_{Nike, Inc. and Sweatshops}

_{Jonah Peretti decided to customize his Nike shoes and visited the NikeiD Web site. The company allowed customers to personalize their Nikes with the colors of their choice and their own personal 16-character message. Peretti chose the word "sweatshop" for his Nikes.}

_{After receiving his order, Nike informed Peretti via e-mail that the term "sweatshop" represents "inappropriate slang" and is not considered viable for printing on a Nike shoe. Thus, his order was summarily rejected. Peretti e-mailed Nike, arguing that the term "sweatshop" is found inWebster'sdictionary and could not possibly be considered inappropriate slang. Nike responded by quoting the company's rules, which state that the company can refuse to print anything on its shoes that it does not deem appropriate. Peretti replied that he was changing his previous order and would instead like to order a pair of shoes with a "color snapshot of the ten-year-old Vietnamese girl who makes my shoes." He never received a response.}

_{The PR Nightmare Begins}

_{Before Nike could blink an eye, the situation turned into a public relations nightmare. Peretti forwarded the e-mail exchange to a few friends, who forwarded it to a few friends, and so on. Within six weeks of his initial order, the story appeared inThe Wall Street Journal, USA Today, andThe Village Voice. Peretti himself appeared onThe Today Show, and he estimates that 2 million people have seen the e-mail. At the height of the incident, Peretti was receiving 500 e-mails a day from people who had read the e-mail from as far away as Asia, Australia, Europe, and South America.,}

_{Nike refused to admit any wrongdoing in the incident and stated that they reserved the right to refuse any order for whatever reason. Beth Gourney, a spokesperson for Nike, claimed that Peretti was just trying to create trouble. She said he is not an activist and he doesn't understand the company's labor policy. If he understood the policy he would know that 18 is the minimum age for hiring. She went on to say that Nike does not need to apologize for not using "sweatshop" because company policy clearly says the company can cancel any order within 24 hours of its submission.}

_{Nike, Inc. is no stranger to sweatshop allegations. Since the mid-1990s, the company has been imperiled by negative press, lawsuits, and demonstrations on college campuses alleging that the firm's overseas contractors subject employees to work in inhumane conditions for low wages. As Philip Knight, the CEO and cofounder of Nike, once lamented, "The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse."}

_{Nike, Inc. Is Founded}

_{Philip Knight started his own athletic shoe distribution company in 1964. Using his Plymouth Reliant as a warehouse, he began importing and distributing track shoes from Onitsuka Company, Ltd., a Japanese manufacturer. First-year sales of $8,000 resulted in a profit of $254. After eight years, annual sales reached $2 million, and the firm employed 45 people. However, Onitsuka saw the huge potential of the American shoe market and dropped Knight's relatively small company in favor of larger, more experienced distributors. Knight was forced to start anew. However, instead of importing and distributing another firm's track shoes, he decided to design his own shoes and create his own company. The name he chose for his new company was "Nike."}

_{Nike's Use of Contract Labor}

_{When the company began operations, Knight contracted the manufacture of Nike's shoes to two firms in Japan. Shortly thereafter, Nike began to contract with firms in Taiwan and Korea. In 1977, Nike purchased two shoe-manufacturing facilities in the United Statesone in Maine, the other in New Hampshire. Eventually, the two plants became so unprofitable that the firm was forced to close them. The loss due to the write-off of the plants was approximately $10 million in a year in which the firm's total profit was $15 million. The firm had a successful IPO in 1980, eight years after the company was founded. Nike became the largest athletic shoe company in the world.}

_{Nike does not own a single shoe or apparel factory. Instead, the firm contracts the production of its products to independently owned manufacturers. Today, practically all Nike subcontracted factories are in countries such as Indonesia, Vietnam, China, and Thailand, where the labor costs are significantly less than those in the United States. Worldwide, over 530,000 people are employed in factories that manufacture Nike products. In an earlier calculation of labor costs for a pair of shoes, the labor costs amounted to less than 4 percent of the consumer's price for the shoes.}

