Springer 2005

Journal of Business Ethics (2005) 60: 359376

DOI 10.1007/s10551-005-0869-x

The Pragmatic and Ethical Barriers

to Corporate Social Responsibility
Disclosure: The Nike Case

ABSTRACT. Numerous studies have documented the

demand for information regarding corporations relationships to society. Much recent research has demonstrated why stakeholders need this information, and how
it benefits both companies and the public. These studies
suggest numerous methods by which companies can
effectively disclose corporate social responsibility (CSR)
information to the public, but in practice, reporting this
type of information is fraught with legal and ethical
uncertainty often unexplored in most literature. This
article represents a fresh analysis of the numerous pragmatic consequences and legal and ethical complications
inherent in CSR reporting, using Nike Corporation as a
case example. The article discusses the theoretical viewpoints surrounding the ethics of CSR disclosure, and
presents the case of Nike and the complications it encountered while advertising CSR information. The article ends with an analysis of CSR auditing as a possible
solution to companies seeking to improve the method
and transparency of social responsibility reporting.
KEY WORDS: commercial speech, free speech, corporate social responsibility, CSR reporting, Nike
Kristen Bell DeTienne is a Professor in the Department of
Organizational Leadership and Strategy Brigham Young
University. She earned her Ph.D from the University of
Southern California in 1991. She teaches organizational
behavior, management communication, and strategy. She also
serves as track leader for the Organizational Behavior/Human Resources track of the MBA program. Her research
examines communication in organizations and ethics. Her
e-mail address is detienne@byu.edu.
Lee Lewis earned his Bachelors in Business Management,
Magna Cum Laude with Honors, from Brigham Young
University. He is a Manager at Texas Wasatch Group. His
research examines corporate social Responsibility and
knowledge management within organizations. His email is
lee.lewis@texaswasatch.com.

Kristen Bell DeTienne

Lee W. Lewis

Introduction
The ethics of corporate social responsibility disclosure have historically been some of the most difficult
to reconcile with earnings expectations and activist
demands (Browne and Haas, 1974; Filios, 1984,
1986; Gelb and Strawser, 2001; Robertson and
Nicholson, 1996). Research indicates that almost
three quarters of American investors consider social
responsibility when they make investment decisions
(Companies Fail, 2001; Laurita, 2001). Every company must put its best foot forward at all times in
advertisements and reports to remain competitive in
the marketplace, but the jagged line between optimism and deceit is often difficult to distinguish.
Maintaining integrity becomes more challenging
when a company must report less attractive details or
respond to criticism. The problem that faces many
companies engaging public dialogue is how to ethically, legally, and effectively disclose information
while maintaining a positive image (Argenti and
Forman, 2002). Through a case study of Nike
Corporation, this article explores the dynamics of
corporate social responsibility disclosure and discusses formal CSR reporting as a means of promoting greater corporate transparency.
This article will first review the production
practices of Nike Corporation and the accusations
made against it. This background is followed by a
section discussing the ethics of advertising corporate
conduct. Next, the paper will describe Nikes
campaign to improve its company image, and the
arguments, rulings, and implications of the lawsuit
brought against the company. The article concludes
with a review of the field of social responsibility
accounting and the opportunities this field offers to

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Kristen Bell DeTienne and Lee W. Lewis

companies seeking to ethically and effectively communicate with stakeholders.

The purpose of this article is neither to condemn
nor commend Nikes practices or course of action.
Rather, this study is to observe Nikes decisions and
their consequences to derive insight for companies
that must make analogous decisions in the future. The
focus is on Nikes public relations campaign intended
to promote a socially acceptable company image and
the legal and ethical challenges Nike encountered
while advertising its practices.1 The most important
questions raised are, first, whether or not the methods
Nike used to communicate its responsibility practices
were ethical, and second, in what manner should
companies most effectively disclose social responsibility information to the public.
When analyzing the consequences suffered by
Nike during its efforts to promote a socially responsible image, some legal terms and dilemmas will be
analyzed. During this discussion, the term commercial speech refers to communication subject to
false advertising regulations, like television commercials and newspaper ads, while noncommercial,
political, and free speech refer synonymously to
communication protected by the First Amendment
and not held to a legal standard of accuracy (cf.
Graulich, 2002; Parloff, 2002). This paper illustrates
how the subtle differences between these speech
categories, and the legal and ethical implications
associated with them, make social responsibility disclosure a tremendous practical obstacle for companies, as was the case with Nike. For example, would a
letter sent by a CEO to an athletic coach describing
factory conditions be classified as an advertisement?
Does a press release become a commercial if it notifies
the public of generous wages for Indonesian
employees? Should companies be protected from
litigation in all public statements regarding their
practices, even if the statements are grossly exaggerated or false? An appreciation for the complexities of
CSR disclosure that Nike encountered requires an
understanding of how the companys business practices, legal dilemmas, and public relations initiatives
developed over time.
The acceptance announcement
Lawrence Tribe, a Professor at Harvard Law School,
had just announced the news to James Carter, gen-

