Nike Child Labor Case

Nike Child Labor Case

2004

This case was written by an MBA student. The name has been removed to protect the author.

When you hear the word “Nike”, what comes to your mind? Do you remember the “Just Do It” slogan or envision the “swoosh” logo? Did you remember your favorite pair of running shoes? Or possibly, do you imagine a ten-year-old girl sitting on a dirt floor sewing a t-shirt? Unfortunately for Phillip Knight, founder and CEO of Nike, this last image is what Nike symbolizes to a growing population of the world.

Nike began gaining its reputation as a child labor tyrant in 1996. Life Magazine published a story that described children working in horrible working conditions, while earning next to nothing. These children worked in Pakistani manufacturing plants making soccer balls for as little as $0.50 a day. The soccer balls were then sold to children in the United States for over $20 (Wasserman, 2000; Schanberg, 1996). This and subsequent investigations found children as young as ten years old working in these soccer ball factories. They worked nine hours a day, seven days a week, and were paid $0.50 per completed ball. Children could complete between one and five balls per day, resulting in a maximum salary of $18 for a seven-day work week (Boggan, 2001; Schanberg, 1996). This means the children wouldn’t even be able to afford the toys they spent all day making. The story caught the attention of the American public.

Nike and Reebok were both purchasing the equipment, but, due to its size, Nike was given most of the media attention. Similarly, activist groups began focusing on Nike in hopes of stamping out the worldwide use of child labor. The groups picked Nike for two reasons. First, they were the largest company involved. Second, Nike published a code of conduct which stated, “in the area of human rights... in the communities in which we do business, we seek to do not only what is required, but what is expected of a leader (Global Exchange, 2003; Nike, 2004).” The activist organizations thought Nike would be eager to help the battle. The groups were wrong.

Nike only tried to create separation between themselves and the suppliers who were responsible for hiring children. Nike issued the following statement. “We are in the business of ‘marketing’ shoes, not making them (Global Exchange, 2003).” Nike felt it would be impossible to influence the use of child labor. They pointed out that no international standard existed for defining safe working conditions (Boggan, 2001; Nike, 2004). If the international community couldn’t agree on standards, why should Nike impose their own? Nike said even if they tried to impose an age limit children could easily purchase identification to falsify their age (Boggan, 2001). There was little Nike could do.

Nike began releasing statements that defined the benefits their manufacturing jobs bring to developing countries. Factories that produced Nike products paid higher wages. In fact, they often paid two to three times higher than the standard wage (Boggan, 2001). It was common for employees to work for a short time in a Nike factory, then return to their village to live the rest of their lives on the wages earned producing Nike gear. Some workers were even able to save enough to start small businesses back home (Boggan, 2001).

Nike also questioned how they should influence these factories? Their ultimate power would be to leave the factories and the countries that rely on child labor. But former Secretary of Labor Robert Reich warned that “stopping child labor without doing anything else could leave children worse off (Wasserman, 2000).” So Nike conceded that this was a difficult situation, but there was little they could do about it.

As Nike was establishing this position, a handful of other investigations were under way. The U.S. Department of Labor (DOL) began studying the worldwide use of Child Labor. They found that the Pakistan soccer incident was not unusual. In fact, their study found that child labor was routinely used around the world. Their research stated that across the globe 120 million children between the age of five and fourteen work full-time. Additionally, 250 million children work part-time. A majority of these children, 70%, worked in agriculture. The remaining worked in manufacturing, retail, or service sectors (Wasserman, 2000).

A handful of the countries named in the study substantiated the findings and openly discussed their dependency on child labor. Thailand, Brazil, and India stated they would continue to use child labor to keep labor prices down. They feared that eliminating children from the workforce would “block their prospects for greater growth and economic development (Wasserman, 2000)”.

These reports of dependence on child labor and claims that countries would not be able to transition from child labor, reminded experts of similar debates that occurred in the 1800’s in the United States.

The United States struggled with creating its own child labor laws. Massachusetts passed the first child labor law in 1836. By 1879, only seven states had enacted their own laws. At this time, laws were unique from state to state. There was a call to create a universal law for all the states. First attempts at this failed. In fact, two initial child labor laws were passed in 1916 and 1919, only to be declared unconstitutional in 1918 and 1922, respectively. The United States finally passed the Fair Labor Standards Act (FLSA) in 1938 (Wasserman, 2000). Like the world today, the country debated the issues and problems for over 60 years.

History echoed Nike’s sentiment that eliminating child labor will be difficult. Nike felt countries should drive the change, rather than having one company forcing change on all the nations. Unfortunately for Nike, the activists did not share this opinion. They would not wait sixty or more years for countries to decide on common regulations. They wanted Nike to attempt to force change now.

