Be ll 1 If you look inside your closet, how many items have the Nike swoosh? When you see that signature swoosh, what is the first thing to come to mind? Ethical is probably not one of your top thoughts, and that is because the company has had its fair share of ethical issues since its creation in 1964 (The Editors of Encyclopedia Britannica). Founded by two men, a coach and his athlete, Nike sells a variety of products ranging from shoe wear to apparel. Nike Inc. has been a publicly owned company since 1980 and has grown into one of the largest sportswear companies in the world (The Editors of Encyclopedia Britannica). This growth would not have been possible without guiding documents which are essential to a company’s wellbeing. Nike has multiple documents that address how it intends to be portrayed as a business. The first is the company’s mission statement, which is “Bring inspiration and innovation to every athlete* in the world” (Nike Inc, Read). The asterisk notes that Nike defines an athlete as anyone with a body. Through its products Nike hopes to create inspiration and innovation to humans across the world. Second is its values which are innovation, sustainability, diversity, and community. Finally, Nike has many policies in place to ensure all company activities are ethical, since ethics is often a gray area. Nike’s main code of conduct is called Inside the Lines and was updated in May of 2019. Inside the Lines directs employees on how to make ethical decisions using five maxims, which will be referred to throughout this document. Multiple ethical principles can be derived from each maxim, which can be seen below in figure 1.1. Inside the Lines goes into extensive detail about conflicts of interest, workplace safety, bribery and corruption, political activity, and sustainability. A final policy that will play a key role in this discussion is the supplier’s code of conduct. This document specifies how Nike wants suppliers to conduct business, targeting the key areas of respect, fairness, sustainability, and safety. This document was created in 1992 and Just Do It…Ethically! Be ll 2 revised in 2017 (Nike Inc., “Code of Conduct”), which will be important to remember as the issues are expanded upon. Figure 1.1 The Five Maxims from Inside the Lines Principles derived from maxim 1. Serve Athletes* Accountability, Trust 2. Create the future of sport Viability, Transparency 3. Be on the offense always Fairness, Respect 4. Do the right thing Integrity, Rule of Law 5. Win as a team Teamwork, Commitment to Excellence Throughout the years, Nike has had its share of ethical dilemmas. The first, and most well- known, is the issues within its production facilities in Southeast Asia. The main issues in these factories were poor working conditions and extremely low wages. Next, Nike has an intensive competitive marketing issue. Nike has been accused of participating in ambush marketing, where it does not sponsor events but it pays the same amount of a sponsorship fee in advertising costs around the events, taking away from the groups who did pay the sponsorship fee. Finally, Nike has had controversy over the athletes it chose to represent the company, including Lance Armstrong and Colin Kaepernick. But why does being ethical matter? Ethics matters because it affects all aspects related to the company. An ethical company tends to be more profitable because it has a better reputation and relationship with its stakeholders. Ethisphere is an organization that provides a wide range of services to enhance a company’s ethics. It also recognizes the top ethical organizations throughout the world. To accomplish this, Ethisphere reviews a company’s ethics and compliance program, leadership and reputation, culture of Just Do It…Ethically! Be ll 3 ethics, corporate citizenship and responsibility, and governance (“Home 2020 Worlds…”). According to Ethisphere’s research, companies recognized as the world’s most ethical have outperformed the large cap sector for several years. Nike was on the list from 2007 to 2010 but has not made the list since then (“Past Honorees”). Nike has the potential to make the list and be one of the top ethical companies in the world. It has strong values, clear policies, and a hearty compliance system to guide its business actions. Of course, it has had some unfortunate situations but learning from its past mistakes and applying that knowledge in future decision making will help create ethical strides in the company. Using the company’s current policies, the three incidents stated above will be analyzed on what