eral counsel at Nike, Inc. the US Supreme Court

had accepted for trial the most volatile First
Amendment case in 40 years. Tribe knew it would
be only a matter of hours before his phone began
ringing unceasingly with reporters wanting his
opinion on the Courts acceptance of the case. After
all, Tribe had been one of the primary crafters of the
cases arguments, and the Supreme Court accepts less
than one percent of the cases submitted for appeal
(Benady, 2002).
The same day January 11, 2003 Philip Knight,
CEO of Nike Inc., phoned the head of the companys Public Relations (PR) Department to meet
with him. He wanted to know several things. First,
what could they announce to the public with respect
to the Supreme Courts acceptance of the case?
Second, how should their social responsibility PR
campaign proceed under the uncertainty of the cases
outcome?
Knight reflected over the matter. The thought of
the US Supreme Court judging a lawsuit against a
few press release statements clarifying his companys
overseas production methods still struck him as
ridiculous, although he knew the case was about
much more than petty newspaper articles. This
particular litigation was threatening the accepted
reporting and disclosure methods of every publicly
traded organization in the United States that would
someday communicate its business practices to the
public. The implications of this lawsuit could crush
the trend towards greater corporate transparency and
cripple the developing role of businesses as responsible corporate citizens. Knight thought back to the
beginning of how his PR campaign intended to
create a conscientious company image soon became
a spiraling nightmare of litigation and retrospection.

Nike corporation
In 1964, Philip Knight, a University of Oregon
runner, co-founded Blue Ribbon Sports with his
coach, Bill Bowerman (Nike, 2004). The idea was to
import athletic shoes from Japan to compete in the
German-controlled market. In 1965, the operation
sold its shoes at high school track meets out of a van.
A year later, Blue Ribbon Sports opened its first
retail location, and in 1972 the company name
changed to Nike. The company grew dramatically

The Pragmatic and Ethical Barriers

over the coming decades, and Nike is currently the
largest manufacturer of athletic supplies in the world
(Parloff, 2002).

Nike outsourcing: A slippery-slope operation

As the Japanese market matured a decade after Nike
began contracting there for shoe production, Nike
shifted its operations to cheaper Taiwanese and
Korean suppliers. As demand increased over time,
these suppliers further subcontracted to less-developed labor markets in countries such as China,
Indonesia, Thailand, and Vietnam (Parloff, 2002).
By 1999, Nike operations were so large the company received athletic wear from over 500 factories
in 45 countries (Nike, 2004). Nikes control over
and awareness of the factory conditions decreased
with each successive production level outsourced to
subcontractors. This lack of awareness was poignantly reversed in June of 1996, however, when
the conditions of Nikes factories became a nationwide media topic.

Pointing the finger: The first allegations

Early that June, Bob Herbert, a New York Times
columnist, boldly criticized Nike labor conditions
with a harsh op-ed piece (1996). The accusations
alleged that Nike built its wealth and products with
the slave labor of young Asian women. The article
said Nike used sweatshops of wretched origins,
and compared the corporation to a giant pyramid
that crushed the backs of oppressed laborers
(Herbert, 1996). This column created a nationwide
stir among consumers, activists, and international
corporations. Soon afterwards, Nike found itself in a
sweltering spotlight, with several nonprofit groups
studies hitting the newsreel. The accounts described
human rights abuses, violence to laborers, and hideous working conditions within Nikes Asian facilities (Savage, 2002). The news rooted itself quickly
in consumers, and protests and small boycotts sprang
up around the country. Over 40 demonstrations
occurred at nationwide Niketowns, with one
Niketown grand opening being marred by the arrest
of 19 demonstrators (Emerson, 2001). Nikes image
was stained, and it was pressured to respond.

