“The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse.—Nike chairman Phil Knight at a speech tothe National Press Club, May 12, 1998 ‘The biography of Phil Knight, the driving force behind Nike, has been recounted repeatedly as an ‘example depicting a “self-made billionaire.” Philip H. Knight, seventieth on the Forbes ranking of the world’s richest people in 2006, is now worth $73 billion, has come a long way from selling shoes out of his car trunk in 1964. In contrast to its meteoric rise in the 1980s after going public, the late 1990s for Nike was a period composed of combating allegations about subcontractor labor and human rights violations in third-world countries. Nike's response was considered by its critics to be more of a public relations, damage-control stunt rather than a sincere attempt at labor reform. Knight founded Nike in 1964 under the name “Blue Ribbon Sports.” The idea, born asa result of a paper written by Knight during his MBA program at Stanford, was to import athletic shoes from Japan. into the U.S, market otherwise dominated by German competitors. The Nike brand was created in 1972 (*Nike” after the Greek goddess of victory), the company went public in 1980, and today Nike is cone of the largest manufacturers of athletic goods in the world. THE SCANDAL Sweatshops and product origin permeated the public consciousness, when Kathy Lee Gifford discovered that her endorsed clothing line was actually made in Honduran sweatshops. Nike is known as a footwear company, but approximately one-third of its revenue comes from apparel, and that ‘manufacturing takes place mostly in factories located in Asia. Contracts with suppliers from Korea and ‘Taiwan replaced Nike's original contracts with Japanese producers. The company’s increasing scope and size of operations, along with increasing costs, have meant that these suppliers have had subcon- tracts with cheaper labor markets in other third-world countries such as Indonesia, China, and Vietnam.acceptable conditions inthe factories and stresing Nike's commitient to corporate responsibilty were sent to US. universes. Representatives from Nike also visited campuses and spoke to students, assuring them of Nike's intention toward responsible corporate citizenship. A key visti this context ‘was Knight’ tothe University of North Carolina at Chapel Hill numerous press conferences were also held with college newspapers across the United States. MORE PROBLEMS: NIKE VS. KASKY Nike hired Andrew Young, a former UN ambassador, to vst and report on conditions in it thie world factories. The 1997 report stated that a survey of twenty factories in several Asian countries had revealed that (I) there were no infringements of health and labor codes of conduct and (2) the pay in Nike-controlled factories was substantially higher than the required minimum wage. The report claimed that Nike typically subsidized meals and medical treatment of factory employees. As part of its intensive public relations campaign, Nike used pres releases in newspapers and ran fll page adver- Lisements based on parts of Young’s report, mentioning that Nike was doing a good job but eould do beter. In 1998 Mare Kasky, a selstyled corporate critic, responded tothe conflict between Nike's claims and the content ofthe report by Ernst and Young fling a lawsuit against Nike. The case was to be a landmark one not only from Nike's perspective but also from the perspective of commercial speech laws. Among other allegations, it was claimed that Nike was consciously misleading the public when it ‘aimed that workes in its factories were being paid in accordance with minimum wage laws, that they ‘were being paid substantially more than the minimum wage, and that they received free/subsidized ‘meals and health services. The decision of the California Supreme Court in 2002 went against Nike, and the company was held accountable for its deceptive public statements regarding its labor practices. [Nike appealed to the U.S. Supreme Court, but the case was sent back to the San Franciseo District Court of Appeals. Faced with the prospect of extended litigation, Nike agreed to settle with Kasky. The settlement included $1.5 million to be paid over three years to the Fair Labor Association-a worker rights-monitoring group in Washington, DC-and $500,000 a year to subsidize entrepreneurial ‘ventures of foreign employees and forums in Nike's factories, Nike officals stated that seting was the correct choice because the focus was on benefits to workers and to Nike's commitment of corporate responsibilty Nike Recovers and Excels in Managing Social Responsibility ‘The company has been making numerous changes, learning that an open-minded approach to the issues facing its industry is better than denial. As part of this evolution, Nike has moved away from focusing on its own code of conduct