Table of content

Executive summary

1.0 Introduction
1.1 history of company
2.0 ethical dilemmas
2.1 sweatshop
2.2 child labor
2.3 physical abuses
3.0 ethical theories
3.1 major ethical dilemmas
3.2 Nike ethical dilemmas
3.3 Solution in Nike
4.0 Best practices in Nike
5.0 Recommendation
6.0 Appendix
7.0 References

3
4
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Executive summary
This ethical report is to represent a snapshot on what are the main ethical were Nike Incorporation, based
on the environmental scanning which using PESTEL in conclude about the dilemmas that Nike facing
about. Besides that, this report also measured all these dilemmas by comparison with business ethical
theory which are (Teleology and Deontology talking about the Utilitarian).

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Moreover, ethical audit report focus on Nike Incorporation ethical philosophy with the relevant ethical
theory in business ethics.
In additional, in this report also provide a few recommendation to Nike Inc. that can be take an action
against the critics. The recommends is:

better wages
Ban short-term contracts
the right to form trade unions

NIKE INCORPORATION

1.0 Introduction
1.1 HISTORY OF THE COMPANY

Nike was started in 1958 by Phil Knight, a track runner. His idea was to create a good American
running shoe. Phil Knight and his coach designed a running shoe, and had a shoe manufacturer
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create it. Then, after running became less popular, Nike shifted its products to conform to the
newest rage in fitness, and continued doing so. Then, when Nike created basketball shoes, they
began to profit enormously. Nike co-founder Bill Bowerman made this observation many years
ago and defining how to view the endless possibilities for human potential in sports and created
the company in 1972, called Nike. Through suppliers, shippers, retailers and other service
providers, Nike directly or indirectly employ nearly one million people.

2.0 ethical dilemmas

Ethical dilemmas was discussed about the Environmental Scanning, in environmental scanning has
mentioning about Political and Economy.
2.1 sweatshops
Business establishment that makes its employees work under harsh and often hazardous conditions, and
pays only minimal or survival wages
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2.1.1 Social factor

Now Nike has admitted that its factories are places where physical and sexual abuse,
extraordinarily low wages, restrictions of bathroom use and other human rights abuses happen on
a regular basis. It is important to point out that an acknowledgment of a problem does not mean
the problem is over. Nor does saying where the problem is happening (disclosing factory
locations) mean that one should be lauded for finally doing the right thing. Similar violations
were found and acknowledged by Nike in past reports, and yet the founder of Nike, Phil Knight
admitted that 25% of Nikes factories were still not meeting minimum standards.

2.1.2 Legal factor

As generally, in the campaigns of human rights groups, Nike began to see protests from the
factory workers themselves. While Indonesia, China, and Vietnam all have minimum wage laws
on the books, Nike had successfully appealed these wages with the governments of these
countries year after year, allowing them to pay wages well below the minimum rate. Nike further
circumvented wage laws by paying new employees an apprentice rate for several months into an
employee's tenure. In April 1997, more than 10,000 workers from Nike's Indonesian factories
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went on strike to protest low and unpaid wages, while 1,300 workers in Vietnam went on strike
hoping for a raise of one cent per hour. The next year, 3,000 Nike workers in China protested
dangerous working conditions and low wages. All of these protests took place in spite of the fact
that these sorts of worker strikes are illegal in these countries.
Case study

In (April, 1997) this report reveals that Nike definitely practices what it preaches the company
"does it" big-time to the Asian girls and young women who work in the sweatshops making
Nikes. Philip Knight, head honcho of this $8-billion-a-year shoe giant, insists that, he has
instituted a code-of-conduct for all his shoe suppliers in Asia, requiring them to treat workers
fairly. Mr. Nguyen found that Nike workers average only a buck-sixty a day making shoes that
Knight sells here for $180 a pair. As if this poverty wage is not punishment enough, the 15, 16year-old girls in Nike's plants were found to be physically abused, too. While Mr. Nguyen was
there, 56 women workers were made to run around the Nike factory in the hot sun, because they
were not wearing the right shoes. A dozen passed-out from heat exhaustion and had to go to the
hospital.
2.2 Child labor
Child labor describes children who are put to work full-time when they are under the legal age or working
illegally. Child labor also work done by kids full time under the age of 15. They prevent kids from
attending school, such as unlimited or unrestricted domestic work.
2.2.1 Political
Child labor laws first enacted in 1847, and strengthened repeat over the years. The current laws limiting
working hours for 16-17 years old was forged through bipartisan agreement about the need to balance
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employer interest with the health and welfare of children. Nike attempted to present itself to its
shareholders in its first "corporate responsibility report" as a touchy-feely entity established by "skinny
runners" and employing young executives who worried about the environment and the level of wages it
paid. In 1995 Nike said it thought it had tied up with responsible factories in Sialkot, in Pakistan, that
would manufacture well-made footballs and provide good conditions for workers. Instead, the work was
sub-contracted round local villages, and children were drawn into the production process. Now, it insisted,
any factory found to be employing a child must take that worker out of the factory, pay him or her wage,
provide education and re-hire them only when they were old enough .