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Nikes counterpoint
Nike responded by mobilizing a PR task force to
aggressively confront this wave of attacks on its
polished company image. The crux of the PR
claims was that the factory conditions were equitable, the laborers were fairly paid, and that a clear
code of conduct ensured companywide consistency.
Before discussing the specific details of Nikes PR
efforts below, we will first analyze the relevant issues
associated with CSR disclosure. Davenport (2000)
argues that companies have an ethical obligation to
stakeholders to initiate and engage in genuine
dialogue regarding corporate social responsibility.
Furthermore, Gelb and Strawser (2001) argue that
increased CSR disclosure in itself is a form of socially
responsible behavior, and that by offering more
information to the public, companies better meet
their responsibilities to stakeholders. These
researchers do not, however, discuss the ethical
implications of companies that act inconsistently
with CSR promises or that use CSR reporting for
the sole purpose of improving revenue. Robertson
and Nicholson (1996), however, write that merely
expressing noble company objectives and information is insufficient; when a company puts forth
statements regarding its corporate social responsibility, it has an obligation to perform in accordance
with what it says. When companies behavioral actions contradict their statements of intent, a type of
hypocrisy exists for the inconsistent company.
Nikes decision to advertise good corporate conduct as a reaction to negative public perceptions about
its practices raises serious ethical concerns. Stoll
(2002) clarifies this issue, writing that the ethics of
marketing good corporate conduct have much
higher expectations than what we find morally
permissible in marketing products. Typical product
marketing often employs creative license and exaggerated claims to create desire in potential customers
for goods and services. Although these persuasive
tactics rely more on imagery than information
leading customers to logical decisions, one might
argue that some mild deception in product marketing is relatively harmless when our society
acknowledges the use of puffery.
Stoll (2002) argues, however, that the marketing
of favorable corporate conduct must be held to a

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Kristen Bell DeTienne and Lee W. Lewis

much higher standard of responsibility than product

advertising. Product ads are created to appeal to the
emotions and impulses instead of reasoned discussion
by portraying incomplete information geared towards one perspective. However, making judgments
on an entitys moral actions and decisions requires
careful decision making and access to all relevant
facts; thus, many of the practices used in typical
advertising are wholly inappropriate for marketing
corporate conduct. Additionally, the ethical implications are exacerbated if the desired effects of
advertising responsible conduct are solely to improve
the bottom line. Promoting good conduct solely for
profit is unacceptable because it exploits something
of much higher value, right conduct, to promote
something of lower value, money. Furthermore, if
good conduct is deceptively advertised, the situation
would be doubly repugnant because the company
would deceive consumers with pretensions of
responsible conduct to repair a reputation damaged
by prior misdeeds (Stoll, 2002).
A related consideration is the ethics of alternative
methods of social disclosure, such as through
responsibility reports and codes of ethical conduct,
as these methods are often used by companies to
report information regarding their practices. Stoll
(2002) suggests that the reporting of good corporate
conduct should coincide with openness to external
financial audits, which help ensure a more complete record of company activity and provide third
party credibility to the assertions. Additionally,
much research has been conducted regarding the
morality and effects of corporate codes of ethics, a
common way companies express social responsibility intentions. However, Schwartz (2002) writes
that for codes to be considered ethical, they must
uphold certain criteria, such as being accessible to
all employees and being carefully enforced and
monitored. Some companies have used codes of
ethics more for image and publicity rather than for
utility in the workplace, which defeats the
presumed purpose and is less acceptable from an
ethical standpoint. However, if standards are
enforced and made known to employees, a code
can be seen as an ethical addition to a company
(Schwartz, 2002). These considerations must be
taken into account when discerning the ethical
conduct of a company engaging in these types of
reporting activities.