_{Even in today's hi-tech environment, the production of athletic shoes is still a labor-intensive process. Although most leaders in the industry are confident that practically the entire production process will someday be automated, it may still be years before the industry will not have to rely on inexpensive human labor.}

_{After some bad press in the early 1990s, Nike sought to improve the working conditions of its plants by establishing a code of conduct for its suppliers.This was not seen as enough by outside critics, however.}

_{Other Firms in the Industry}

_{Nike's use of overseas contractors is not unique in the athletic shoe and apparel industry. All other major athletic shoe manufacturers also contract with overseas manufacturers, albeit to various degrees. Athletic shoe firm New Balance Inc. is somewhat of an anomaly as it continues to operate five factories in the United States and is the only company to continue U.S. production. New Balance makes about 25 percent of its shoes in the United States.}

_{Nike spends heavily on endorsements and advertising and pays several top athletes well over a million dollars a year in endorsement contracts. In contrast, New Balance has developed a different strategy. They do not use professional athletes to market their products. According to their "Endorsed by No One" policy, New Balance instead has chosen to invest in product research and development and foregoes expensive endorsement contracts.}

_{The Anti-Sweatshop Movement}

_{There is one pivotal event largely responsible for introducing the term "sweatshop" to the American public. In 1996, Kathie Lee Gifford, cohost of the formerly syndicated talk show "Live with Regis and Kathie Lee," endorsed her own line of clothing for Walmart. During that same year, labor rights activists disclosed that her "Kathie Lee Collection" was made in Honduras by seamstresses who earned 31 cents an hour and were sometimes required to work 20-hour days. Traditionally known for her pleasant, jovial demeanor and her love for children, Kathie Lee was outraged. She tearfully informed the public that she was unaware that her clothes were being made in so-called sweatshops and vowed to do whatever she could to promote the anti-sweatshop cause.}

_{Nike Is Accused}

_{In a national press conference, Gifford named Michael Jordan as another celebrity who, like herself, endorsed products without knowing under what conditions the products were made. At the time, Michael Jordan was Nike's premier endorser and was reportedly under a $20 million per year contract with the firm.Nike, the number-one athletic shoe brand in the world, soon found itself under attack by the rapidly growing anti-sweatshop movement.}

_{Shortly after the Gifford story broke, Joel Joseph, chairperson of the Made in the USA Foundation,accused Nike of paying underage Indonesian workers 14 cents an hour to make the company's line of Air Jordan shoes. He also claimed that the total payroll of Nike's six Indonesian subcontracted factories was less than the reported $20 million per year that Jordan was receiving from his endorsement contract with Nike. The Made in the USA Foundation is one of the organizations that ignited the Gifford controversy and is largely financed by labor unions and U.S. apparel manufacturers that are against free trade with low-wage countries.}

_{Nike quickly pointed out that Air Jordan shoes were made in Taiwan, not Indonesia. Additionally, the company maintained that employee wages were fair and higher than the government-mandated minimum wage in all of the countries where the firm has contracted factories. Nike avowed that the entry-level income of an Indonesian factory worker was five times that of a farmer. The firm also claimed that an assistant line supervisor in a Chinese subcontracted factory earned more than a surgeon with 20 years of experience.In response to the allegations regarding Michael Jordan's endorsement contract, Nike stated that the total wages in Indonesia were $50 million a year, which is well over what the firm pays Jordan.}

_{Nike soon faced more negative publicity. Michael Moore, the movie director whose documentaryRoger and Meshed light on the plight of laid-off autoworkers in Flint, Michigan, and damaged the reputation of General Motors chairperson Roger Smith, interviewed Nike CEO Philip Knight for his movieThe Big One. On camera, Knight referred to some employees at subcontracted factories as "poor little Indonesian workers."}

