Social responsibility of nike company

Marc Kasky versus Nike

Marc Kasky of San Francisco sees his world as a com- munity and has a long history of caring about the others in it. He got early lessons in business ethics from his father, who ran a car repair business.

The customer would bring his car in and say there’s something horribly wrong in my car: I think I need a new transmission. . . . My father would call them back an hour later and say, “Come get your car, there was a loose screw here and there; I fixed it. What does it cost? Nothing.” I saw how that affected our family. It impressed me a great deal.1

After graduating from Yale University in 1969, he volunteered to work in poor Cleveland neighbor-

1 Quoted in Jim Edwards, “Taking It to the Big Guys,” Brandweek, August 12, 2002, p. 1.

hoods. Moving to San Francisco, he headed a non- profit center for foundations that funded schools. He involved himself in civic and environmental causes. He also became an avid jogger and ran marathons.

Over the years Kasky wore many pairs of Nike shoes and considered them a “good product.”2 But he stopped buying them in the mid-1990s after reading

2 Steve Rubenstein, “S. F. Man Changes from Customer to Nike Adversary,” San Francisco Chronicle, May 3, 2002, p. A6. Kasky stated his ownership of Nike shoes in the interview for this article. However, his lawyer told the Supreme Court that he had “never bought any Nikes.” Nike v. Kasky, No. 02–575, Oral Argument, April 23, 2003 (Washington, DC: Alderson Reporting Company, 2003), p. 30, lines 21 and 22. We give priority to Kasky’s story, but this is a remarkable contradiction.

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Marc Kasky. Source: © AP Photo/Denis Poroy.

stories about working conditions in overseas factories where they were made. By then Nike, Inc., had be- come the main focus of the anti-sweatshop cause, ac- cused of exploiting low-wage workers who made its shoes and clothing. The more Kasky read about Nike, the more convinced he was that it was not only vic- timizing workers, but lying about it too. Kasky sought the help of an old friend, Alan Caplan, an at- torney who had achieved fame in progressive circles by bringing the suit that forced R. J. Reynolds to stop using Joe Camel in its ads.

With Caplan’s help, Kasky sued Nike in 1998 for false advertising, alleging it had made untrue state- ments about its labor practices. This was not Kasky’s first lawsuit. Previously, he had sued Perrier over its claim to be “spring water” and Pillsbury Co. for labeling Mexican vegetables with the words “San Francisco style.” Both suits were settled.3 Nike sought dismissal of Kasky’s suit, arguing that the statements he questioned were part of a public de- bate about sweatshops and protected by the First Amendment.

3 Roger Parloff, “Can We Talk?” Fortune, September 2, 2002, p. 108.

NIKE

Nike, Inc., is the world’s largest producer of athletic shoes and sports apparel. It grew out of a handshake in 1962 between Bill Bowerman, the track coach at the University of Oregon, and Phil Knight, a runner he had coached in the 1950s. Knight had just received an MBA from Stanford University, where in a term paper he had written about competing against estab- lished athletic shoe companies by importing shoes made in low-wage Asian factories. Now he was ready to try it. He and Bowerman each put up $550 and Knight flew to Japan, arranging to import 300 pairs of Onitsuka Tiger shoes.

After seven years, Knight and Bowerman decided to stop selling the Japanese company’s brand and create their own. So they designed a shoe and sub- contracted its production to a factory in Japan. By now Bowerman and Knight had incorporated, and an employee suggested naming the company Nike, for the Greek goddess of victory. Knight paid a design student at Portland State University $35 to create a logo. She drew a “swoosh.” The elements of future market conquest were now in place and the company rapidly grew.

Nike succeeded using two basic strategies. First, its product strategy is to design innovative, fashion- able footwear and apparel for affluent markets, then have contractors in low-wage countries manufacture it. This way Nike avoids the cost of building and managing factories. At first, it made most of its shoes in Japan (some were made in the United States until 1980), but as wages rose there it moved contracts to plants in South Korea and Taiwan. When wages rose in these countries, Nike again shifted production, this time to China, Indonesia, and Thailand, and later to Vietnam.

Second, its marketing strategy is to create care- fully calculated brand images. Advertising associates the Nike brand with a range of ideas. Prominent among them is the idea of sport. Endorsements by professional athletes and college teams endow the swoosh with a high-performance image. Campaigns with the “just do it” slogan add connotations of com- petition, courage, strength, and winning. Other ad- vertising associates the brand with urban culture to make it “street cool.” In this way Nike transforms shoes and T-shirts that would otherwise be low-cost commodities into high-priced, high-fashion items that generate positive emotions when they are worn.