Nikes decision to use a PR campaign to repair

its social image is entrenched within these ethical
issues. For that PR campaign to be acceptable, the
company would need to reconcile its use of
product advertising techniques with the need for
complete, impartial information clearly stating both
sides of the issue. Additionally, the statements
should be motivated by more than just a desire for
revenue, such as a desire to meet stakeholder
expectations and promote greater transparency, although many have argued that there is nothing
morally wrong with improving revenues as a result
of independent responsible activity (Gelb and
Strawser, 2001; Robertson and Nicholson, 1996;
Stoll, 2002). Finally, the company would need to
be forthright with the public, and should seek other
methods of disclosure apart from advertising that
are more conducive to a full discussion. The following sections of this article examine the specific
social responsibility campaign Nike created to
better its image, including effects and consequences
of its campaign.

The public relations crusade

Nike presented its assertions of fair employee treatment, good factory conditions, and equitable companywide standards to the public through many
mediums, including a labor report, its statement of
corporate responsibility, personal letters, website
segments, college visits, and newspaper releases
(Graulich, 2002). These statements, discussed below,
were issued with the intent of disclosing CSR
information along with defending Nikes practices
and public image.

The labor report

First, to grant credibility to its statements and to
properly document the activities and conditions in
its overseas operations, Nike commissioned social
responsibility audits and surveys of various factories,
which, in March of 1997, resulted in a carefully
qualified 32-page report on factory conditions
(Savage, 2002). Andrew Young, a former Atlanta
mayor, prepared the report based on surveys of 20
factories in 6 Asian countries, and the report asserts

The Pragmatic and Ethical Barriers

that these operations met all applicable health, safety,
and labor standards (Nike vs. Kasky, 2004). In particular, the report states that the average pay rate in
these factories is double the local minimum wage.
The account also indicates that the company typically grants subsidies for meals and medical
treatment. Nikes statements regarding factory
operations over the coming years would be based on
the data contained within this report.

363

Taiwan so coaches and athletes could see where

their equipment was manufactured. A virtual tour
of some production facilities was also placed on the
web page so interested parties could see the inside
workings of the factories and be reassured that the
facilities were not sweatshops (Edwards, 2002).
Nike specifically addressed students in portions of
its website, and acknowledged the heated debates
taking place on many campuses over the labor
conditions.

Statement of corporate responsibility

Campus visits
In May of 1998, Philip Knight formally addressed
the broad range of criticisms of his company by
issuing a statement of corporate responsibility, which
committed Nike to six new standards for its manufacturing facilities, including factory monitoring,
minimum age requirements, environmental safety
standards, employee education programs, expansion
of its micro-loan program, and greater transparency
of corporate responsibility practices (Nike, 2004).
To ensure compliance with these standards, Nike
established a code of conduct to be enforced in all
Nike manufacturing facilities by safety committees
and trained supervisors. The company indicated that
this code of conduct was displayed in a prominent
place on factory walls to ensure all employees would
be aware of their rights. These codes answered many
of the lingering criticisms of Nikes practices and
were designed to ensure a safe, humane future for its
production factories.

Personal letters
In addition to issuing its responsibility statement,
Nike sent scores of form and personal letters to
university presidents and college athletic directors,
some of Nikes most important clients. These letters
told of the equitable conditions in the factories and
assured these individuals of Nikes corporate
responsibility (Graulich, 2002).

Website segment
Nike also created a page on its website for athletic
departments listing factory addresses in Vietnam and

The company made proactive efforts to directly

answer the concerns and arguments of student
activists protesting Nikes products by visiting
college campuses and speaking with students. For
example, at the University of North Carolina at
Chapel Hill (UNC), the company sent a spokeswoman of Philippine descent to deliver a moving
apology for past labor practices and to promise the
students that manufacturing conditions had
improved (Tkacik, 2003). UNC, which held a
multimillion-dollar sportswear contract with Nike,
began a globalization class focused on the company.
Nike management, including CEO Philip Knight,
visited the campus to lecture to concerned UNC
students about the fairness of Nikes labor policies.
Nike also invited teams of Dartmouth graduate
students to tour Indonesian and Vietnamese factories
for 3 weeks at Nikes expense (Nike, 2004). The
company posted the student teams reports on the
Nike website, providing further evidence for
students and critics of reasonable manufacturing
practices.