_{Knight, the only CEO interviewed in the movie, received harsh criticism for his comments. Nike alleged that the comments were taken out of context and were deceitful because Moore failed to include Knight's pledge to make a transition from a 14- to a 16-year-old minimum age labor force. Nike prepared its own video that included the entire interview.}

_{Thomas Nguyen, founder of Vietnam Labor Watch, inspected several of Nike's plants in Vietnam in 1998 and reported cases of worker abuse. At one factory that manufactured Nike products, a supervisor punished 56 women for wearing inappropriate work shoes by forcing them to run around the factory in the hot sun. Twelve workers fainted and were taken to the hospital. Nguyen also reported that workers were allowed only one bathroom break and two drinks of water during each eight-hour shift. Nike responded that the supervisor who was involved in the fainting incident had been suspended and that the firm had hired an independent accounting firm to look into the matters further.}

_{Nike Responds}

_{In 1997, Nike hired former Atlanta Mayor Andrew Young, a vocal opponent of sweatshops and child labor, to review the firm's overseas labor practices. Neither party disclosed the fee that Young received for his services. Young toured 12 factories in Vietnam, Indonesia, and China, and was reportedly given unlimited access. However, he was constantly accompanied by Nike representatives during all factory tours. Furthermore, Young relied on Nike translators when communicating with factory workers.}

_{In his 75-page report, Young concluded, "Nike is doing a good job, but it can do better." He provided Nike with six recommendations for improving the working conditions at subcontracted factories. Nike immediately responded to the report and agreed to implement all six recommendations. Young did not address the issue of wages and standards of living because he felt he lacks the "academic credentials" for such a judgment.}

_{Public reaction to Young's report was mixed. Some praised Nike. However, many of Nike's opponents disregarded Young's report as biased and incomplete. One went so far as to state the report could not have been better if Nike had written it themselves and questioned Young's independence.,}

_{In 1998, Nike hired Maria Eitel to the newly created position of vice president for corporate and social responsibility. Eitel was formerly a public relations executive for Microsoft. Her responsibilities were to oversee Nike's labor practices, environmental affairs, and involvement in the global community. Although this move was applauded by some, others were skeptical and claimed that Nike's move was nothing more than a publicity stunt.}

_{Later that same year, Philip Knight gave a speech at the National Press Club in Washington, DC, and announced six initiatives that were intended to improve the working conditions in its overseas factories. The firm chose to raise the minimum hiring age from 16 to 18 years. Nike also decided to expand its worker education program so that all workers in Nike factories would have the option to take middle and high school equivalency tests.The director of Global Exchange, one of Nike's staunchest opponents, called the initiatives "significant and very positive." He also added, "we feel that the measuresif implemented could be exciting."}

_{Students and Organized Labor Get Involved}

_{Colleges and universities have direct ties to the many athletic shoe and apparel companies (such as Nike, Champion, and Reebok) that contract with overseas manufacturers. Most universities receive money from athletic shoe and apparel corporations in return for outfitting the university's sports teams with the firm's products. In 1997, Nike gave $7.1 million to the University of North Carolina (UNC) for the right to outfit all of UNC's sports teams with products bearing the Nike Swoosh logo.Additionally, academic institutions allow firms to manufacture apparel bearing the university's official name, colors, and insignias in return for a fee. In 1998, the University of Michigan received $5.7 million in licensing fees.Most of these contract and licensing fees are allocated toward scholarships and other academic programs. Today, these practices continue and the amounts of money are much larger.}

_{Organized Labor}

_{In 1995, the Union of Needletrades, Industrial and Textile Employees (UNITE) was founded. The union, a member of the AFL-CIO, represented 250,000 workers in North America and Puerto Rico. Most of the union members work in the textile and apparel industry. In 1996, UNITE launched a "Stop Sweatshops" campaign after the Kathy Lee Gifford story broke to "link union, consumers, student, civil rights and women's groups in the fight against sweatshops at home and abroad."The unions had a deep interest in this issue as they would prefer that the shoes be made by them in the United States.}