THE SWEATSHOP LABOR ISSUE

By 1980 when the company went public, it had seized half the world’s athletic shoe market. But the out- sourcing and advertising strategies that propelled it to the top put it on a collision course with a force in its social environment. This force, the sweatshop issue, would gain power and cause considerable damage.

In 1988 an Indonesian union newspaper pub- lished a study of bad working conditions in a plant making Nike footwear.4 Soon other critical articles appeared in the Indonesian press. The AFL-CIO decided to investigate how workers were being treated in plants that manufactured for American firms and sent an investigator named Jeffrey Ballinger to Indonesia. Ballinger focused on Nike contractors, gathering detailed information.

In 1992 he published a clever indictment of Nike in Harper’s Magazine by exhibiting the monthly pay stub of an Indonesian woman named Sadisah who made Nike running shoes. Sadisah worked on an as- sembly line 10-and-a-half hours a day, six days a week, making $1.03 per day or about $0.14 an hour, less than the Indonesian minimum wage. She was paid only $0.02 an hour for 63 hours of overtime during the pay period. Her home was all she could afford, a rented shanty lacking electricity and plumb- ing. The Nikes she made sold for $80 in the United States, yet the cost of her labor per shoe was only $0.12. If anyone missed the point, Ballinger noted that the year before Nike had made a profit of $287 mil- lion and signed Michael Jordan to a $20 million ad- vertising contract, a sum that Sadisah would have had to work 44,492 years to earn.5

Ballinger’s article appeared with a flurry of other negative stories, but the issue did not immediately heat up. Nevertheless, Nike elected to show more responsi- bility for the welfare of foreign workers. In 1992 it adopted a “Code of Conduct” requiring its contractors to certify compliance with local minimum wage, child labor, health, safety, workers’ compensation, forced labor, environmental, and discrimination laws. In 1994, it hired the accounting firm Ernst & Young to audit code compliance by making spot checks at factories.

4 Cited in Jeffrey Hollender and Stephen Fenichell, What Matters Most (New York: Basic Books, 2004), p. 190.

5 Jeffrey Ballinger, “The New Free-Trade Heel,” Harper’s, August 1992, pp. 46–47.

These developments suggest that at some point CEO Philip Knight came to believe that even if Nike did not directly employ foreign workers, it benefited from their labor and so had an ethical duty toward their welfare. But Nike would not escape damage from the issue. The code and spot checks were not enough. Negative stories about its contract factories grew more numerous.

Finally, the issue exploded after April 1996 congres- sional testimony by the leader of a human rights group, who said clothing for Walmart’s Kathie Lee ap- parel line was made at a Honduran factory where chil- dren worked 14 hours a day. Daytime television viewers saw talk show host Kathie Lee Gifford reduced to tears as she responded, “You can say I’m ugly, you can say I’m not talented, but when you say that I don’t care about children . . . How dare you?”6 Now the issue had emotional content for American consumers.

Soon after the Gifford spectacle anti-sweatshop activists decided to focus on Nike, and attacks heated up. Nike was an industry leader. If it could be re- formed, other clothing companies and retailers would fall into line. It was also vulnerable to a brand name attack. Advocacy groups joined forces to in- form the public of what they saw as a gap between the inspiring images in Nike’s advertising and the grim reality of its labor practices. This alarmed Nike because bad publicity could rub away the image magic that made its brand cool.

NIKE AT WAR WITH ITS CRITICS

The war over Nike’s image would be fought in the media. An early skirmish came when Bob Herbert at The New York Times wrote the first of what became a yearlong series of columns berating Nike. After de- scribing a climate of atrocities in Indonesia, including government-condoned killings and torture, he ac- cused Nike of using “the magnificent image of Michael Jordan soaring, twisting, driving, flying” to divert attention from its exploitation of Indonesian workers. “Nike executives know exactly what is go- ing on in Indonesia. They are not bothered by the cries of the oppressed. It suits them. Each cry is a sig- nal that their investment is paying off.”7

6 Rob Howe et al., “Labor Pains,” People Magazine, June 10, 1996, p. 58.

7 Bob Herbert, “Nike’s Bad Neighborhood,” The New York Times, June 14, 1996, p. A29.

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EXHIBIT 1

Rise of Negative News Stories about Nike’s Labor Practices, 1988–1999

Source: From
S. Prakash Sethi, Setting Global Stand- ards, 2003. Table 9.2. Reprinted with permission of John Wiley & Sons, Inc.

