1. Putting in place a more effective ethics programs and a more viable code of conduct could have helped Nike alleviate some of the ethical issues faced by the company. Effective ethics program helps an organization “foster ethical decision making in business” Ferrell, Fraedrick & Ferrell, 2011, p.216). A more effective ethics program and a more viable code of conduct can help the firm evade legal problems because ethics program and code of conduct can help identify and prevent misconduct in an organization (Ferrell, Fraedrich, & Ferrell, 2011). Additionally, a strong code of conduct offers real value to a company. Nike must have a more effective ethics program and viable code of ethics to ensure that all employees at the company understand its values and comply with code of conduct and policies that define its ethical culture. This could have helped Nike avoid allegations regarding violations of labor and human rights in Third World countries where the company had subcontracted manufacturing.
Nike had faced a number of criticisms from the mainstream media, labor rights activists, and others from labor and human rights violations in its factories. Such grievances bordered on health and safety conditions, low wages, and indiscriminate hiring and firing. Having an effective ethics program and effective code of conduct could have helped Nike to enable its employees to understand the values of the company and comply with the policies and code of conduct that create an ethical culture. Putting in place a more effective ethics program could have helped the company to avoid violation of human and labor rights as evidenced in most of the factories in developing countries. Putting in place a more effective ethics program and a more viable code of ethics could have also helped the company prevent such malpractices in their earlier stages before receiving the media attention.
2. According to Gray & Manson (2011), in order to reduce the integrity risk of an organization, it must use a mix of various training and communication tools to address the varied needs of various audiences. As such, there is need for an action plan to help identify the type of message and training required for all key audiences, including senior leaders, board members, and employees.
According to the Nike case study, the ethical issues faced by the company include numerous instances of violations of human rights, human abuse, and environmental problems resulting from the company’s operations. Human abuse was prevalent in most manufacturing plants for these workers with poor working conditions, widespread harassment, child labor, and verbal abuse (Ferrell, Fraedrich, & Ferrell, 2011). In addition, employees at these manufacturing plants reported cases of unfavorable health and safety working conditions, extremely low wages, and indiscriminate hiring and firing practices (Ferrell, Fraedrich, & Ferrell, 2011). Environmental problems posed by the industry at large and specifically Nike, include climate change, increased water deficit, pollution, and depreciation of raw materials. Ethics and communications programs could have helped the company from encountering these ethical concerns. Most of these ethical issues were because of failure by Nike to manage and inspect health and safety conditions at the factories.
Conducting an ethics training can help inform the employees about the expectations and policies, relevant regulations and laws, and general social standards governing operations of the company (Wulf, 2012). For example, if the company could have communicated its policy on hiring and firing of employees, supervisors and employees could not have experienced the problem of indiscriminate hiring and firing. Another problem experienced by Nike was the lack of control and oversight over the companies it contracted in developing countries. The company needed to communicate its code of conduct and standards to these entities as well as to all members of its workforce. The company cannot limit its oversight and control to the personnel at Nike. In addition, companies operating on a global landscape require different ethical standards based on each country. Concerning environmental standards, most third world countries do not have strict requirements as to what constitutes unhealthy working conditions or toxic substances. However, Nike should have taken into consideration cultural differences in the developing countries, and considered these when briefing subcontractors and employees concerning its expectations on what constitute good labor practices.
3. According to Brooks & Dunn (2012), ethical auditing refers to methodical evaluation of the ethics program and performance of an organization with the aim of identifying its effectiveness. It is usually conducted by external neutral bodies on a company on various criteria depending on the prevailing conditions. The auditor provides feedback to the factory on how well the subcontractor is conducting its business. As a result, Nike could have benefited from ethical audits because it could have helped it to realize where there are ethical issues such as work hours, labor and human rights violations, grievances bordering on health and safety conditions, low wages, and indiscriminate hiring and firing. Ethical auditing could have also helped in identifying the positive aspects of the company so that they can work to improve it. Ethical auditing is a new concept and only few companies have conducted it.
In the past two decades, anti-globalization and human rights groups such as Global Exchange had targeted Nike on its Sweatshops for child labor, hazardous working conditions, and below subsistence wages for people working in manufacturing plants located in the developing countries. According to the case study, a Life magazine released an article with photos of children stitching soccer balls for Nike and other companies in Pakistan (Ferrell, Fraedrich, & Ferrell, 2011). Introducing an ethical auditing earlier could have helped Nike to avoid such negative publicity because it could have identified the problems before they reached the public. Ethical auditing could have benefited Nike in many ways. Conducting such audit could have helped Nike to develop standards and procedures to prevent and detect criminal conduct before they evolve into a menace to the company. Nike could have also ensured due diligence in hiring and placing personnel to positions with substantial authority.
This could have helped the company to solve the problem of indiscriminate hiring and firing.
An ethics audit helps in defining baseline information on working conditions, monitoring progress of subcontractors, and screening of new and potential sub-contractors. Conducting ethical audit could have helped Nike to address the environmental issues that Nike faced such as climate change, increased water deficit, and pollution. Nike could have developed transparency measures in all its factories if it had conducted ethical audit.
4. Ethical auditing of factories is a central pillar to the operations of Nike. Because Nike has subcontracted manufacturing to factories in third world countries, regular ethical audits should be conducted to verify that suppliers comply with Nike’s standards for suppliers and to device means of improving the working conditions and labor practices in factories in addition to environmental concerns.
The aim of the auditors when they visit a factory is to enable them to determine if:
- The factory treats workers with dignity and respect;
- Working hours comply with the country’s laws and Nike’s standards;
- Workers are compensated appropriately;
- There is clean and safe work environment;
- Hiring practices are updated;
- Open and safe communication between supervisors and workers is established.
Factories that supply Nike with merchandise should have factory prequalification. In order to receive approval, a factory must receive one of the one Nike’s two highest ratings. In addition, subcontracting companies that produce component of a product containing Nike proprietary brand logo must also be audited.
The audit process include:
- Opening meeting – This involves verifying the business license of the business and follow up with the representatives of the company on any non-compliance violations identified during previous audits.
- Tour of the factory – This stage entails conducting a walk-through of the factory and interacting with employees on the production units regarding compliance of the factory with Nike’s standards for suppliers. Auditors also conduct check equipment and safety mechanisms and inspect for safety, health, and environmental hazards.
- Employee interviews – Auditors conduct interview on a representative sample of employees in the absence of the management. These employees are selected such that they represent factors such as nationalities, gender, skill, and age ratios at the factory.
- Documentation review – Auditors conduct review of personnel records and documents to verify workers’ contracts, ages, working hours, and compensation.
- Closing meeting and signing onsite report – during this stage, the auditor will present and discuss any identified concerns or recommendations to mitigate any violation observed and present the factory with onsite report containing this information for their acknowledgement and signing.
The complete audit report is reviewed and rate by the Nike Ethical Sourcing Assessment Team.
Brooks, L.J. & Dunn, P. (2012). Business and professional ethics. Stamford, Connecticut: Cengage Learning
Ferrell, O.C., Fraedrich, J. & Ferrell, L. (2011). Business ethics. Stamford, Connecticut: Cengage Learning.
Gray, I. & Manson, S. (2011). The audit process: principles, practice and cases. Stamford, Connecticut: Cengage Learning EMEA.
Wulf, K. (2012). Ethics and compliance programs in multinational organizations. Berlin, Heidelberg: Springer.