In 1996, activist groups begin putting pressure on celebrities who endorsed products made using child labor. Kathie Lee Gifford and Michael Jordan were both put under substantial pressure to stop endorsing the Wal-Mart and Nike products they respectively endorsed (NewsMax, 2000). While both stars received similar media pressure, each stars reacted differently. Kathie Lee took the offensive. She visited the plants where the incidents occurred and pressured Wal-Mart to change purchasing practices or risk loosing her endorsement. Michael Jordan, however, chose not to get directly involved. Instead he released statements such as, “"I'm not really aware of [the child labor issues]… My job with Nike is to endorse the product. Their job is to be up on that [issue] (Gibbs, 1996).” To this day, activist groups are still pressuring Michael Jordan to get involved. The Boycott Nike website urges consumers to contact Michael Jordan directly. They even list one of Michael Jordan’s email addresses with the plea, “Imagine the impact if Michael actually took a stand against exploitation (Boycott Nike, 2004)!”

A few months after the soccer report was published, it became clear that the story wasn’t fading away. In late 1996, Nike changed its response to the incident and changed its position on child labor. Nike representatives began stating the company “blew it” when referring to the soccer plant incident (Boggan, 2001). In 1998, Phillip Knight stated Nike would “adopt new labor policies on health and safety, child labor, independent monitoring, among other issues (Sweatshop Watch, 2001).” To make this a reality, Nike stated they would allow independent parties to begin inspecting the manufacturing plants where their products were manufactured (Sweatshop Watch, 2001).

It appeared Nike was taking the lead on stomping out child labor. Activist groups were happy, but skeptical. They were wise to be skeptical. Issues began surfacing from plants that produced Nike products. In Indonesia, 10,000 workers went on strike over wage violations. In Vietnam, 1,300 workers demanded a raise by striking. In China, 3,000 workers went on strike to protest low wages and poor working conditions (Global Exchange, 2003). The AFL-CIO office in Indonesia reported that Nike factory workers filed more complaints about wage violations than any other shoe company (Global Exchange, 2003). Activist groups publicized each event. The pressure increased for Nike to truly get involved.

Nike continued to downplay these situations. Nike routinely responded by issuing press releases that provided their interpretation of the incident. The press released would explain how Nike would resolve the incident, or why Nike felt the incident was being blown out of proportion. National media outlets often published Nike responses without verifying them. Activist organizations began complaining that Nike was getting special treatment and networks needed to begin investigating or substantiating Nike’s claims. The activists’ complaints gained momentum when incidents at Nike factories continued.

It was also found that Nike’s press releases weren’t always accurate (Johns, 2003). First, in 1998, Nike had reported that they had begun performing independent audits of factories and publicly publishing results. By 2001, Nike had performed only one independent audit and the results of this audit were not published (Sweatshop Watch, 2001). Another inaccurate press release involved a plant located in Puebla, Mexico. Workers in this plant had been appealing to Nike to improve the work conditions of the plant. Nike issues statements that they had reviewed the plant 14 months earlier and declared it was compliant with Nike policies. The workers went on strike. This strike repeatedly erupted in violence. Nike claimed the situation was being over publicized. After much unrest, the Worker Rights Consortium (WRC) offered to go to Mexico to perform an independent audit of the plant. The WRC, an independent organization made up of 67 universities, expected to corroborate Nike’s position and end the media debate. Instead, the WRC filed a report stating that the plant “violated child labor laws, fired strike leaders and intimidated union supporters into not returning to their jobs (Greenhouse, 2001).”

With this and other incidents as evidence, a lawsuit was filed against Nike concerning the press releases they issued. At the heart of the lawsuit was the practice of the mass media blindly publishing corporate statements. In 2003, the Supreme Court decided to hear this case. The ruling will state whether these corporate statements are protected by the first amendment, or if these statements are deemed advertising and are not fully defensible (USA Today, 2003).

Along with this lawsuit, activist groups began another campaign against Nike. This campaign was led by the activist group United Students Against Sweatshops (USAS). This group urged University Leaders to “enforce their code of conduct with Nike (Brakken, 2001).” This campaign has gained momentum. By fall 2003, eight colleges had fully backed USAS. These colleges require apparel manufacturers to ensure no merchandise is made in sweatshops (Herizons, 2003). USAS has had impact in other schools as well as those eight. One compelling story involves St. John’s soccer coach Jim Keady. Keady resigned after St. Johns negotiated a $3.5 million endorsement deal with Nike. The contract would have required players to wear Nike clothing and coaches to wear Nike pins. Keady felt, “coaches and athletes would be walking billboards for a company that exploits its labor force in poor countries (Sweat, 2002).”