250 200

150

100

50

0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

CEO Philip Knight quickly responded with a letter to the editor, citing ways that Nike tried to help work- ers, and noting that it paid “double the minimum wage” and “had an oversight system that works.” He accused Herbert of trying to “sacrifice enlightenment for hype.”8 Herbert’s response was a second column rebuking Nike for running theme ads about women’s empowerment while most of its shoes were produced “by grossly underpaid women stuck in utterly pow- erless and often abusive circumstances.”9

Over the next two years, negative stories about Nike appeared with increasing frequency (see Ex- hibit 1). An inspection report by the human rights group Vietnam Labor Watch reported that young women working in a Nike factory were paid submin- imum wages. A supervisor had forced 56 women to run twice around the 1.2-mile factory boundary un- der a hot sun for failing to wear regulation shoes. Twelve of them fainted and required hospitaliza- tion.10 Gary Trudeau drew a series of Doonesbury cartoons based on these allegations.

Activists urged people to return Nike sneakers during “shoe-ins” at Niketown outlets. A disgruntled Ernst & Young employee leaked a confidential spot inspection report on a Vietnamese shoe factory. It showed violations of Vietnamese labor law and said

8 “Nike Pays Good Wages to Foreign Workers,” The New York Times, June 21, 1996, p. A26.

9 “From Sweatshops to Aerobics,” The New York Times, June 24, 1996, p. A15.

10 Vietnam Labor Watch, “Nike Labor Practices in Vietnam,” March 20, 1997, available at www.saigon.com/~nike/reports/ report1.html#summary; and Ellen Neuborne, “Nike to Take a Hit in Labor Report,” USA Today, March 27, 1997, p. 1A.

that 77 percent of the employees suffered respiratory problems from breathing toxic vapors at levels that violated both Vietnamese and U.S. standards.11 Another group, the Hong Kong Christian Industrial Committee, released a study of Nike factories in China documenting long workdays, forced overtime, pay below minimum wages, and unsafe levels of airborne dust and toxic chemicals.12 The Oregonian, the paper in Portland where Nike is headquartered, called Nike “an international human rights incident.”13

Now Nike found itself at the center of a world- wide debate over sweatshops. The company expanded efforts to stop workplace abuses and started a public relations campaign. At great expense it became the only shoe company in the world to eliminate the use of polyvinyl chloride in shoe con- struction, ending worker exposure to chlorine com- pounds. It revised its conduct code, expanding protections for workers. It set up a compliance department of more than 50 employees. Its staff members were assigned to specific Asian plants or to a region, where they trained local managers and did audits assessing code compliance.14

Working with Kathie Lee Gifford, other apparel companies, human rights and labor groups, and uni- versities that buy school clothing, Nike helped to

11 Steven Greenhouse, “Nike Shoe Plant in Vietnam Is Called Unsafe for Workers,” The New York Times, November 8, 1997, p. A1.
12 Kasky v. Nike, 93 Cal. Rptr. 2d 856.

13 Jeff Manning, “Nike’s Global Machine Goes on Trial,” The Oregonian, November 9, 1997, p. A1.

14 S. Prakash Sethi, Setting Global Standards (New York: John Wiley & Sons, 2003), p. 167.

EXHIBIT 2

The Nike Code of Conduct

Source: Nike.com.

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The Code of Conduct has been revised and articulated since its introduction in 1992. Listed below are its seven “core standards.” Another document, the Code Leadership Standards, elaborates 51 specific labor, safety, health, and environmental standards. The Code is translated into local languages and today is posted in more than 900 contract factories making Nike products.

1. Forced Labor. The contractor does not use forced labor in any form—prison, inden- tured, bonded, or otherwise. 


2. Child Labor. The contractor does not employ any person below the age of 18 to pro- duce footwear. The contractor does not employ any person below the age of 16 to produce apparel, accessories or equipment. If at the time Nike production begins, the contractor employs people of the legal working age who are at least 15, that employ- ment may continue, but the contractor will not hire any person going forward who is younger than the Nike or legal age limit, whichever is higher. To further ensure these age standards are complied with, the contractor does not use any form of homework for Nike production. 


3. Compensation. The contractor provides each employee at least the minimum wage, or the prevailing industry wage, whichever is higher; provides each employee a clear, written accounting for every pay period; and does not deduct from employee pay for disciplinary infractions. 