the issues were, how the company responded, and what it could have done better. In the late 1990’s, Nike had some serious issues with its suppliers and factories in Southeast Asia. Producing in this region allows for significantly lower costs by paying workers extremely low wages. One article stated that workers earned “a daily wage in Vietnam of $1.67 for a sneaker that costs upwards of $150 in the US market.” (McNett, 152). Selling its shoes for that much money, Nike surely has the funds to pay these workers appropriately. On top of low wages, workers are often forced to work overtime and have no union supporting them (Barnet). By working overtime, factory workers can create more shoes, allowing Nike to sell more and be competitive in the market, but at the cost of poor employee treatment. Working conditions were also unsafe. One major event in the Vietnam factory led to a young woman being killed by equipment sparking a global outrage regarding Nike’s labor standards (McNett, 152). Nike outsources all of its production and often refers to itself as “marketers and designers” (Barnet), even then, does Nike still have a duty to protect the workers in those facilities? According to Barnet in 1994, Nike did not accept responsibility for these conditions, giving them a poor Just Do It…Ethically! Be ll 4 reputation. During this time, transparency regarding factory conditions was a big issue within the industry. Nike, however, did not publish a full list of outsourced factories until 2005 (Doorey, 588). Nike’s earnings suffered in 1998 as details regarding its production facilities reached the public. Nike knew it needed to take action so in 1992 the company released the supplier’s code of conduct. The code set standards and expectations for Nike’s suppliers and producers. Creating this code showed that Nike was taking responsibility for the actions of its suppliers. However, the code did not disclose where the factories were. Furthermore, when the code was shared, there was no way practical way to ensure its implementation, so criticism continued (Doorey, 592). Nike took a few more steps over the years, including creating a new monitoring program, a new compliance division, a global database of factories, and updating these items when necessary. Nike established the SHAPE system, which was a “formal monitoring system” to ensure potential new factories were aligned with the new standards (Doorey, 592). The system was there but didn’t do much with the already existing production facilities. Nike then invested in a corporate responsibility and compliance division which allowed it to introduce regional managers to ensure all factories were complying with the supplier code of conduct. In the early 2000s, a global factory database was created which added extra transparency to its business. Eventually, Nike would disclose its full list of factories in 2005. Two years prior, Nike developed a more intense audit, known as the M-Audit. According the Doorey, factories who failed the SHAPE or M-Audit were either not approved or given a plan to follow to allow them to be approved. To enhance its efforts, Nike also supported the UN’s Global Compact and introduced its Transparency 101 initiative, which anonymously shared audit results from its factories (Doorey, 593). Nike gained some credibility in this area with its creation of a Just Do It…Ethically! Be ll 5 committee in 2004 that would review its factory list. After a year of review, Nike published this list creating transparency with its customers. The list still remains available today on Nike’s website because the company believes it “encourages transparency and collaboration” (Doorey, 594). Nike’s response to the issues with its production facilities fell short, they made improvements, but they still have issues that followed them even today. Looking at Nike’s current supplier code of conduct, these situations do not satisfy the fair or safe portions of the code. Workers are under compensated and working excessive hours. They are not working with safe equipment in secure areas. The first thing Nike should have done is taken responsibility for the factories immediately. Although Nike is not directly in charge of them, they are part of the company’s production and the company has a duty to ensure that all employees are treated fairly, respected, and working in a safe environment. If Nike was not sure what was going on in the plants, it could have sent company employees to gain insight on the situation, providing Nike with evidence the company could use to make the decisions to