Advertising or Free Speech? The Case of Nike and Human Rights

the discussion is about Corporate Social Responsibility (CSR), focusing on the brief case study about Nike

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.

Questions:

1- 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?

2- How might the two conflict?

Advertising or Free Speech? The Case of Nike and Human Rights Nike Inc., the global leader in the production and market- ing of sports and athletic merchandise including shoes, clothing, and equipment, has enjoyed unparalleled world- wide growth for many years. Consumers around the world recognize Nike's brand name and logo. As a supplier to and sponsor of professional sports gures and organiza tions, and as a large advertiser to the general public, Nike is widely lmown. Nike was a pioneer in offshore manu facturing, establishing company-owned assembly plants and engaging thirdparty contractors in developing coun tries. In 1996, Life magazine published a landmark article about the labor conditions of Nike's overseas subcontrac tors, 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 Sur vive.\" Accompanying the article was a photo of a 12year old Pakistani boy stitching a Nikeembossed 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 arrange- ments and treatment of laborers in developing countries. Almost instantly, Nike became a poster child for the ques tionable 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\" con ditions. 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 rst 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 practiceswhether perceived or realremained embla zoned 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 com pany knowingly made false and misleading statements in its denial of direct participation in abusive labor condi tions abroad. Through corporate news releases, fullpage 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 plain tiff, a local citizen, was predicated on a California state law prohibiting unlawful business practices. He alleged that Nike's public statements were motivated by market ing 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 protec tion 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 consum- ers to buy its products and therefore are, in effect, adver tising. 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 prod ucts, 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 reputa tion 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 particular, the U.S. Supreme Court agreed to rule on whether Nike's previous statements about the working conditions at its subcon tracted, overseas plants were in fact \"commercial space " 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 Com merce, other MNCs including ExxonJ'Mobil and Micro soft, 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 wide-reaching 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 con curring and dissenting opinions, Nike's statements were described as a mix of \"commercial\" and \"noncommer cial\" speech.4 This suggested to Nike, as well as other MNCs, that if the Court were to have ruled on the sub stantive 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 recent years. As part of its international CSR prole, Nike has assisted relief efforts (donating $1 million to tsunami relief in 2004) 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 lower-wage labor in others and that its factory wages abroad are actually in accordance with local regulations, once one accounts for purchasing power and costof living differences.5 The Nike Foundation, a nonprofit organization supported by Nike, is also an active sup porter of the Millennium Development Goals, particu larly 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 opportunitiesf' Envi ronmental 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. Nike has pledged to eliminate all hazardous chemicals from its supply chain by 2020. As part of its domestic CSR profile, Nike is primarily concerned with keeping youth active, presumably for health, safety, educational, and psychologicalfesteem rea sons. Nike has worked with Head Start (2005) and Special Olympics Oregon (2007), as well as created its own com munity program, NikeGO, to advocate physical activity among youth. Partnering with then First Lady Michelle Obama, Nike worked to implement the \"Let's Move\" campaign (2013) into schools across the U.S. Nike also sponsors Project Play (2014), which aims to reshape the direction of youth sports by encouraging children to stay involved and feel included. Furthermore, Nike is commit ted to domestic efforts such as Hurricane Katrina relief and 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 Califor- nia 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 difcult 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 dec larations. Although Kasky v. Nike was never fully resolved in court, the issues that it raised remain to be addressed by global companies. Also to be seen is what effect a court decision would have on Nike's financial success. 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 maintained strong and growing sales and profits. 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 not been substantially tarnished in the global market. Questions for Review 1. What ethical issues faced by MNCs in their treatment of foreign workers could bring allegations of miscon duct in their operations? 2. Would the use of thirdparty independent contractors insulate MNCs from being attacked? Would that practice offer MNCs a good defensive shield against charges of abuse of \"their employees\