4. Benefits. The contractor provides each employee all legally mandated benefits. 


5. Hours of Work/Overtime. The contractor complies with legally mandated work hours; uses overtime only when each employee is fully compensated according to 
local law; informs each employee at the time of hiring if mandatory overtime is a condition of employment; and on a regularly scheduled basis provides one day off in seven, and requires no more than 60 hours of work per week on a regularly scheduled basis, or complies with local limits if they are lower. 


6. Environment, Safety and Health (ES&H). From suppliers to factories to distributors and to retailers, Nike considers every member of our supply chain as partners in our business. As such, we’ve worked with our Asian partners to achieve specific environ- mental, health and safety goals, beginning with a program called MESH (Management of Environment, Safety and Health). 


7. Documentation and Inspection. The contractor maintains on file all documentation needed to demonstrate compliance with this Code of Conduct and required laws; agrees to make these documents available for Nike or its designated monitor; and agrees to submit to inspections with or without prior notice. 


start a voluntary CSR initiative called the Fair Labor Association to enforce a code of conduct and monitor- ing scheme to end sweatshop labor. It hired Andrew Young, a former U.S. ambassador to the United Nations, to visit Asian plants and write an inspection report. Young toured 12 factories over 15 days and found that conditions “certainly did not appear to be what most Americans would call sweatshops.”15

15 Dana Canedy, “Nike’s Asian Factories Pass Young’s Muster,” The New York Times, June 25, 1997, p. D2.

Nike purchased full-page editorial advertisements in newspapers to broadcast his generally favorable findings, saying the report showed it was “operating morally” and promising to act on his recommenda- tions for improvement.

Finally, Nike ran a public relations counteroffen- sive. Unlike some rival firms that lay low, it chose to confront critics. It hired an experienced strategist to manage the campaign. Nike responded to every charge, no matter how small or what the source. Al- legations were countered with press releases, letters

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At work in a Vietnam plant making Nike footwear. Source: © Steve Raymer/CORBIS.

to the editor, and letters to presidents and athletic directors of universities using Nike products. In these communications Nike sought to portray itself as a responsible employer creating opportunity for thousands of workers in emerging economies. CEO Knight expressed the Nike philosophy, saying, “This is going to be a long fight, but I’m confident the truth will win in the end.”16

THE KASKY LAWSUIT

While Knight thought he was fighting for truth, Marc Kasky perceived something less noble—a fraud conducted to sell shoes and T-shirts. He be- lieved that Nike knowingly deceived consumers, who relied on the company’s statements for reassur- ance that their purchases did not sustain sweat- shops. Under an unusual state law, any California citizen can sue a corporation on behalf of the public for an unlawful business practice. Kasky took advantage of this provision, alleging that Nike had engaged in negligent misrepresentation, fraud and deceit, and misleading advertising in violation of the state’s commercial code. The code prohibits “any

16 Quoted in Tony Emerson, “Swoosh Wars,” Newsweek, March 12, 2001, p. 35.

unlawful, unfair, deceptive, untrue or misleading advertising.”17

In his complaint, Kasky accused Nike of using a “promotional scheme,” including its code of con- duct, to create a “carefully cultured image” that was “intended . . . to entice consumers who do not want to purchase products made in sweatshop . . . condi- tions.”18 He set forth six classes of misleading claims.

• In its Code of Conduct (see Exhibit 2) and in a “Nike Production Primer” pamphlet given to the media, Nike stated that its contracts prevent corporal punishment and sexual harassment at factories making Nike products. But the Vietnam Labor Watch report told of workers forced to kneel in the hot sun and described frequent complaints by female employees against their supervisors.

17 The law is California’s Unfair Competition Law, which is codified as §17200 (source of the quotation) and §17500 of the California Business & Professions Code. Kasky also alleged violations of California Civil Code §1572 (which defines fraud) and §1709 and §1710 (which define deceit).

18 First Amended Complaint of Milberg, Weiss et al., Kasky v. Nike, Superior Court, San Francisco County, No. 994446, July 2, 1998, pp. 5, 6, and 10.

· In a range of promotional materials Nike asserted that its products were manufactured in compliance with laws and regulations on wages and over- time. But evidence from a report by the Hong Kong Christian Industrial Committee and the leaked Ernst & Young audit showed that plants in China and Vietnam violated such laws. 


· At the Nike annual shareholder meeting in 1997 CEO Knight said that the air in Nike’s newest Vietnam shoe factory was less polluted than the air in Los Angeles. But the Ernst & Young report documented exposures to excessive levels of hazardous air pollutants. 