Newspapers
The newspaper was the most ubiquitous instrument
the company used to distribute evidentiary materials
supporting its production methods. Nike issued
numerous press releases, opinion articles, and even
full-page advertisements in major newspapers, all of
which indicated that Nike factories were operating
decently and paying a living wage. Philip Knight
wrote a letter to the editor of the New York Times
stating, Nike has paid, on average, double the

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minimum wage as defined in countries where its

products are produced under contract (Parloff,
2002). The CEO also inferred that Nike factories
actually help improve the impoverished economic
conditions of the countries where they operate:
History shows that the best way out of poverty for
such countries is though exports of light manufactured goods that provide the base for more skilled
production (Parloff, 2002).
Nike used the aforementioned methods to support its claims of good worker treatment, reasonable
factory conditions, and global compliance with labor
standards, which helped vindicate its corporate image. However, Nike did not report everything it
discovered during its self-evaluation.

A skeleton in the corporate closet

In January of 1997, as Nike began aggressively
assessing its own factories, one Ernst and Young
audit of a Vietnamese facility returned horrific results. This particular factory had no drinkable water
and toxic chemical concentrations up to 177 times
the allowable safety limits. With respect to the
laborers, 48 of the 50 worked longer than permitted
hours, workers were punished for taking time off to
attend weddings and funerals, and 80% had never
read the code of conduct (Parloff, 2002). Some
workers did not know what Nike was. The section of the audit report entitled safety committee
was merely stamped with the word, non-existent
(Edwards, 2002). This audit was leaked to the New
York Times, which, in November of 1997, proclaimed its unsavory results to a national audience in
a front-page story.

Nikes labor practices several years earlier and stopped purchasing their products. Kasky said he was
glad when the company adopted its code of conduct,
but after reading the audit, he felt the code was just a
charade. It struck me as false advertising, Kasky
said, The Nike code of conduct is marketing their
products. Theyre marketing it to me under false
grounds (Parloff, 2002).
Kasky phoned Alan Caplan, a friend of Kaskys
and a partner of the San Francisco firm of Bushnell,
Caplan and Fielding, LLP, which specializes in
consumer litigation under Californias broad
consumer protection laws. Caplan was intrigued
with Kaskys claim, and, recognizing the magnitude
of the case, teamed up with the famous class-action
specialty firm of Milberg Weiss Bershad Hynes and
Lerach. This was not the first time these two firms
had united for a case, having already worked together in the first half of the 90s to crack the
invincible tobacco industry for tens of millions of
dollars (Siegal, 1998). The team of lawyers won the
eminent lawsuit against R.J. Reynolds, Young &
Rubicam, and McCann-Erickson, single-handedly
shutting down the infamous Joe Camel advertising campaign because it promoted unlawful cigarette sales to children. The lawsuit against Nike, filed
in April of 1998, would be just as daunting. Not
only would the suit be against one of the biggest
corporations in the world, but the case would be
poised between the conventions of typical advertising and the dynamics of corporate social responsibility reporting, a less-treated and ill-defined topic of
corporate law. The distinguishing factor between
advertising and CSR reporting is the speech category used (commercial versus free speech) and the
courts interpretation of commercial speech law, one
of the murkiest topics in the U.S. legal system.

Litigation
The murky laws of commercial speech
Marc Kasky, who calls himself a corporate referee,
read the November newspaper containing the information from the leaked responsibility audit. For
him, the news report was the last straw in a series of
contradictory statements from nonprofit groups and
Nike officials regarding Nikes labor practices.
Kasky, who holds a masters degree in city planning
from Yale, has sued numerous companies over false
advertising (Edwards, 2002). He became skeptical of

The history of commercial speech law began when, in

1942, the US Supreme Court distinguished between
general speech, which the First Amendment protects,
and commercial speech, which is given no legal
protection (Parloff, 2002). Since states were given the
power to regulate business transactions, the Court
reasoned that the states should also regulate businessrelated speech. By 1976, the attitude of the Court had