better the situation. What they did helped the company a little bit, but they could have been timelier with their moves and conducted an internal investigation. A compliance department should have been set up much sooner and possibly could have prevented this chaos. The department could have then created the code of conduct sooner and ensured all factories that production was outsourced to was following it. Nike was very reactive in their approach and it would have saved them a lot of time to be proactive instead. Also, their audit systems should have been more robust in the beginning. When they created the code, they should have added how each object would be monitored. This would have provided them with key objectives and an easier way to enforce the code in their facilities. By keeping in mind their key areas of respect, fairness, safety, and sustainability while Just Do It…Ethically! Be ll 6 making decisions, being proactive, acting timelier, and creating measurements early on Nike could have reduced the impact of this issue. The next ethical dilemma is ambush marketing which Nike has participated in multiple times. Ambush marketing is deliberately and maliciously creating an association with an event even though the entity is not paying a sponsorship fee (Pitt). Nike has participated in ambush marketing during multiple FIFA World Cups and Olympic games. An example of ambush marketing is when Nike painted huge murals of Team USA basketball players – Michael Jordan and Charles Barkley, both who had contracts with Nike, on buildings across Barcelona for the 1992 Olympics (Brewer). Nike did not pay a cent in sponsorship fees but achieved massive exposure by utilizing this unethical form of marketing. Nike also created a headquarters a few miles away from the Olympic Village to host conferences with its contracted athletes (Brewer). Nike’s divisional manager of marketing in 1992, Mark Pilkenton saw now problem with it and stated “We feel like in any major sporting event, we have the right to come in and give our message, as long as we don’t interfere with official proceedings” (Brewer). Sure, Nike is not doing anything illegal, but utilizing this marketing technique is not perceived as fair. In the world of soccer, Nike had been falsely perceived as the sponsor of the World cup. A study done a few months before the 2010 World Cup presented results that 17% of people surveyed believed Nike was the sponsor, while only 15% believed adidas – the legit sponsor- was the sponsor (Lee). Nike’s huge ad campaign with Cristiano Ronaldo and Wayne Rooney really sent them over the edge in the marketing world. Airing right before the World Cup, this ad had 15 million YouTube views (Lee). Again, Nike creates an unfair advantage against adidas who paid for the sponsorship fees yet still did not receive the recognition Nike did. Nike’s use of ambush marketing still continues today. Just Do It…Ethically! Be ll 7 Ambush marketing is unethical because it confuses customers and devalues the benefits of legitimate sponsorships associated with premiere events. Furthermore, companies engaged in this activity pay less than those who pay the legitimate sponsorship fees. Both the International Olympic Committee and FIFA organization have strong opinions on the strategy. They are disturbed that this money is not going to their organizations through sponsorship fees and that gorilla marketers are reaping benefits from the event. Unfortunately, there is not much they can do about it unless their unique marketing items, like the Olympic rings or FIFA logo, appear in the ads (Brewer). Ambush marketing violates four of Nike’s key principles; trust, respect, fairness, and integrity. Nike is misusing consumers trust when it appears to be the sponsor but is really just practicing ambush marketing. Nike is not respecting the organizations that put on the events and need sponsorship money to pay for their operations. By ambush marketing, Nike is not being fair to their competitors. Finally, many people consider ambush marketing as unethical, so Nike can be seen as not living up to its integrity principle of “doing the right thing”. This marketing strategy is making the company a lot of money, but at what cost? Nike should reflect on its maxims and principles and discover alternative ways to ethically market at these events. One idea is to just simply pay the sponsorship fee. Although these fees are costly, Nike can ethically gain recognition for being a true sponsor, and not ambushing competitors. If the fees are too much, perhaps Nike can consider co-sponsoring