and toward creating a standard code of conduct throughout the industry. ‘As part ofthe new Nike, they have moved beyond its old monitoring systems and employ three diferent types in its factories First, it uses the SHAPE inspection to determine basic compliance to regulations regarding environment, safety, and health. Nike's field-based production staff generally performs this inspection. The second method isthe Management Audit (M-Auait) Nike hired twenty- one staff members and trained them in labor auditing practices. The M-Audit an in-depth inspection, is designed to uncover problems that may not be readily obvious. Finally, Nike encourages independent monitoring by the Fir Labor Assocation. Nike now has a compliance team composed ‘of overininety people in twenty-one countries. Nike has also opened the doors of a numberof its contract factories to research groups from the Sloan School of Management at the Massachusetts Insitute of Technology who are studying the business drivers and outcomes. The company hopes that through this research it can learn more sboutEy the business process and how to better manage production flow and work hours in its factories. Nike has also implemented the balanced scorecard, a lettered grading system, to better assess factory compliance with the code of conduct. This ystem gives the company a reliable method for rewarding high-performance, compliant factories, The balanced scorecards also used to help Nike avoid pushing factories in one direction tothe detriment of others; for example, the card measures cost, delivery, and quality, and all need to be addressed equally for production to flow smoothly In addition to building upits monitoring processes, Nike is now disclosing its contract factory base. Doing so is part ofthe corporate movement toward transparency. By disclosing its supply chain, Nike believes it can be more successful at monitoring and at making changes, not only in its own factories but alo industry-wide, once issues have been uncovered. Nike hopes that by disclosing its own supply chain it can encourage other companies to do the same. It hopes to standardize a code of conduct followed by all companies and factories in the industry. Nike also feels that transparency should work ‘a a motivator for contract factories. Those with high compliance rankings can be confident that ‘business will ome their way. ‘Another part of Nike's evolution is finding new production methods to avoid the toxic chemicals typically used to make their products tis also coming up with innovative ways to reeyee old shoes and to create products made of recycle polyester or organic cotton. Nike has become more aware of its impact on the environment and is taking steps to make this impact a better one. Although challenging, putting corporate responsibilty at the forefront of Nike's business is a positive move. The company is learning to deliver equal value to it five different stakeholder groups: consumes, shareholders, business parners, employees, andthe community. Withafocus on corporate responsibilty, Nike hopes to build and improve its relationships with consumers, achieve a high ‘quality supply chain, and create top quality innovative products. Although this evolution isa dificult ‘one filled with lessons learned along the way, employees worldwide and the company itself ae reaping the benefits. ‘As part of a movement toward corporate responsibility, Knight stepped down as CEO in 2004 although he sil is chairman ofthe board. His reason was to put someone in who was an expert in corporate responsibility. Bill Perez. was hired as the new CEO, based on his track record inthis area and a belie that companies must nvestin and improve the communities in which they coexist. In 2006 Nike veteran Mark Parker, formerly copresdent, ook over as CEO and director. Parker, who has been with Nike for twenty-seven years, has been part of most of Nike's top innovative plans and is recog: nized asa product visionary. ‘Asa resultof the changes, Nike appeared in Busines Ether magazines *100 Best Corporate Citizens" list for 2005 and 2006. It entered thelist in 2005 at number thirty-one and climbed to number thirteen ~ in 2006, Business Bhi cites its reasons for listing Nike as the strength of Nike's commitment to community and environment. Nike was actually ranked number one in the magazines environmental category due to its efforts to eliminate waste and toxic substances from production processes. Nike also made Fortune magazine’ “100 Best Companies to Work For” list fr the fist time in 2006, coming in at number 100 and has received a perfect score on the Human Rights Campaign Foundation's ‘Corporate Equality Index two years ina ow. Although Nike admits that it has along way to go, itis being rewarded for its efforts along the way, both by positive results and industry response.