Sustainability and Ethics in Nike - Case Study Example

Sustainability and Ethics in Nike Introduction Social responsibility is the act of a business engaging in social activities that are not otherwise regarded as its core business or a requirement by laws and/or regulations (Hond& Bakker, 2007). In the 21st century, it is no longer an unnecessary cost but a competitive advantage as consumers become more enlightened (Idowu & Filho, 2009). Businesses operate within the society from which they make their profit. Business aims should therefore be broader than to be narrowed down to profitability and growth as it is the assumption of the classical CSR proponents like Milton Friedman. It is imperative that a business conducts its activities in a manner that is ethical and in consistent with the expectations of its stakeholders, public and regulatory authorities (smallman, McDonald, & Mueller, 2010). This paper seeks to critically evaluate Nike’s corporate values and corporate governance. To determine whether Nike is an ethical company, the paper will also analyze the company’s social responsibility report Nike Corporate Values, Social responsibility and Corporate Governance Corporate governance can be defined as a method by which an organization is governed, administered, directed or controlled and the goals for which it is governed. Beyond making profits, a company should consider the implication of its activities n relation to ethics and societal norms in the society in which they operate (Crittenden, Crittenden, & Pitt, 2011). The law expects a company to be totally responsible of its activities to ensure they stay within the accepted conduct in relation to ethics (Certo, 2011). A company should care for all its stakeholders in the course of its business including the shareholders and employees and customers and the government (smallman, McDonald, & Mueller, 2010). According to Hond & Bakker, (2007) a system of corporate governance is mostly implemented to provide checks and balances on behalf of the shareholders to discourage management from pursuing objectives and strategies that may impact negatively on the shareholders interests in the company such as reducing their wealth. Nike as a company has ensured it does a transparent and regular reporting to its stakeholders so that it can be seen how the company is progressing and addressing social responsibility issues in line with the core business of the company. The company states in its report (Nike, 2009) that it commits to measuring and reporting its performance which it views as part of its responsibility to its stakeholders. Transparency is a sensitive issue as far as corporate governance is concerned, but Nike has ensured that it upholds the highest degree of transparency in its reporting since reporting is to the company the most critical tool in providing critical information to its stakeholders (Nike Incorporated, 2013). This is very important to investors since their money is being used by the company to enable its operations and as such have the right to know how their money is being used (smallman, McDonald, & Mueller, 2010). Reports on the company’s progress according to its responsibility report are made on a regular basis. The data provided is more on reporting timely and relevant issues and perspectives that are of interest to stakeholders. This is a shift to the previous approach by the company where it used to provide comprehensive one year or two year reports. In addition the report is web based and thus easy to get (Nike, 2009). Nike’s board is composed of 13 members 11 of whom are considered independent. This is in line with the US Sarbanes-Oxley Act other laws as stated by the company. Shareholders have confidence in independent boards to champion their interests (Nike Incorporated, 2013). According to Certo (2011) this is very important for an organization such as Nike since it has to have an independent board composition that will be able to take care of stakeholders’ interests above the profit making mandate of the business. The board also helps the company to engage with important stakeholders such as the government, civil society and shareholders to reduce risks of implementing strategies that are viewed as not well intended for certain stakeholder groups. This also initiates innovation especially in corporate responsibility initiatives (Nike Incorporated, 2013). Nike has a code of ethics for all employees which the management refers to as Inside the Line. It defines the standards of conduct which the employees are expected to follow (Nike, 2009). The code of ethics addresses this through topics such as; employee activity, ethical behavior, product safety, legal compliance and use of resources. Each year the company acquires verification from each employee that he/she has read and understands the contents of the code of ethics. Anybody can call to inform management of anybody flouting the law or the code of ethics through a toll free line provide by the company (Nike, 2009). Such a strict approach to management ensures that the company has an effective organizational culture to guide the actions of everybody in the company. It instills values that will eventually set the company apart from the rest in terms of delivering value to all its stakeholders and conduct its business in a socially responsible manner (Idowu & Filho, 2009). Nike expects its suppliers and contractors to adhere to the company’s code of ethics in as far as corporate governance is concerned. If a company is reported to be violating standards set out by Nike then the management might review its contract with the supplier to protect its integrity and stakeholder relations (Nike, 2009). One way to know whether a company is indeed a good corporate citizen and a socially responsible entity is to view its ranking in the global corporate sector (Crittenden, Crittenden, & Pitt, 2011). Nike has excelled well in ensuring corporate governance and social responsibility wherever it operates. For this the company has received several awards to recognize its commitment to corporate governance and social responsibility. The company has from 2005 to 2009 been