2.2.2 Economy

The inefficient and the ineffective governmental policies and the stability problems play a major
role in the increase of child labor and it also creates economic instability. For instance; Pakistan
has a per-capita income of $1,900 per year -meaning that a typical person survives barely on $5
per day. And that's not all, Pakistan has a traditional culture where earning of one person goes on
feeding 10 mouths; and with the high rate of inflation it becomes difficult for a low income
population to survive. Child labor is spread all over Pakistan but has the greatest impact in the
north-west of Punjab province that is Sialkot. Pakistan has a population of approximately 1
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million and is an important centre for the production of goods for export to international markets,
particularly

sporting

goods.

In

1994,

exports from Sialkot brought income of almost US$ 385 million into the Pakistan economy.
Sialkot is thus one of the worlds most important centers for production of sporting goods.

2.2.3 Legal factors

In Pakistan it is clearly documented that child labor is against the law, but the government carries
lack of willingness to do anything about it. Provision for education is very limited, due to the fact
that very low priority is given to education in the national budgets. Education receives around
3% of the total gross domestic product when compared to over ten times of this amount spent on
military. Gender and other forms of discrimination plus adding to the lack of political will, gives
the clear picture of the existence of child labor in Pakistan. Generally, Child labor exists in
Sialkot both in the export sector and the domestic sector. This fact has been well documented and
reported by the international media for several years but nothing has been done about it.

Case study
During the 1970 and 80s, there was a significant restructuring of the production of footballs in
Sialkot, Pakistan. Changes in raw materials from leather to synthetics and improved machinery
for cutting ushered in the possibility of stitching footballs in the home. As a result, middlemen
began outsource stitching to families working from home, leading to increasing rates of child
labor. It was estimated that more than 7,000 children between the ages of 7-14 years old were
working full time stitching footballs. The media began to report on this issue, which led to

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negative publicity for the industry around the 1994 Soccer World Cup and the 1996 European
Football Championships. Life magazine ran a story in June 1996 that featured a 12 year old boy
making footballs. Media focus on child labor in the football sector in Pakistan was damaging to
major brands and retailers.
.

2.3 physical abuses

Physical abuses in Nike factories reported by CBS news include workers being struck on the
head, pinched, or being forced to stand, kneel or run in the hot sun as punishment. There have
also been numerous cases of workers being sexually molested by supervisor within Nike
factories.
2.3.1 Environmental factor

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In Indonesia, it was reported that 30.2% of the workers had personally experienced, and 56.8%
had observed, verbal abuse. An average of 7.8% of workers reported receiving unwelcome
sexual comments, and 3.3% reported being physically abused. In addition, sexual trade practices
in recruitment and promotion were reported by at least two workers in each of two different
factories, although a subsequent investigation was unable to confirm this. 73.4% of workers are
satisfied with their relationship with direct line supervisors, 67.8% are satisfied with
management.

2.3.3 Legal factor

The violations of the labor code at Nikes Vietnamese contract factories became apparent, as in
the case of the Tae Kwang Vina factory or VT, which employed around 10,000 workers, mostly
young rural women. The toxic solvents and glues used in manufacturing caused dizziness,
nausea, and respiratory ailments among workers. Accidents were prominent in hazardous
sections of the plant. VT violated environmental regulations without facing any consequences or

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strong protests, as the local community and workers could not mobilize themselves.
Consequently, Nike took proactive measures and allowed independent auditing of the
sweatshops. In 1999, Nike implemented by its own Code of Conduct in Vietnamese factories.
Case study

Most VT workers were young rural women, used to hard work and poor living conditions, yet
they found it difficult to work under VTs extreme conditions. The toxic solvents and glues used
in manufacturing caused dizziness, nausea, and respiratory ailments among workers. Accidents
were prominent in hazardous sections of the plant. The workers were not allowed to go to
bathroom more than once and drink water more than twice during an eight-hour shift. They also
experienced repeated verbal and physical abuse. In one instance, women were forced by
supervisors to kneel down with their hands up for 25 minutes. During a VLW survey in 1997, the
female workers complained about frequent sexual harassment by foreign supervisors. However,
pressure from Nike, driven by external NGO and media attention, prompted regular visits by
Nikes inspectors as well as independent monitoring. The introduction of Nikes Code of
Conduct in 1999 ensured a safer work environment in Nike factories including VT.