· In his letter to the editor of The New York Times, Knight stated that Nike paid, on average, double the minimum wage to workers worldwide. But this was contradicted by data from pay stubs in the Vietnam Labor Watch report. He also said that Nike gave workers free meals, but an article in the Youth Newspaper of Ho Chi Minh City reported that workers paid for lunches. 


· In its paid editorial ads discussing Andrew Young’s report on its factories, Nike made the claim that it was “doing a good job” and “operating morally.” But the report was deficient because it failed to address central issues such as minimum wage violations. 


· In a press release Nike made the claim that it guaranteed a “living wage for all workers.” But the director of its own Labor Practices Depart- ment had written a letter defining a “living wage” as income sufficient to support a family of four, then stated that the company did not ask contrac- tors to raise wages that high.19 
Kasky sought no monetary gain for himself. Instead, he asked for an injunction against further deception, a court-approved public information cam- paign forcing the company to correct misrepresenta- tions, disgorgement of Nike profits from California sales, and payment of his legal expenses. 
However, Superior Court Judge David A. Garcia threw the case out. There was no trial to decide whether any of the statements made by Nike were misleading. The judge simply accepted Nike’s claim that the statements in question were part of an ongo- ing public debate and, therefore, entitled to broad protection. 
19 Ibid., pp. 10–25. 


COMMERCIAL SPEECH OR

PROTECTED EXPRESSION?

Freedom of speech is a central value in American culture. It derives from a long philosophical tradi- tion, exemplified in John Stuart Mill’s classic essay On Liberty. Mill believed that freedom of opinion and expression were necessary to maintain a free society, the kind of society that could protect liberty and pro- mote happiness. He wrote that a natural tendency existed to silence discomfiting, doubtful, or unortho- dox views. But this is wrong, because no person is in possession of unerring truth.

Restricting debate deprives society of the oppor- tunity to find new ideas that are more valid than prevailing ones. Even bizarre or incorrect com- ments should be valued. The former may contain partial truth and the latter make the truth more compelling because of its contrast to the falsehood. Censorship of any kind is wrong because no per- son, society, or generation is infallible. It is better to leave open many avenues for expression of views so that error and pretention can be opposed. Truth, said Mill, needs to be “fully, frequently, and fear- lessly discussed.”20

The First Amendment was intended to protect public debate that is critical to the functioning of de- mocracy. It prohibits government from “abridging the freedom of speech, or of the press.”21 A compli- cating factor is the efforts of courts over many years to distinguish between commercial speech and other speech. Commercial speech, or advertising, receives less protection from restriction by government than speech in the broad marketplace of ideas. Ordinary speech, including political, scientific, and artistic expression, is entitled to strong protection. Laws restricting expression of opinion are regarded as invalid on their face and justified only in extreme circumstances. Commercial speech, however, is often restricted by federal and state laws to prevent con- sumer deception and fraud.

20 John Stuart Mill, On Liberty, ed. Currin V. Shields (Indianapolis: Bobbs-Merrill, 1956), p. 43. Originally published posthumously in 1907.
21 The amendment originally applied only to actions by the federal government, but the Supreme Court has held that it also limits state government’s infringement on speech.

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Over many years, courts have struggled to come up with a clear definition of commercial speech.22 The Supreme Court has defined it as “speech propos- ing a commercial transaction,” but this still begs clar- ification.23 An ad that said “Buy Nike shoes” would be commercial speech under this definition. But what about an ad picturing athletes with the statement “Just Do It,” in which there is no literal sales pro- posal? Elsewhere in the same case, the Supreme Court also defined commercial speech as “expression related solely to the economic interests of the speaker and its audience.”24 Would Nike’s statements on sweatshops meet this standard?

The focal point of Kasky’s suit would become whether or not Nike’s communications were, in fact, commercial speech. At a Superior Court hear- ing in early 1999, his lawyers argued that they were, therefore, they should be required to meet standards of truth and honesty enforced in California law. They were not entitled to the defer- ence that would be given under the First Amendment to, for example, statements of political candidates or poets. Nike disagreed, saying that its statements about shoe and garment factories were part of a broader public debate and thus were speech enti- tled to strong First Amendment protection.25 The judge agreed with Nike and dismissed the case.26 Kasky appealed, but a year later the appeals court again rejected his argument. Kasky then appealed to the California Supreme Court.

There he won. In a 4–3 decision the California Supreme Court held that Kasky’s case should go to trial.27 In reaching its decision, the majority created a novel, three-part definition of commercial speech and applied it to Nike’s messages. For speech to be commercial it had to (1) come from a business, (2) be

22 Samuel A. Terilli, “Nike v. Kasky and the Running-But-Going- Nowhere Commercial Speech Debate,” Commercial Law and Policy 10 (2005).
23 Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 562 (1980).