with a non-competitor company. An example would be Nike partnering with Visa as co-sponsors for the Olympic games. Another possibility is to utilize pre-event contracts with players. Nike can build relationships prior to the event with players and focus on supporting them without extra frills such as murals or large ad campaigns. Since this player is already a partner, well before the event, it can protect Nike’s reputation and still boost sales if the player performs exceptionally well. By consistently re- Just Do It…Ethically! Be ll 8 aligning its marketing decisions with its values, Nike will promote trust with consumers, fairness with its competitors, and respect with the organizations that host the events. The celebrities Nike endorses have also created some ethical issues. Of course, a lot of this is out of the company’s control, but it is important to remember that whoever appears in an advertisement as a partner represents the brand. Nike does have a mortality contract that states athletes can be dropped if they do anything to damage the athlete’s public image (Andersen). Anything endorsed athletes do could reflect poorly upon Nike, so it is important the company aligns itself with the right ones. The first athlete is Lance Armstrong, a famous cycler and cancer survivor, was convicted of doping in 2012. Nike and Armstrong worked together to create the Livestrong collection, including the popular yellow Livestrong bracelets which benefited Lance’s foundation to help cancer patients. Lance was a representative of the brand for years yet did not play fair and it definitely affected the brand’s image. No sportswear company wants to be associated with a cheating athlete and its curious that Nike did not know more about it. There are allegations that Nike paid to cover up a positive drug test taken by Lance (Boren). Nike denies this allegation and does not promote the use of illegal drugs, but still the questions remain. In 2001, Nike launched an interesting ad campaign featuring Lance when people first questioned if he was doping. The video showed Lance riding his bike and getting his blood drawn with some very intense dialogue. “This is my body and I can do whatever I want to it. I can push it, study it, tweak it, listen to it. Everybody wants to know what I’m on. I’m on my bike busting my ass six hours a day. What are you on?” (Nike Inc, “What am I on?”) In the ad, Lance is clearly making a statement to his doubters that it is his body and he can do whatever he wants, but why would he be doping? At the time, Nike was supporting its athlete. However, when the US Anti-Doping Association came out with a report alleging that Lance had Just Do It…Ethically! Be ll 9 doped, Nike discontinued its relationship with him. Nike claims it knew nothing of the doping scandal and that Armstrong misled them for over a decade (Boren). Although Nike dropped Armstrong, it still continued to support the initiatives of Livestrong, which Armstrong had also stepped down from (Sparkes). Dropping Armstrong, but still supporting the Livestrong organization is an ethical move on Nike’s part because it is re-establishing its principles of fairness and integrity. To create more transparency and protect the brand’s reputation, Nike should supervise celebrities more while they are under contract. Nike should share its principles and maxims with the celebrities and insist the celebrities also follow and live them in their daily lives. It needs to be more than just a morality clause in a contract. Nike should have a senior leader sit down and explain its expectations with endorsed athletes so they can refer back to it while making decisions that may reflect back on the company. Colin Kaepernick is another celebrity who created controversy for the company. Kaepernick is a Nike athlete who refused to stand during the national anthem in a 2016 preseason game. This created a lot of drama with the NFL, with whom Nike also partners (Walsh). Kaepernick was certainly within his right as an American, so there is not anything illegal, but some people see his actions as unethical and disrespectful to the country. For Nike, it is a tough call as it wants to appease the NFL, while also supporting Kaepernick. Nike ended up using Kaepernick to create a campaign emphasizing human rights. Financially, the move paid off as shares soared to record highs (Walsh). Some critics argued that if Nike wants to start supporting human rights, it should start with itself as a company (Fairclough). As stated earlier, Nike had some issues with its labor suppliers but has