The Pragmatic and Ethical Barriers

shifted to allow for limited First Amendment protection of commercial speech (Parloff, 2002). This
ruling was intended to bolster commercial sources
ability to give information to the public.
The initial definition of commercial speech was
limiting: speech that does no more than propose a
commercial transaction. However, with the evolution of advertising techniques, that definition
widened to include claims about the production
methods and social responsibility of manufacturers.
Claims such as dolphin safe or ozone friendly
are now legally recognized as commercial speech
(Parloff, 2002). These laws are also very strict, such
that even if the false statement is made accidentally,
without malicious intent, the advertiser remains
liable. The line between commercial and political
speech became further clouded when courts decided
that commercial speech was no longer limited to
paid advertisements (Parloff, 2002). Essentially, our
court system still has no clear definition of commercial speech or coherent set of standards from
which to judge the nature of corporate statements.
Additionally, a related murky topic is the fiduciary
responsibility of corporate officers.

The plaintiffs arguments

Working within this haphazard framework of speech
law, Kaskys legal team argued that Nike made
incorrect and misleading statements during its PR
campaign. Kasky argued that these statements qualify
as commercial speech subject to consumer protection laws against fraudulent advertising because Nike
spoke to promote the sale of products (Mauro,
2002). If Nike were to lose the case, it would be
expected to (1) return all profits in the state of
California related in any way to the deceitful statements, (2) conduct another publicity campaign to
correct misimpressions created by the statements,
and (3) pay Kaskys attorney fees.
Specifically, Nike is said to have made incorrect
and/or misleading statements in nine places: in
Philip Knights letter to the editor of the New York
Times, in two personal letters Nike sent to critics, a
form letter sent to universities, and in five press releases (Graulich, 2002). The specific misrepresentations outlined in the lawsuit were several loose
references made by the company to the 32-page

365

labor report, such as free meals as opposed to

subsidized meals, and assertions that the average
factory paid double the minimum wage and complied with all health standards. Before the trial could
take place regarding the truthfulness of the statements, however, Nike battled the premise of the
case, arguing that the truthfulness of the statements is
immaterial because, as free speech, they were protected by the First Amendment.
Kaskys lawyers conceded that if Nikes statements
were classified as free as opposed to commercial
speech, they would be immune from state
regulation and the dispute would be surrendered
(Greenhouse, 2003). Thus, the definition of commercial speech is the turning point of this case. The
cases outcome depends on whether or not Nikes
promotional statements though not advertising in
the traditional sense could be classified as commercial speech.
The legal team behind Marc Kasky has a convincing argument. The team states that the purpose
of Nikes CSR disclosure was to maintain and
increase its sales and profits by appealing to consumers opposed to inhumane manufacturing practices (Greenhouse, 2003). Hence, its motive was
to campaign for the commercial purpose of selling
shoes, which, under California law, constitutes
advertising subject to strict regulation (Greenhouse,
2003). To illustrate the connection of Nikes corporate social responsibility disclosure to commercial
speech, at UNC Nike signed a renewable $11.6
million deal to equip the sports teams. The students
vigorously lobbied against this contract until Nike
assuaged their concerns by sending representatives
and running full-page newspaper ads highlighting
the companys humane labor standards (Tkacik,
2003). Thus, Nikes social responsibility pretenses,
although part of a debate on globalization and a
defense of its labor standards, irrefutably gave the
company economic benefit, placing the press
statements within the gray area of corporate speech
law.

The defendants rebuttal

Recognizing this case would be no home run, Nike
drafted a pair of major league First Amendment

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Kristen Bell DeTienne and Lee W. Lewis