24 Ibid., at 561.

25 Nike also asserted speech protections under Article I, section 2(a) of the California Constitution which reads: “Every person may freely speak, write and publish his or her sentiments on all subjects, being responsible for the abuse of that right. A law may not restrain or abridge liberty of speech or press.”

26 Kasky v. Nike, 79 Cal. App. 4th 165 (2000). 27 Kasky v. Nike, 27 Cal. 4th 939 (2002).

intended for an audience of consumers, and (3) make representations of facts related to products. Nike’s statements fit each requirement. The majority con- ceded that commercial and noncommercial speech were intermingled in the communications, but ar- gued, “Nike may not ‘immunize false or misleading product information from government regulation simply by including references to public issues.’”28 That put Nike in the position of a used car dealer falsely advertising “none of our cars has ever been in an accident,” but evading prosecution for fraud by adding a political opinion such as, “our city should budget more for traffic safety.”

Dissenting opinions revealed serious disagree- ment among the justices. Justice Ming Chin attacked the majority for unfairly tilting the playing field against Nike. “While Nike’s critics have taken full advantage of their right to ‘uninhibited, robust, and wide-open’ debate,” he wrote, “the same cannot be said of Nike, the object of their ire. When Nike tries to defend itself from these attacks, the majority de- nies it the same First Amendment protection Nike’s critics enjoy.”29

A second dissent came from Justice Janice R. Brown, who found Nike’s commercial and noncom- mercial speech inseparable. In her view, “Nike’s com- mercial statements about its labor practices cannot be separated from its noncommercial statements about a public issue, because its labor practices are the public issue.”30 She admonished the majority for creating a test of commercial speech that was unconstitutional because it made “the level of protection given to speech dependant on the identity of the speaker— and not just the speech’s content.”31

The consequences of the decision went far beyond Nike. Now any company doing business in California had to be careful about expressions of fact or opinion that reached consumers in the state. The sharpest and most ideological critics of a corporation could take is- sue with its statements, bring it to court, and force a trial about the accuracy of its claims. The decision was as unwelcome in the business community as it was unexpected. Nike would seek to overturn it.

28 At 966, quoting Bolger v. Youngs Drug Prods. Corp., 463 U.S. 68 (1983).

29 At 970–971, quoting Garrison v. Louisiana 379 U.S. 75 (1964).

30 At 980. Emphasis in the original. 31 At 978.

IN THE UNITED STATES

SUPREME COURT

Nike appealed to the United States Supreme Court, which accepted the case. In its brief, Nike asked that the California Supreme Court’s definition of com- mercial speech be struck down to remove its uncon- stitutional, chilling effect on public debate. Kasky argued once again that statements emanating from Nike’s public relation’s campaign fell into the cate- gory of free speech. He asserted that the First Amend- ment gave no shelter to false statements by a company about how its products were made.

Strangely, no decision would ever be made. The nine justices heard oral argument in April 2003. Then, late in June, they dismissed their consideration of the case as “improvidently granted.”32 In a brief opinion Justice John Paul Stevens said the Court had erred in accepting it before trial proceedings in California were finished. The Court would wait.

This view was not unanimous. Three justices dis- sented. They saw no reason to wait and hinted that they were ready to strike down any restriction on Nike’s speech.

In my view . . . the questions presented directly con- cern the freedom of Americans to speak about public matters in public debate, no jurisdictional rule pre- vents us from deciding these questions now, and de- lay itself may inhibit the exercise of constitutionally protected rights of free speech without making the issue significantly easier to decide later on. . . .

[A]n action to enforce California’s laws—laws that discourage certain kinds of speech—amounts to more than just a genuine, future threat. It is a present reality—one that discourages Nike from engaging in speech. It thereby creates “injury in fact.” Further, that injury is directly “traceable”
to Kasky’s pursuit of this lawsuit. And this Court’s decision, if favorable to Nike, can “redress” that injury.33

SETTLEMENT AND AFTERMATH

With the Supreme Court dismissal, Kasky’s specific charges against Nike could go to trial in California. The company would now be forced to defend the

32 Nike v. Kasky, 539 U.S. 654 (2003), per curiam.

33 Ibid., at 667, 668. The three dissenters were Anthony Kennedy, Stephen Breyer, and Sandra Day O’Connor.

alleged misrepresentations about its labor practices. Its antagonists relished the prospect.