_{In 1997, UNITE, along with the AFL-CIO, recruited dozens of college students for summer internships. Many of the students referred to that summer as "Union Summer and it had a similar impact as Freedom Summer did for students during the civil rights movement."The United Students against Sweatshops (USAS) organization was formed the following year. It was founded and led by former UNITE summer interns and remains active today.}

_{University Organizations}

_{The USAS established chapters at dozens of universities across the United States. Since its inception, the organization has staged a large number of campus demonstrations that are reminiscent of the 1960s. One notable demonstration occurred on the campus of UNC in 1997. Students of the Nike Awareness Campaign protested against the university's contract with Nike due to the firm's alleged sweatshop abuses. More than 100 students demanded that the university not renew its contract with Nike and rallied outside the office of the university's chancellor. More than 50 other universities, such as the University of Wisconsin and Duke, staged similar protests and sit-ins.}

_{In response to the protests at UNC, Nike invited the editor of the university's student newspaper to tour Nike's overseas contractors to examine the working conditions firsthand. Nike offered to fund the trip by pledging $15,000 toward the students' travel and accommodation costs. Ironically, Michael Jordan is an alumnus of UNC.}

_{Critics of the USAS contend that the student organization is merely a puppet of UNITE and organized labor. They cite the fact that the AFL-CIO has spent more than $3 million on internships and outreach programs with the alleged intent of interesting students in careers as union activists. The founders of the USAS are former UNITE interns. The USAS admits that UNITE has tipped off the student movement as to the whereabouts of alleged sweatshop factories. According to Allan Ryan, a Harvard University lawyer who has negotiated with the USAS, "[T]he students are vocal, but it's hard to get a viewpoint from them that does not reflect that of UNITE."}

_{Many students denied allegations that they are being manipulated by organized labor and claim that they discovered the sweatshop issues on their own. Others acknowledge the assistance of organized labor but claim it is "no different from [student] civil rights activists using the NAACP in the 1960s."John Sweeney, president of the AFL-CIO, claimed the role of organized labor was not one of manipulation but of motivation. Others assert that the union merely provides moral support.}

_{Regardless of the AFL-CIO's intentions, the students have had a positive impact on the promotion of organized labor's anti-sweatshop agenda over the years. According to the director of one of the several human rights groups that are providing assistance to the students, the sweatshop protests were being carried on the backs of the university students. A major reason for this is that they get more press coverage than do the union people.}

_{In telling the world about itself, in 2016 USAS stated that it "is a national student labor organization fighting for workers' rights with chapters at over 150 campuses."USAS's anti-sweatshop campaign continues under its "Garment Worker Solidarity" initiative.}

_{The Fair Labor Association (FLA)}

_{In 1996, a presidential task force of industry and human rights representatives was given the job of addressing the sweatshop issue. The key purpose of this task force was to develop a workplace code of conduct and a system for monitoring factories to ensure compliance. In 1998, the task force created the Fair Labor Association (FLA) to accomplish these goals. This organization was made up of consumer and human rights groups as well as footwear and apparel manufacturers. Nike was one of the first companies to join the FLA. Many other major manufacturers (Levi Strauss & Co., Liz Claiborne, Patagonia, Polo Ralph Lauren, Reebok, Eddie Bauer, and Phillips-Van Heusen) along with hundreds of colleges and universities also joined the FLA.}

_{FLA Requirements}

_{Members of the FLA must follow the principles set forth in the organization's Workplace Code of Conduct. The Code of Conduct is based on international labor and human rights standardsprimarily Conventions of the International Labor Organization (ILO)and prohibits discrimination, the use of child or forced labor, and harassment or abuse. It also establishes requirements related to health and safety; freedom of association and collective bargaining; wages and benefits; hours of work; and overtime compensation.}