3.0 Ethical theories

In ethical dilemmas, actually tells about the sweatshop and also about the child labor. These
dilemmas were dealing with two ethical theories which are teleological and deontological.
theory
teleology

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Definition
Theory of morality that derives duty or moral obligation from what is good or
desirable as an end to be achieved. Also known as consequentiality ethics, it is
opposed to deontological ethics which holds that the basic standards for an
actions being morally right are independent of the good or evil generated

deontology

Deontological ethics or deontology an approach to ethics that focuses on the

rightness or wrongness of actions themselves, as opposed to the rightness or
wrongness of the consequences of those actions.
Virtue ethics A brief definition of Virtue Ethics: "Virtue Ethics is a classification within
Normative Ethics that attempts to discover and classify what might be deemed of
moral character, and to apply the moral character as a base for one's choices and
actions.
.

3.1 Major ethical theories

Ranking in Nike dilemmas:

Sweatshop
Child labor
Physical abuses

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Teleology
Types

Definition

Ethical theories
Consequentialism
The most famous teleological theories of ethics are

Teleological theories differ on the nature of

the nonmoral goods that actions ought to

teleology

called "consequentialist," that is, they measure the

moral worth of an act by what it creates in the
world. Utilitarianism is one such important theory,

promote. Utilitarianism holds that the end

and it seeks, at its most abstract, to increase the

consists in the other teleological theories

amount of pleasure in the world. A utilitarian

claim that the end aggregate balance of

pleasure to pain for all concern of action is
survival and growth, as in evolutionary

theory is teleological in that it seeks the end of

moral action in the creation of pleasure.
Plato
This meant, for Plato, that reason should dominate

ethics (Herbert Spencer); satisfaction and

both will and passion in the soul, channeling them

adjustment, as in pragmatism (Ralph Barton

into rational ends. In this case, while

Perry and John Dewey); and freedom, as in

existentialism (Jean-Paul Sartre).

consequentialist to an extent, Plato's view holds

that the end of human action is the creation of the
rightly ordered soul, which then guarantees just
and prudent actions in the future.

Deontology
Types

Definition
Deontological

deontology

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Theories
moral

systems

are

Duty Theories

characterized by a focus upon adherence to

An action is morally right if it is in accord with some

independent moral rules or duties. To make

list of duties and obligations.

the correct moral choices, we have to

Rights Theories

understand what our moral duties are and

An action is morally right if it adequately respects

what correct rules exist to regulate those

the rights of all humans (or at least all members of

duties.

society). This is also sometimes referred to as

Libertarianism, the political philosophy that people
should be legally free to do whatever they wish so
long as their actions do not impinge upon the rights
of others.

3.2 Nike ethical dilemmas

Many ethical dilemmas were being as issue in the worldwide like Vietnam, Indonesia, Pakistan
and United States. This is about Nikes sweatshop, child labor among kids and also the physical
abuses among woman in Nike. Here these are the major dilemmas that concerned in Nike and
discussed below:
Sweatshop

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As a result, that Nike was making billions of dollars and still failed to provide a safe working
environment only made matters worse. After Nike realized it was the target of several protests
and complaints against globalization, it recognized the need for safer work environments and an
adherence to certain standards for each of the overseas factories. Even though Nike was
providing jobs to those who may not otherwise have one, it was paying a mere $1.60 a day to
Vietnam factory workers when the living wage is at least $3 a day (Hill, 2009). Another ethical
issue involved a report that found workers with skin or breathing problems had not been
transferred to departments free of chemicals and that more than half the workers who dealt with
dangerous chemicals did not wear protective masks or gloves (Hill, 2009). Exposing workers to
harsh and toxic chemicals including carcinogens were also factors that placed the company at
odds with human rights activists. The company attempted to had slashed overtime, improved
safety and ventilation, and reduced the use of toxic chemicals (Hill, 2009).

3.3 Solution in Nikes problem

In evaluate the child labor, Nike will be forced to shut down or just be loosening business and
having to make many apologizes to all the families and all the people that buy Nike products. It
would have Pakistan have one less company that is using their children for child labor. Hopefully
other companies and counties will realize that this is wrong and stop the child labor. Another
critical steps take is to open these industries up to greater public (and market) scrutiny and
accountability. Nike pull back the veil of secrecy these factories have hidden behind for so many
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years and create systems where workers and communities can speak in their own voices through
their own independent organizations, so that we can hear directly from workers and communities
impacted by our production. Other step, hearing workers' voices, establishing criteria for
comparing factories internationally, and verifying problems and corrections through the
participation of local nongovernmental organizations and unions are key steps in a long road
toward improving global working conditions.

