The Other Side of Nike and Social Responsibility

What is it about the abuse of third-world workers that engenders such an apathetic response on the part of the socially responsible investment community? Name-brand shoe and apparel companies merely had to announce that the companies had corporate codes of conduct and some form of compliance scheme for their Korean or Taiwan-based suppliers and the issue pretty much disappeared.

How much scrutiny was directed at whether or not the objective conditions had really changed? Were salaries raised at least to subsistence levels? Even the Interfaith Center for Corporate Responsibility–most would agree it is the most savvy and hard-nosed on labor issues–would have a difficult time stating with any specificity what is actually known beyond Nike’s representations, even though formal Nike/ICCR discussions have taken place for over eight years.

Now, Nike is peddling a rather frank assessment of the limits of factory monitors and compliance, a move that will likely burnish its image even more as a leader in Corporate Social Responsibility circles. Just imagine if this was another field of law breaking. Say, corporate governance. What if one of the companies in the dock for fraudulent bookkeeping practices in the 90s suddenly came before the SRI community and pretty much threw up its hands, saying that over a decade of determined attention–hundreds of thousands of expensive staff hours had pretty much come to naught?

What did Nike say? Two months ago at the Sloan School of Business at the Massachusetts Institute of Technology, Nike’s top Corporate Social Responsibility official, Hannah Jones, said:

“There’s no point in Nike having 96 monitors on a factory floor day in and day out monitoring overtime, if overtime is being caused way up the supply chain. So Nike is scrutinizing its own behavior as a buyer. We must incentivize suppliers to become part of business decision-making.”

Just what this last bit means was the subject of her 20-minute Power Point presentation that was, at times, so jargon-filled and inexplicable that she skipped over a slide, either unable to explain it or fearful that she would lose her audience–some of the top business students in the world. (Judge for yourself here: http://mitworld.mit.edu/) This is how the Sloan website introduced the panel, on which Ms. Jones participated.

These speakers share a bleak perspective: A decade’s-worth of high-profile efforts to change sweatshop conditions in overseas apparel factories hasn’t worked.

The key point in the foregoing is, of course, is that it hasn’t worked. But more interesting is the part about “high-profile efforts”. Nike became a “leader” in the CSR field mainly on the strength of its selling Nike’s brand of “remediation” and reform. The Sloan introduction of Scott Nova of the Worker Rights Consortium (also a panelist that day) put it this way:

The pressure on foreign suppliers hasn’t succeeded, he says, because “factory managers conclude correctly that if the brands were truly serious about improved working conditions, they would pay enough to make it possible for those conditions to be achieved.” Instead, factories compete to pick up cheap contracts, pressure their workers to toil for pennies, and use “fakery and deception when customers send auditors to inspect labor conditions.”

The “selling” of Nike’s “Code” and compliance scheme was a multi-faceted full-court press that extended well beyond mere participation in dubious undertakings such as the Apparel Industry Partnership — a Clinton initiative aimed more at quelling the sweatshop controversy than for producing real change. Indeed, since 1998 wherever on the globe that there was a conference on “the triple bottom line” or sustainable business or CSR Nike was there–often with two or three staff. There was no doubting Nike’s commitment to addressing the issues in the public realm, but there was little to back up claims that meaningful change had been wrought. This is mainly due to the waning attention of the mainstream media lulled, in part, by Nike’s seemingly earnest engagement with the CSR community.

How much is Nike willing to pay for meaningful change? How do they plan to “incentivize” suppliers to quit using abusive levels of overtime? Ms. Jones speaks about it for over twenty minutes but never gets down to the root cause. That’s because the paradigm that Mr. Nova alluded to won’t be changed. Perhaps it cannot be changed without scrapping the outsourcing model. A look at the world’s largest branded athletic shoe-maker, Yue Yuen, tells an important part of the story which few in the SRI field ever dig into. The extreme pressure that these contractors operate under can be seen from a 2003 assessment by the bond rating company, Standard & Poor’s:

The [low] rating reflects Yue Yuen’s leading market position, low cost operations as a result of economies of scale and low cost production bases. … [These] strengths are partially offset by increasing pressure on pricing from Yue Yuen’s customers [such as Nike] and high customer concentration. [Only three or four really big buyers.]

Thus, Nike manages to adroitly garner praise for ending sweatshop abuses, while continuing to squeeze the contractors that must actually pay the workers.

