minimizes
the amount of water needed for dyeing processes. In 2018, Nike achieved 75
percent recycled material in its products, and 96 percent of its waste from the
manufacturing process was either recycled or converted into energy. In 2019,
Nike’s North American energy supply was 100 percent renewable; by 2025, the
company plans to power 100 percent of its worldwide facilities with renewable
energy sources.7
As part of its domestic CSR profile, Nike is primarily concerned with keeping
youth active, presumably for health, safety, educational, and psychological/esteem
reasons. Nike has worked with Head Start and Special Olympics Oregon, as well as
created its own community program, NikeGO, to advocate physical activity among
youth. Partnering with then First Lady Michelle Obama, Nike worked to implement
the “Let’s Move” campaign into schools across the U.S. In conjunction with the
U.S. Olympic Committee, Nike also sponsors Project Play, which aims to reshape
the direction of youth sports by encouraging children to stay involved and feel
included. In advance of the 2020 Olympics, Nike also launched a free online
training program for volunteer youth coaches. Furthermore, Nike is committed to
domestic efforts such as hurricane relief and bettering education, the latter through
grants made by the Nike School Innovation Fund in support of the Primary Years
Literacy Initiative.
Despite Nike’s impressive CSR profile, if the California State Supreme Court
decision is sustained and sets a global precedent, Nike’s promotion or
“advertisement” of its global CSR initiatives could still be subjected to legal
challenge. This could create a minefield for multinational firms. It would
effectively elevate statements on human rights treatment by companies to the level
of corporate marketing and advertising. Under these conditions, it might be difficult
for MNCs to defend themselves against allegations of human rights abuses. In fact,
action such as the issuance and dissemination of a written company code of
conduct could fall into the category of advertising declarations. Although Kasky v.
Nike was never fully resolved in court, the issues that it raised remain to be
addressed by global companies.
Despite the publicity of the case, at both the state and Supreme Court levels,
and the lingering criticism about its labor practices overseas, Nike has thrived over
the last decade. With strong and growing sales and profits globally, Nike was
ranked as the most valuable apparel brand by Brand Finance in 2019. It is
estimated that the Nike brand is now worth US$32 billion—far ahead of rival
Adidas (US$17 billion).8 The company has expanded its operations into different
types of clothing and sports equipment and has continued to choose successful
athletes to advertise its gear. Nike has shown no signs of slowing down, suggesting
that its name and logo have substantially recovered in the global market.
Questions for Review
1.
What ethical issues faced by MNCs in their treatment of foreign workers
could bring allegations of misconduct in their operations?
Page 103
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 decision
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, or (c) align itself with some of
the universal covenants or compacts prepared by international 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?
This case was prepared by Lawrence Beer, W. P. Carey School of Business, Arizona State University
as the basis for class discussion. It is not intended to illustrate either effective or ineffective
managerial capability or administrative responsibility.
ENDNOTES
1.
Ericka Cruz Guevarra, “Oregon Student Organizers Protest Nike over
Sweatshops,” The Columbian, July 31, 2017,
https://www.columbian.com/news/2017/jul/31/oregon-student-organizersprotest-nike-over-sweatshops/.
2.
Marc Kasky v. Nike Inc., No. 994446, 02 C.D.O.S. 3790 (Cal., San
Francisco Superior Ct. 2002).
https://law.justia.com/cases/california/supreme-court/4th/27/939.html.
3.
Linda Greenhouse, “Free Speech for Companies on Justices’ Agenda,” New
York Times, April 20, 2003, A17.
4.
Linda Greenhouse, “Nike Free Speech Case Is Unexpectedly Returned to
California,” New York Times, June 27, 2003, A16.
5.
“Nike and Child Labour—How It Went from Laggard to Leader,” Mallen
Baker, http://www.mallenbaker.net/csr/CSRfiles/nike.html.
6.
“What We Do,” Nike Global Community Impact Fund, 2019,
https://communityimpact.nike.com/what-we-do.
7.
“Protecting the Environment,” Nike, 2019,
https://purpose.nike.com/protecting-environment.
8.
“Apparel 50: 2019,” Brand Finance, February 2019,
https://brandfinance.com/images/upload/apparel_50_locked.pdf.
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