4.0 Best practices in Nike Inc

One who is not a cultural relativist would argue against Nike's practices in Asia by saying, it does
not matter which country Nike is working in, there are some basics all people should receive by
virtue of being a human being. Perhaps there should be an internationally set maximum number
of hours an individual can work in a week, or there should be a global minimum hourly wage.
Nike has taken the middle road when it comes to cultural relativism. Nike has acknowledge there
are some labor practices that are wrong such as corporal punishment and sexual intimidation, but
it also clearly believes laborers in Southeast Asia do not have to be paid as well as laborers in
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America.. Nike has established its code of conduct to clear up some of the grey and by enforcing
the code better, Nike could improve its standing among the anti- cultural relativists of the world.
KantwouldarguethatNikehasamoraldutytoinsurethehealthandfinancialwellbeingofallthe
peoplewhoworkforit.Therefore,Nikemustdoallwithinitspowertoensuretheinformationitis
receivingfromfactoriesoverseasiscorrect.Nikehassaidmanytimesitwantstobea"goodcitizen"and
aleaderinethicalbusinesspractices.ItisverylikelyNikeisdoingamuchbetterjobwithforeignlabor
relationsthanmanyothercorporationsare,however,accordingtoKant,Nikeshouldnotbecomparing
itselftoothercompanies,ratheritshouldbeholdingitselftotheabsolutehighestethicalstandardsitcan
attain.Nikehasmadeanefforttoincreaseitsindependentmonitoringsystemoverseas,butitcannotstop
improving.Nikemuststrivetofindasystemthatcontinuestoimproveuntilitcanalleviateasmany
unethicallaborpracticesaspossible.

5.0 Recommendation
First recommendation is better wages; all workers require a living wage, one that allows them to meet the
basic needs of a family after working a full-time working week without overtime. Unfortunately, Nike
wont commit to a living wage for its workers. But it will commit to paying already high earning sport
stars millions of dollars to endorse their products.
In other recommend is about the right to form trade unions Nike sets up shop in countries and free trade
zones where it is illegal or extremely difficult for workers to organize into unions. Without this united
structure it is near impossible for individual workers to ask for improved conditions without fear of
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retribution. A confidential complaints process when workers suffer sexual harassment, intimidation,
violence or other human rights violations in Nike, they need to be able to access a confidential complaints
mechanism, and they need those complaints to be taken seriously and handled sensitively and made some
effort to establish complaint mechanisms in some factories.
For lastly, Ban short-term contracts Nike moves its production where it likes when it likes and does not
ban or discourage short-term contracts for its workers. The incentives for respecting workers rights Nike
should offer meaningful incentives to factories that respect workers rights, particularly workers right to
organize trade unions. Without genuine incentives human rights abuses will continue.

6.0 Appendix
Freedom

of

Association

- In 10% to 25% of Nikes partner factories, freedom of association is prohibited by law (e.g.
China,Vietnam).
- In up to 10% of Nikes partner factories, freedom of association is prohibited due to an
exclusive

union

agreement.

- In up to 10% of Nikes partner factories, freedom of association is not allowed or provided

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although

it

is

legal.

Harassment

Issues

- In 25% to 50% of Nikes partner factories, workers report verbal, physical, sexual and /or
psychological

abuse.

- In 25% to 50% of Nikes partner factories, workers do not trust the grievance process.
- In 25% to 50% of Nikes partner factories, a confidential grievance system is not provided.
Working

Hours

- In 50% to 100% of Nikes partner factories, work hours exceed Nikes Code of Conduct.
- In 25% to 50% of Nikes partner factories, one day off in seven is not provided (i.e. employees
are

working

days

week).

- In 25% to 50% of Nikes partner factories, work hours exceed legal limit.
- In up to 25% of Nikes partner factories, when workers refuse to work overtime they are
penalized.

Wages
- In 10% to 25% of Nikes partner factories, the overtime pay rate is less than the law demands or
the

calculation

for

overtime

pay

is

inaccurate.

- In 10% to 25% of Nikes partner factories, the wage calculation rate is inaccurate (i.e. the
amount that workers are paid is wrong, and most likely below what they should get).
- In 25% to 50% of Nikes partner factories, wages paid to workers are below the legal minimum
wage.
Child
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Labor

- In 10% to 25% of Nikes partner factories, worker age verification is inconsistent or not welldocumented.
- In up to 10% of Nikes partner factories, there are workers younger than Nikes "Child Labor"
standard.

Table 2 - Number of Contract Workers

Region contract workers YR 2001

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Asia

467,146

USA

13,369

Americas

37,514

Europe, Middle East & Africa

38,693

Total

556,722

Example of child labor in NIKE

Example of sweatshop in Nike

7.0 Reference
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December 2011, 10.15am

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3.43pm
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publishers, New York
15. Facts
About
Nike

Sweatshops

eHow.com

http://www.ehow.com/about_5485125_nike-

sweatshops.html#ixzz1fl7hkPOk viewed 8th December 2011, 2.00pm

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