This paper examines the ethical failures associated with Nike's global manufacturing practices and proposes how more robust ethics programs could have mitigated them. Drawing on business ethics frameworks, the paper addresses four key areas: how a formal code of conduct could have held Nike accountable, what an ethics training and communications program should have included, how early ethics auditing would have revealed hidden costs of noncompliance, and what a step-by-step ethics auditing process for Nike might look like. The paper uses comparisons to similar corporate controversies, such as Mattel's lead paint scandal, to illustrate broader lessons about corporate responsibility and supply chain oversight.
Ethics programs are expressions of the increasingly common view that corporations, as legal persons, bear an ethical responsibility to society as well as to shareholders. Early in its corporate history, Nike branded itself as a youth-friendly company, and many of its customers were idealistic and cared deeply about ethics. Its philosophy of being the best one can be appeared to cohere with an ethical worldview that stressed personal empowerment. It was therefore a great shock when it was revealed that Nike products were manufactured under ethically questionable circumstances (Ferrell, Fraedrich, & Ferrell, 2011, p. 217).
Nike stated that workers in its factories were paid above the minimum wage in the nations where it operated. Critics contended, however, that these wages were still too low. The controversy exposed a deeper problem: the absence of robust internal ethics programs and codes of conduct that could have held the company accountable — and prepared it for the public fallout that followed.
A code of conduct states the ethical principles under which a company operates in a concrete way, and holds the company accountable to specific practices (Ferrell, Fraedrich, & Ferrell, 2011, p. 388). Codes of conduct can also define what the company looks for in a supplier. Had Nike possessed a robust code of ethics early on, it would have had a concrete framework to reference when evaluating and defending its practices, as well as contingency plans for addressing charges of ethical misconduct.
A more effective code of conduct would have required Nike's suppliers to meet defined standards for wages, working conditions, and environmental compliance. This would have shifted accountability from informal expectations to binding contractual obligations — making it far harder for substandard labor practices to persist undetected within Nike's supply chain.
One of the central problems with Nike's manufacturing system was the lack of control and oversight it exercised over its subcontractors. Nike needed to communicate its standards clearly to these entities, as well as to members of its own workforce. Ethics oversight cannot be limited to Nike personnel alone — it must extend to every party that produces goods under the company's brand.
When a company is as geographically diverse and internationally based as Nike, ethical standards vary considerably from country to country. Many nations in the developing world have very lax regulations regarding toxic substances or unsanitary working conditions. Nike should have been more mindful of these cultural and regulatory differences and factored them into its briefings for employees and subcontractors regarding expected labor practices.
Today, according to the Nike website, the company states: "We expect our suppliers to share our standards and operate in a legal and ethical manner… the Code of Conduct addresses contractors that manufacture Nike-branded products. It directs them to respect the rights of their employees and to provide them with a safe and healthy work environment" (Ethics and Conduct, 2011, Nike Biz). An earlier and more rigorously enforced version of this commitment could have prevented many of the controversies Nike faced.
An ethics audit is a comprehensive program designed to determine whether a company's ethics program is effective (Ferrell, Fraedrich, & Ferrell, 2011, p. 243). An ethics audit holds the firm accountable for the ethical goals it has stated, much like a financial audit holds a firm accountable for its financial performance. Nike knew from the outset that the textile industry was problematic, given its long-standing reliance on low-wage labor. Ethics auditing encourages organizational learning by providing constant feedback about the ethical performance of the organization.
An ethics audit would have enabled Nike to reassess its definition of "value." Value is often understood as finding the lowest-cost method of manufacturing a given item. However, Nike should have recognized the full costs of failing to remain ethically vigilant — costs that materialized in the form of a severe public relations crisis when the extent of its labor practices was exposed. An ethical audit would have demonstrated, in advance, the costs to the company of noncompliance.
A comparable situation was suffered by the toy manufacturer Mattel, when it was discovered that its desire to price toys as cheaply as possible led it to select a Chinese subcontractor that used lead paint hazardous to children (Wisner & Gilbert, 2010). Parents lost trust in the brand almost overnight. As one analysis noted, corporate responsibility metrics matter precisely because "when information and metrics are combined with disclosure and transparency, corporate posturing on issues that affect society can be quickly replaced with fact-based analysis and discussion" (Connor, 2010).
Ethics audits are useful because they render, in objective and quantifiable terms, how ethical conduct is measured and hold the company to specific benchmarks. In the corporate world, it is often said that "what gets measured, matters" — and this principle applies equally to ethics as to finance.
The following eight-step outline describes what an ethics auditing process should look like at Nike:
"Audits quantify ethics compliance and reveal hidden costs"
"Eight-step framework for implementing ethics audits"
You’re 82% through this paper. Sign up to read the remaining 2 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.