_{The Worker Rights Consortium}

_{The USAS opposed several of the FLA's key components and created the Worker Rights Consortium (WRC) as an alternative to the FLA. The WRC asserts that the prevailing industry or legal minimum wage in some countries is too low and does not provide employees with the basic human needs they require. They proposed that factories should instead pay a higher "living wage" that takes into account the wage required to provide factory employees with enough income to afford housing, energy, nutrition, clothing, health care, education, potable water, child care, transportation, and savings. Additionally, the WRC supports public disclosure of all factory locations and the right to monitor any factory at any time. As of May, 2016, 183 colleges and universities had joined the WRC and agreed to adhere to its policies.}

_{Nike, a member and supporter of the FLA, did not support the WRC. The firm states that the concept of a living wage is impractical as "there is no common, agreed-upon definition of the living wage. Definitions range from complex mathematical formulas to vague philosophical notions." Additionally, Nike was once opposed to the WRC's proposal that the location of all factories be publicly disclosed. Nike also has claimed that the monitoring provisions set out by the WRC are unrealistic and biased toward organized labor.}

_{The University of Oregon, Philip Knight's alma mater, joined the WRC in the year 2000. Alumnus Knight had previously contributed over $50 million to the university$30 million for academics and $20 million for athletics. Upon hearing that his alma mater had joined the WRC, Knight was shocked. He withdrew a proposed $30 million donation and stated that "the bonds of trust, which allowed me to give at a high level, have been shredded" and "there will be no further donations of any kind to the University of Oregon.",}

_{Nike Comes Around}

_{In May 2001, Harsh Saini, Nike's corporate and social responsibility manager, acknowledged that the firm may not have handled the sweatshop issue as well as it could have and stated that Nike had not been adequately monitoring its subcontractors in overseas operations until the media and other organizations revealed the presence of sweatshops.}

_{We were a bunch of shoe geeks who expanded so much without thinking of being socially responsible that we went from being a very big sexy brand name to suddenly becoming the poster boy for everything bad in manufacturing.}

_{She added, "We realized that if we still wanted to be the brand of choice in 20 years, we had certain responsibilities to fulfill."}

_{Oregon Reverses Its Decision}

_{In early 2001, Oregon's state board of higher education cast doubt on the legality of the University of Oregon's WRC membership, and the university dissolved its ties with the labor organization.In September of the same year, Phil Knight renewed his financial support. Although the exact amount of Knight's donation was kept confidential, it was sufficient to ensure that the $85 million expansion of the university's football stadium would go through as originally planned. In 2000, the stadium expansion plans suffered a significant setback when Knight withdrew his funding. Many of the proposed additions, such as a 12,000 seat capacity increase and 32 brand new skyboxes, could happen, largely due to Knight's pledge of financial support.,}

_{Nike released its first corporate social responsibility report in October 2001. According to Phil Knight, "[I]n this report, Nike for the first time has assembled a comprehensive public review of our corporate responsibility practices."The report cited several areas in which the firm could have done better, such as worker conditions in Indonesia and Mexico. The report, compiled by both internal auditors and outside monitors, also noted that Nike was one of only four companies that had joined a World Wildlife Fund program to reduce greenhouse admissions. Jason Mark, a spokesperson for Global Exchange, one of Nike's chief critics, praised the report and stated that Nike is "obviously responding to consumer concerns."}

_{Kasky V. Nike, Inc.}

_{Nike's problems with fair labor issues continued on a related front. Labor activist Mark Kasky had sued Nike in 1998, arguing that Nike had engaged in false advertising when it denied that there was mistreatment of workers in Southeastern Asian factories. At issue was the question of whether Nike's defense of its practices was commercial speech or not, for which free speech protections apply. The California Supreme Court ruled that Nike's statements about labor conditions could be construed as false advertising. Nike appealed this ruling to the U.S. Supreme Court, which sent it back to the California court, without making a judgment on the free speech issue. In September 2003, Kasky and Nike settled the case for a $1.5 million donation to the FLA.The settlement, however, left many questions unanswered.Many feared that the risk of lawsuit would have a chilling effect, causing firms to no longer release social responsibility reports, which, unlike the SEC financial reports, are all voluntary. Though Nike issued a corporate social responsibility report in 2001, the company announced that, due to the California decision, they would not release a corporate social responsibility report in 2002-2003. Nike released a "Community Investment" report detailing its philanthropic efforts instead.The company later released a corporate responsibility report in 2005-2006 and again in 2008-2009. In 2016, Nike released its most recent Corporate Responsibility Report, now called a Sustainability Report.}