worked on improving the situation over the years. “Practicing what you preach” is extremely important and something Nike should consider Just Do It…Ethically! Bell 10 in future situations. As a large organization, Nike has a lot of opportunities to create change and it should spark that change by aligning its words and actions. Nike Inc. is one of the largest sportswear companies in the world, so it is not shocking it has faced so many ethical dilemmas. Nike has the opportunity to learn from its mistakes and apply the lessons in future situations. One goal Nike should consider is being more proactive instead of reactive. This strategic shift would give it more intentionality as a company. Even as more dilemmas arise, Nike can be reassured it has the proper will and mindset to help avoid or fix the situation. Acting with integrity is a commitment a firm must make – not just when it is easy or convenient, but at all times. To conclude, terms such as athlete, shoes, motivation, and competitor probably come to mind when you see that Nike swoosh, but by making more ethically sound and policy supported decisions, ethics could surely be added to the list. Being ethical will not only help its brand reputation, it will also benefit Nike financially. Ethisphere’s Top 200 Ethical companies proves this as they have a five-year ethics premium of 13.5% (Home, 2020…). Although Nike has not made the list in the past decade, it has the resources and ability to get there. Making decisions supported by its guiding policies will help it move up the ethical rankings and make the list once again. Nike must remember to just do it….ethically! Just Do It…Ethically! Bell 11 Works Cited Andresen, Scott A. Current Ethical Issues in Sports Law. Marquette Law , 2015, law.marquette.edu/assets/sports-law/pdf/Andresen.pdf. Barnet, Richard J, and John Cavanagh. “Viewpoints; Just Undo It: Nike's Exploited Workers.” New York Times, 13 Feb. 1994, p. 11, www.nytimes.com/1994/02/13/business/viewpoints-just-undo-it-nikes-exploited- workers.html. Boren, Cindy. "Nike Drops Lance Armstrong, Who Steps Down from Livestrong (Posted 2012- 12-29 23:46:26)." The Washington Post, Dec 29, 2012. ProQuest, http://libproxy.uwyo.edu/login/?url=https://search-proquest- com.libproxy.uwyo.edu/docview/1265611660?accountid=14793. Brewer, Geoffrey. "Be Like Nike?" Sales and Marketing Management, vol. 145, no. 11, 1993, pp. 66. ProQuest, http://libproxy.uwyo.edu/login/?url=https://search-proquest- com.libproxy.uwyo.edu/docview/211832768?accountid=14793. Doorey, David J. “The Transparent Supply Chain: from Resistance to Implementation at Nike and Levi-Strauss.” Journal of Business Ethics, vol. 103, no. 4, 2011, pp. 587–603., doi:10.1007/s10551-011-0882-1. The Editors of Encyclopedia Britannica. “Nike, Inc.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 16 Dec. 2019, www.britannica.com/topic/Nike-Inc. Fairclough, Sandy. “Kaepernick Doesn't Give Nike the Ethical High Ground.” UWIRE Text, 24 Sept. 2018, p. 1. Gale OneFile: News, link-gale- com.libproxy.uwyo.edu/apps/doc/A555367028/STND?u=wylrc_uwyoming&sid=STND &xid=0a81e7be. Just Do It…Ethically! Bell 12 “Home, 2020 World's Most Ethical Companies .” Ethisphere® Institute | Good. Smart. Business. 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Nike Inc. “Policies.” Nike Purpose, Nike Inc , 2020, purpose.nike.com/sustainability-policies. Nike Inc. “Read Nike's Mission Statement and Find Information about NIKE, Inc. Innovation, Sustainability, Community Impact and More.” Nike News, about.nike.com/. “Past Honorees.” Ethisphere® Institute | Good. Smart. Business. Profit.®, 21 Feb. 2020, www.worldsmostethicalcompanies.com/past-honorees/. Pitt, Leyland, et al. “Event Sponsorship and Ambush Marketing: Lessons from the Beijing Olympics.” Business Horizons, vol. 53, no. 3, 2010, pp. 281–290., doi:10.1016/j.bushor.2010.01.002. Just Do It…Ethically! Bell 13 Sparkes, Matthew. “Nike Terminates Its Sponsorship of Lance Armstrong; Nike Has Terminated Its Sponsorship Contract with Cyclist Lance Armstrong after ‘Seemingly Insurmountable’ Evidence Emerged That He Participated in Doping and ‘Misled’ the Sportswear Company for More than a Decade.” The Telegraph Online, 17 Oct. 2012. Walsh, David. "Nike Backed Drugs Cheat Lance Armstrong and Bankrolled the Shamed Oregon Project. its CEO was Forced to Finally 'do the Right Thing'… and Step Down [Eire Region]." Sunday Times, Oct 27, 2019, pp. 12. ProQuest, http://libproxy.uwyo.edu/login/?url=https://search-proquest- com.libproxy.uwyo.edu/docview/2308934450?accountid=14793. Just Do It…Ethically!