Another compelling protest was performed by Jonah Peretti. In 2003, Jonah attempted to customize a pair of Nike running shoes using the NikeID service where any customer can print anything on any Nike shoe. Peretti’s customization was to add the phrase “sweatshop” under the Nike Swoosh. Nike refused this request. Nike first claimed the phrase was slang and Nike couldn’t allow it. When Peretti provided the Webster definition of sweatshop, Nike altered their response, stating that they could refuse any order within 24 hours for any reason (Peretti, 2003). The shoes were never made.

In the midst of this continued pressure, Nike refocused their efforts against child labor. Nike created a code of conduct called the Code Leadership Standards (CLS). The CLS states that, “Nike contractors found employing any worker under our age standards are expected to remove the child from the workplace, continue paying the worker's basic weekly wage, place the worker in an accredited local school, and offer employment when he or she reaches legal age (Nike, 2004).” The CLS also sets an international age limits on apparel production, age sixteen, and footwear production, age eighteen, for Nike all suppliers (Nike, 2004). Nike built a staff of eighty employees responsible for assuring the CLS standards are upheld across its supply chain (Nike, 2004). In 2001, Nike performed a self-audit against the CLS called the Corporate Responsibility Report (Boggan, 2001). The audit admitted failures and pointed out opportunities for growth.

What’s separates this series of reforms from Nike’s past policies is that Nike began acting on these new policies. Nike stopped ordering merchandise from a Cambodian factory accused of using child labor (Decherd, 2000; Chon, 2000). Also, when illegal age-related records were found, Nike re-examined the records of all 3,800 employees in one Cambodian plant (Boggan, 2001). Nike will now post manufacturing information for collegiate apparel it sells upon the request of that college. Nike even provides an international phone number for each plant (Nike, 2004). St. John’s has not requested this information be posted; however, fourteen colleges have, including six BIG 10 and four PAC 10 colleges (Nike, 2004).

Since 2002, Nike began performing independent audits and publicly publishing results. The Global Alliance and Fair Labor Association (FLA) conduct these audits for Nike and other major companies, like GAP, Reebok and Adidas. The Global Alliance has posted a total of six audits of Nike facilities (Global Alliance, 2003). The FLA has published twenty-six audits in 2003 and fourteen audits in 2002 (Fair Labor Association, 2003). Unfortunately, these audits still uncover issues. For example, numerous plants do not pay the required minimum wages defined by Nike. Some plants in China were found violating employee age limits. Also, a plant in China noted “no toilet paper supplied in toilet.” While some plants have offenses, other plants have complied with Nike’s standards. A number of plants only list one issue, “lack of a fire drills”, as the only violation (Fair Labor Association, 2004). It appears one company can make a difference after all.

Questions

1. Did Nike change stages of moral development during this ordeal? What do you think motivated Nike to change stages (coercion, egoism, universalizability, etc)?

2. What responsibilities should celebrities have for the products they endorse? Should they just accept a check or should they truly believe and become involved in the product? Compare and contrast the different interpretations of product endorsement shown by Kathie Lee Gifford, Michael Jordan and Jim Keady.

3. Should media outlets print company statements without verifying or substantiating the information they contain? How should they treat this material since it is probably company propaganda and biased interpretation of fact?

References

Boggan, Steve. 2001. Nike admits to using child labor. Asheville Global Report. No. 145. Retrieved May 10, 2004, from

Boycott Nike. 2004. Boycott Nike Info. Boycott Nike. Retrieved May 10, 2004, from

Brakken, E. 2001. Police raid strike at Nike factory in Mexico; Nike refuses to take responsibility. Sweatshop Watch.org. Retrieved May 10, 2004, from

Chon, Gina. 2000. Dropped Stitches. Asiaweek. 12/22/2000, Vol. 26 Issue 50, p30-33.

Decherd, Chris. 2000. Cambodia Rejects Child Labor Claims. Washington Post. Retrieved on May 10, 2004 from

Fair Labor Association. 2004. Public Reporting. Fair Labor Association. Retrieved on April 24, 2004, from

Gibbs, N., Dickerson, J. 1996. Two High-Profile Endorsers are props in a worldwide debate over sweatshops and the use of child labor. Time. 6/17/96, Vol. 147 Issue 25, p28-30.

Global Alliance. 2003. Documents and Publication. Global Alliance. Retrieved on April 24, 2004, from

Global Exchange. 2003. Nike Sweetshops. Global Exchange. Retrieved May 10, 2004 from

Greenhouse, Steven. 2001. Rights Group Scores Success With Nike. New York Times. Retrieved May 10, 2004, from

Herizons. 2003. Take a Hike, Nike. Horizons. Vol. 17 Issue 2, p14, 1p

Johns, David. 2003. Nike's corporate speech: overwhelming the voice of citizens. Oregonian. Retrieved April 25, 2004, from