However, late in 2003 Kasky and Nike announced a settlement. In return for Kasky dropping the case, Nike agreed to give $1.5 million to an industry- friendly factory monitoring group. It may have paid Kasky’s legal fees. This was not a tough settlement for Nike.

Supporters on both sides were disappointed. Activists lost their grand show trial putting the cor- porate devil on display. Industry was disappointed that Nike did not stay the course because settlement left standing the California Supreme Court’s broad definition of commercial speech. This definition still stands.

NIKE TURNS A NEW LEAF

Meanwhile, Nike was moving through a process of CSR review and implementation. In 2005 it published a Corporate Responsibility Report stating three strategic CSR goals.34 First, it would seek to create industry- wide, systemic change for the better in contractor shoe and apparel factories. Second, it would promote sustainability by eliminating toxic chemicals in shoe- making and using more recycled materials. Third, it would improve society by promoting the idea of sport with its benefits of healthy exercise and keep- ing young people out of trouble.

Nike learned that its business processes and cul- ture were in tension with the policies in its code for contractors. Many of its own actions triggered vio- lations. For example, it rewarded its buyers for meeting price, quality, and delivery date targets, giving them a financial incentive to push contrac- tors hard. That undermined code policies to limit workweeks and hours in the factories. Nike prod- ucts were often seasonal and ordered in response to rapidly shifting fashion trends. This led Nike to adopt a low inventory policy, but in consequence the factories it contracted with were often pres- sured to meet last-minute production goals. Some- times their managers responded by cheating on labor guidelines. Changing Nike’s internal proc- esses to align them with its CSR goals meant slowing its reaction to consumer trends and risking loss of revenue. It also violated the spirit of Nike’s

34 Nike, Inc., FY04 Corporate Responsibility Report (Beaverton, OR: Nike, April 2005).

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aggressive procurement culture and met with internal resistance.35

Nike’s main tactic for improving labor conditions is factory monitoring to check compliance with the Nike Code of Conduct. Its self-run monitoring program has two parts. One is a labor audit of factories requiring inspectors to check off boxes for requirements in areas such as work hours, wages, and grievance systems. The other is an environmental health and safety audit on compliance with rules on chemical management, fire safety, and protective equipment. These audits take 48 working hours to complete and result in letter grades from A to F. Experts say their design is exem- plary.36 Their results are reviewed all the way up to Nike’s board of directors. Yet they have failed to end very significant labor problems.

Nike uses about 700 factories in 56 countries em- ploying 800,000 workers. It cannot hope to monitor them all, so it focuses its audits on roughly 20 percent that do most of its production or are high risk, trying to check on them once every three years. For exam- ple, in China it has 57 so-called “focus factories,” and in 2007 audited 22 of them, handing out five As, six Bs, eight Cs, and three Ds.37 Other factories are moni- tored by voluntary responsibility alliances, such as the industry-funded Fair Labor Association. A few pay for their own audits. It is an expansive effort, but bad reports keep coming in.

In Vietnam, 20,000 workers walked off the job for two days at a plant making Nike shoes. They were asking for a 20 percent raise, but received only 10 per- cent and free lunches. On their return they were in a violent mood and the plant had to be closed for an- other three days.38 This was just one of 720 strikes at factories in Vietnam in 2008.39

When management at a Nike hat plant in Bangladesh learned that workers had attended a labor rights seminar, the personnel manager interrogated a woman who had attended, threatening to reinjure a

35 Simon Zadek, “The Path to Corporate Responsibility,” Harvard Business Review, December 2004, pp. 129–30.
36 John Ruwitch, “Nike’s Chinese Suppliers Defy Labour Laws,” National Post, March 15, 2008, p. FP16.
37 Nike, Inc., Innovate for a Better World: Nike China 2008 Corporate Responsibility Reporting Supplement (Beaverton, OR: Nike, 2008).
38 “Nike Strike Ends, Violence Begins,” The Toronto Star, April 3, 2008, p. B2.