_{Critics Quiet Down but Don't Go Away}

_{Nike's critics never go away, but they have quieted down as the company has taken steps to address many of the criticisms made over the years. Typical of the ongoing opposition is the organization Educating for Justice (EFJ) that runs a continuing "Stop Nike Sweatshops" campaign.In 2006, EFJ planned a film titledSweat.The film, as described on EFJ's Web site, describes the journey of two young Americans uncovering the story behind the statistics about Nike factory workers. Through the lens of their experiences, they claim viewers will discover the injustices of Nike's labor practices in the developing world, specifically in Indonesia, and how Nike's cutthroat, bottom-line economic decisions have a profound effect on human lives.EFJ announced that the film was going to production in 2009, but in 2016, it appeared that EFJ was still trying to raise money to complete the film and to release it for public viewing.}

_{One organization that remains somewhat active in taking Nike to task is "Team Sweat." Team Sweat identifies itself as an "international coalition of consumers, investors, and workers committed to ending the injustices in Nike's sweatshops around the world." It goes on to say "Team Sweat is striving to ensure that all workers who produce Nike products are paid a living wage."As of Fall, 2015, James Keady, organizer of the group, was still appearing at various university campuses and calling for a boycott of Nike. Its initiative is called "Behind the swoosh: Sweatshops and social justice."One other organization that conducts an ongoing campaign against Nike's and other companies' sweatshops is Oxfam Australia. Among other charges, Oxfam complained about Nike paying Tiger Woods $25 million a year, while the workers who make its products receive poverty wages and endure harsh working conditions.In addition to Nike, Oxfam pursues its initiatives against Puma, Adidas, and Fila, and the companies that sell their products.}

_{Nike Turns It around but Sweapshops Don't Go Away}

_{In spite of its controversial record on the issue of sweatshops and monitoring labor practices abroad, in 1998, then-CEO Phil Knight announced that changes would be coming in how the company dealt with the sweatshop situation. By 2005, Nike was the first company in its industry to adopt a policy of transparency and to publish a complete list of its contract companies.Once the company publically proclaimed it would change, it seemed to take this mandate seriously and eventually became a company that would be regarded as one of the leaders in CSR.Also in 2005, Nike published a detailed report revealing conditions and pay in its factories and acknowledging widespread issues, especially in its south Asian factories. Since that time, the company has continued to post its commitments, standards, and audit data as part of its CSR reports.In 2016, Nike was ranked 28th in Corporate Responsibility's "100 Best Corporate Citizens Awards."}

_{In spite of turnarounds such as that witnessed at Nike, sweatshops have not gone away and protest groups continue to monitor what companies are doing and raise issues about their questionable practices. Since the tragic Rana Plaza factories collapse in Bangladesh in 2013 that resulted in more than 1,100 deaths, the world's awareness of what has been going on in the shoe and apparel industries has been significantly energized.}

_question

1. _{Why should Nike and other companies be held responsible for what happens in factories that they do not own? Does Nike have a responsibility to ensure that factory workers receive a "living wage"? Do the wage guidelines of FLA or WRC seem most appropriate to you? Why?}
2. _{Is it fair for Nike to pay endorsers millions, while its factory employees receive a few dollars a day?}
3. _{What are the motivations of student organizations when they get involved in the anti-sweatshop movement? Why is their activism present on some campuses but not on others?}