That the major-brand sport shoe companies are profitable can hardly be questioned. When adidas purchased Reebok the outgoing Reebok CEO received $800 million in compensation. In the years that all of Reebok’s Indonesian contractors were found to be cheating on the unconscionably low Indonesian minimum wage of 86 cents per day (1988-91), this rapacious CEO paid himself outrageous annual bonuses of more than $14 million. Nike’s Phil Knight has pocketed over eight billion while enriching a host of the world top athletes beyond their wildest dreams.

Big brands such as Nike and Levi’s, or their contractors, still need to make restitution for the many years of wage-cheating in Indonesia and other developing countries where factory inspections by “host” governments are almost unheard of. In addition, these workers at the bottom of the global food chain are the least able to defend themselves, risking the wrath of oppressive regimes if they are caught organizing legitimate protests against abusive practices.

Finally, while Nike will talk ad nauseam about codes of conduct and compliance schemes, one will never catch company officials speaking about wages or workers who have been fired for leading protests. These issues were last addressed in the mid-1990s, before Nike’s share price and U.S. market share plummeted and the company began to spend heavily on CSR advisors.

The last clear statement on wages was just before the Asian crisis of 1997, when the Indonesian minimum wage had reached $2.47 per day a Nike spokesperson stated that the country was pricing itself out of the footwear-assembly market. Similarly, Nike’s Indonesia country coordinator, Tony Nava, told an American reporter in 1994 that some arrested strike leaders were sacked, referring to them as “the real troublemakers.”

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CSR scamming with Simon Zadek

Quote from Dec. 2004 Harvard Business Review:

“Yet institutional investors have shown a startling disinterest in Nike’s handling of its labor standards.” (S. Zadek, “The Path to Corporate Responsibility”)

Many of the CSR ideas currently bruited about are germinated at think tanks and universities. The HBR article noted above, for example, was written by Simon Zadek. His purportedly scientific analysis showed that Nike had completed the five necessary steps to become a top-ranked ethical company. Not noted in the article was that Nike is a key sponsor of AccountAbility, which pays Zadek’s salary; he was also on the “Operating Council” of Nike’s now-defunct “Global Alliance for Workers and Communities”.

After the HBR article, of course, the CSR “expert” Zadek has media opportunities to praise Nike (such as this from the Globe and Mail last year):

notes Simon Zadek of the activist organization AccountAbility in the Harvard Business Review, Nike went through five classic stages on its path to corporate responsibility that most companies face in such situations…

The company learns that realigning its strategy to address responsible business practices can provide a competitive edge and contribute to long-term success. Mr. Zadek notes that car companies recognize their future depends on the ability to develop environmentally safer forms of mobility.

The civil stage: “We need to make sure everybody else does it.”

Companies promote collective action to address society’s concerns

Companies such as Nike do everything in their power to stifle true “collective action”, don’t they, Simon? I mean, in the real–not the CSR–world.

Zadek also contributed to another of Nike’s reputation-management breakthroughs:

excerpt from Toronto Star Headline: “Retailers ranked on workers’ treatment” [They really weren’t ranked on “workers’ treatment”, but never mind]

Dec. 1, 2005: “Nike ranked among the top five in yesterday’s report card… Large firms did better than small ones.”

This high ranking might have something to do with the methodology employed:

The Transparency Report Card is based on research carried out over the past year by Maquila Solidarity Network (MSN), on behalf of the Ethical Trading Action Group. The rating system utilized in our research is based on the Gradient Index developed by AccountAbility

Seems to me that the rating system favors companies that dedicate literally millions of dollars per year on “managing perceptions”. (That’s why big companies did better than smaller firms.) “Transparency” is a sort of “code” for willing-to-engage-NGOs; the workers are pretty much left out of the picture. I don’t think that Zadek talks with workers producing Nike shoes and apparel. Sadly, I don’t think that ICCR does, either. I know that MSN does, so I am more than a little discouraged by their participation in this.

Isn’t it ludicrous that at the same time that Nike–and keen observers such as Prof. Locke at MIT–can be found expressing real doubts about the impact of the company’s Code, the CSR community is bestowing such high praise?

JEFFREY BALLINGER is director of Press for Change. He can be reached at: Jeffreyd@mindspring.com