ranked among 100 Best Corporate Citizens; a list created by Ethics magazine to recognize top ethical performers. The ranking are created from both financial and corporate social performance measures. Nike is also listed in the FTSE4Good Index Series which measures the performance of companies that meet the globally recognized corporate responsibility standards, and facilitates investments in them. The listed companies must ensure environmental sustainability, developing good relationships with stakeholders, and upholding universal human rights. Nike is also ranked as one of the worlds most ethical companies from 2007 to 2009 by Ethiosphere; a ranking that covers issues such as corporate citizenship, corporate governance, and internal systems. All this attest to the fact that Nike is a leader in ethics and corporate governance not only in the industry it operates in but also at the global economy level (Nike, 2009). Agency theory posits that managers are simply wealth maximisers who consider their own interests above those of shareholders. They focus on short terms gains at the expense of long-term strategies (smallman, McDonald, & Mueller, 2010). However at Nike there is a corporate governance system pin place to guard against this agency problem. Nike has well stipulated strategy that goes beyond short terms social responsibility to include matters such as sustainable innovation to get the company into what it considers a closed-loop business model with zero wastes and sustainable profitability (Nike, 2009). The company’s strategic business and innovation approach includes (Nike, 2009); Innovation to deliver enterprise level sustainability solutions such as easily recyclable materials that have limited impact on environment once finally disposed. Integration of corporate responsibility into the company’s activities to ensure everyone understands Nike’s corporate responsibility challenges, approaches and vision. This is intended to inculcate a culture of social responsibility so that everyone should take it upon himself or herself to think about how a sustainable Nike can be built. Corporate governance and social responsibility have also been put at the core of the company’s decision making. Sustainability is indeed a part of Nike’s corporate strategy. Mobilization of employees, suppliers, consumers and business partners to engage in innovation and practices to ensure sustainability and good global citizenship in areas where they operate. Any company hat prides itself of being socially responsible has to balance between all the interests of the stakeholders including the employees of the company (smallman, McDonald, & Mueller, 2010). Nike has ensured that its employees are treated with utmost respect by the management. Nike’s employees do not belong to any trade unions. Despite this, Nike has never had any employee employer scandals where employees allege wanton abuse of their rights. Nike as a company recognizes the fact that resources in the world today are becoming scarce and as such has taken it upon itself to use innovation to conserve water, increase energy efficiency, reuse and recycle the products it produces (Nike, 2009). Nike with the help of The Natural Step has developed its own North Star to define what sustainable organization and products should look like. The visions will help the company focus efforts towards where they can make the biggest impact in terms of sustainability. According to the North Star, Nike hopes to minimize the impact of products ingredients to the environment throughout the product’s life cycle. The company commits to providing leadership towards climate stability. Nike also commits to borrowing water from communities in which it operates and returns it clean. The company vision when it comes to environmental responsibility is captured in the following statements (Nike, 2009): We design for recycling. Consumers bring their products back to us to be recycled into new products. Waste that cannot be eliminated is recycled. Product is less reliant on oil and water. We all step lighter, faster into a future low-carbon sustainable economy. We use healthier chemistry to minimize the impact of product ingredients through the product lifecycle Conclusion From the above examples and analysis of Nike’s corporate responsibility report for the year 2009, it can be seen that the company is truly an ethical company which is socially responsible. The company assumes great responsibility for its actions since it is accountable to all the stakeholders in a way or the other. The company’s shareholders want the management to maximize their wealth by developing and implementing strategies that are in the best interest of the company and Nike has not failed in this as can be seen from this paper. However, the company has also shown commitment to social responsibility by developing environment friendly practices in its production and strategizing on a sustainable business model to carry the company into the future. The employees too are guided by a code of ethics which is also meant to protect and promote their rights. Nike’s can therefore be considered an ethical and socially responsible company that has been ranked among the best in this category. References Certo, S., 2011. Modern Management: Concepts and skills. Pearson Education. Crittenden, V. L., Crittenden, W. F., & Pitt, L. F., 2011. Implementing global corprate citizenship: An integrated business ramework. Business Horizons , 55 (1), p.445-455. Hond, F., & Bakker, F., 2007. Managing corprate responsibilityin action: Talking, doing and measuring . Ashgate Publishing. Idowu, S., & Filho, W., 2009. Global practices of corprate social responsibility. springer. Nike,2009. Corprate Social Responsibility Report, FY-06 07 09 [PDF] Available at: http://www.nikebiz.com/crreport [Accessed 10 June 2013]. Nike Incorporated., 2013. Reporting-governance. Retrieved June 10, 2013, from Nike Incorporated Website: http://nikeinc.com/pages/reporting-governance smallman, C., McDonald, G., & Mueller, J., 2010. Governing the corporation; structure process and behavior. Journal of Management and Organisation , 16 (2), p.194-198. Read More