39 Jeff Ballinger, “Finding an Anti-Sweatshop Strategy that Works,” Dissent, Summer 2009, p. 6.

hand she had badly injured in the past unless she gave up the names of other attendees. She refused, but man- agement intimidated another person into revealing the names and those named were fired. Nike investigated the situation and got the workers rehired.40

An Australian TV reporter posed as a fashion buyer to get inside a Malaysian garment factory making Nike T-shirts where he discovered parlous conditions. It employed immigrant workers who paid large recruit- ing fees to get their jobs, then had to surrender their passports to plant management, which held them until the recruiting fees were repaid, an unlikely event given the low wages paid. They lived in crowded, malo- dorous rooms. Nike admitted many code violations, rectified the problems, and called in managers from all of its 37 factories in that country for training.41

These are more than isolated episodes. A scholarly analysis of 800 Nike audits concluded that despite years of effort, working conditions at its factories re- mained highly variable. While conditions improved in some plants, in others they stayed the same, and in many they deteriorated, leaving “little evidence that this system of private voluntary regulation is at all an effective strategy for improving labor standards.”42 And an in-depth report by a global coalition of more than 100 unions and human rights groups concluded this:

Despite more than 15 years of codes of conduct adopted by major sportswear brands such as Adidas, Nike, New Balance, Puma and Reebok, workers making their products still face extreme pressure to meet production quotas, excessive, undocumented and unpaid overtime, verbal abuse, threats to health and safety related to the high quotas and exposure to toxic chemicals, and a failure to provide legally required health and other insurance programs.43

40 Worker Rights Consortium, Case Summary: Dada Dhaka and Max Embo (Washington, DC: WRC, November 1, 2008).

41 Eugenia Levenson, “Citizen Nike,” Fortune, November 24, 2008, p. 165. The report can be viewed at http://tinyurl.com/ 63vvpq.
42 Richard M. Locke and Monica Romis, “The Promise and Perils of Private Voluntary Regulation: Labor Standards and Work Organization in Two Mexican Garment Factories,” MIT Sloan School Working Paper 4734–09, January 13, 2009, p. 2. Richard M. Locke, Fei Qin, and Alberto A. Brause, “Does Monitoring Improve Labour Standards? Lessons from Nike,” Industrial & Labour Relations Review, October 2007.

43 Play Fair 2008, Clearing the Hurdles: Steps to Improving Wages and Working Conditions in the Global Sportswear Industry (Play Fair 2008 Campaign, April 2008), p. 6.

UNDERLYING PROBLEMS

Why do such problems still exist? Nike’s 700-factory supply chain is too big to monitor. Its business model invites labor exploitation. When wages rise in one country, it seeks a lower-wage alternative. Factories are still faced with tight deadlines, sudden shifts in orders, and late design changes. They have insufficient power in supply chains to push back against global brands such as Nike. But they often have great power over workers eager for jobs. If timely order fulfillment is threatened, the easiest way to catch up is forced overtime or elimination of days off.44

According to Jeffrey Ballinger, monitoring by Nike and groups such as the Fair Labor Association is a prime example of voluntary corporate responsi- bility being used to avoid real reform.45 Audits focus on the accuracy of wage slips, worker-to-toilet ratios, and placement of fire extinguishers. They avoid securing core global labor rights such as collective bargaining. Part of the problem is that many nations do not adequately enforce their labor laws.

International Labor Organization Convention No. 81 requires countries to inspect workplaces for compliance, but most countries with low-wage labor markets do not do so, in part because they want to attract foreign investment. They welcome voluntary corporate responsibility inspection regimes that make it look like action is being taken, even if the action is light. Corporations, in turn, prefer voluntary action to strict regulation. So governments and

44 Richard Read, “Nike Gets What It Pays For, Critics Say,” The Oregonian, August 5, 2008, p. A1.
45 Jeff Ballinger, “No Sweat? Corporate Social Responsibility

and the Dilemma of Anti-Sweatshop Activism,” New Labor Forum, Spring 2008.

corporations unite in supporting CSR as a cosmetic touch to cover fundamental problems. In nations where labor laws are feebly enforced it is hard for workers to help themselves. They are often unin- formed about their rights; they have no examples of successful unionizing before them. Until workers are empowered, forced work in poor conditions will lead to more scandals, violence, and reputation damage for global brands.

Ballinger suggests a solution for Nike.

My research shows that about 75 cents per pair of shoes to the worker would be needed to fix prob- lems that workers have been complaining about since the 1980s. That is roughly 80 percent more to workers, or $1.80 on a $70 pair of shoes at Foot Locker. If Nike, instead, paid workers that 75 cents more per pair of shoes, the cost to Nike would be $210 million a year. . . .46

Question：

1. WhatresponsibilitydoesNikehaveforconditions of work at foreign factories making its products?

2. Could Nike have better anticipated and more effectively handled the sweatshop issue? What did it do right? What was ineffective or counter- productive?

3. Has Nike created and implemented an effective approach to social responsibility? Does it address root causes of problems in Nike’s supply chain? Should it now do more or do something different?