scholars to go to bat against Kasky: Harvard Law

School professor Lawrence Tribe and former Solicitor General of the Clinton administration, Walter
Dellinger. Nikes legal team advanced two major
arguments to defend its stance that its CSR reporting
was not commercial in nature and that the lawsuit
was unjust.
First, Nike representatives used political not
commercial speech, because by its definition,
political speech is that used in a debate. The company concludes that since it was speaking as a participant in a national debate about the effects of
globalization, it should receive First Amendment
protection (Greenhouse, 2003). To illustrate, if a
corporation were arguing over a controversial issue
in the context of a lively debate, its statements would
receive the same generous liability protection as
those of a political figure, editorial writer, or community activist participating in the debate. Discussion of public issues . . . occupies the highest rung
of the hierarchy of First Amendment values and is
entitled to special protection, the company said
(Biskrupic, 2003). If Nikes statements were political
in nature, they would receive legal protection and
the dispute over the statements accuracy would
become irrelevant.
Second, Nike argued that the case is unjust
because the court, by ruling against Nike, would
create a double standard between corporations and
their critics. Any individual could lambaste a
company with unproven accusations and expect
full First Amendment protection; however, if a
company defended itself, it would be subject to
litigation for even an accidental misstatement or
what a jury might decide is a misstatement. For
example, critics are free to accuse Nike of using
Asian sweatshops and slave labor to produce
goods, and those accusations, whether accurate or
not, are fully defended as free speech. If Nike
rejoins by asserting compliance with health standards, it could be sued for false advertising if a
jury felt it was misleading in any way. Lawrence
Tribe stated that Kaskys position is entirely onesided, the decision grants favored treatment to
accusations against companies, but cripples the
defenders (Savage, 2003). If the ruling would, in
fact, create a double standard, then out of fairness
the court would be inclined to uphold Nikes
defense.

Court one, court two, court three youre out!

Initially, the Nike case went to the San Francisco
Superior Court and was quickly thrown out
without trial because the court accepted Nikes
stance that its statements were subject to First
Amendment protection. Kasky then appealed to the
California Court of Appeals, and the case was again
rebuffed on grounds similar to those in the Superior Court. Kasky appealed again to the California
Supreme Court and, surprisingly, on May 2,
2002, the courts opinion reversed: the California
Supreme Court ruled in favor of Marc Kasky,
overturning the two previous courts rulings (Edwards, 2002).
The California Supreme Court ruled that Nikes
PR statements were commercial speech by a
narrow 43 decision. The court defined commercial speech as speech used to promote and
defend its sales and profits and makes factual
representations about its own products or operations (Greenhouse, 2003). To decide what speech
lies within these limits, the court established a
three-part test: (1) speech made by entities or
individuals engaged in commerce, (2) speech
targeted at an audience including actual and
potential purchasers, and (3) speech that included
representations of fact of a commercial nature
(Greenhouse, 2003). Nikes challenged statements
assertions of ethical business practices made to
customers met all three sections of the test and
were subject to liability to the extent of being
proven misleading. The case was to return to the
San Francisco Superior Court for trial.
Justice Joyce Kennard of the California Supreme
Court said of the decision, Our holding . . . in no
way prohibits any business enterprise from speaking
out on issues of public importance or from vigorously defending its own labor practices. It means
only that when a business enterprise, to promote and
defend its own sales and profits, makes factual representations about its own products or its own
operations, it must speak truthfully . . . we do not
consider this a remarkable or intolerable burden to
impose on the business community (Edwards,
2002). Although Justice Kennards remarks sound
logical, the alarmed business community has indicated that the consequences of the ruling would be
calamitous.

The Pragmatic and Ethical Barriers

The court rulings consequences
A California Supreme Court ruling against Nike
would have widespread consequences for every U.S.
company doing business in California, including
every Fortune 500 company. The consequences
stem from the broad definition of commercial
speech that could legally endanger hundreds of
organizations communicating with the public on
important issues. Listed below are the major possible
outcomes proposed by the business community of
how an open definition of liable corporate speech
could affect different entities in a variety of sectors.

Corporations
For corporations, the implications would be far
reaching. If a corporations defense of criticism were
treated as only a sales pitch, it could be victim to
multiple frivolous suits debating the truth of any
statement, draining the companys resources, and
quickly silencing its public communication (Byrum,
2003). Critics could, however, continue rampant
verbal assaults on the company because of their First
Amendment protection. Uttering a word would
become far more risky than keeping silent, if this
ruling stands, said Tribe (Savage, 2003).

Lawyers
With corporate communication under such scrutiny,
corporate speech lawyers would be on guard to edit
or eliminate even the most mundane press releases
because of litigious implications. They would constantly be challenging PR representatives on the
necessity of press releases and whether or not distributing them would be worth the risk, and lawyers
could possibly replace many traditional roles in
public relations (Graulich, 2002).

Media
The muzzling effect a Supreme Court ruling could
have on companies and their representatives could
prevent companies from even making remarks to the
media on matters of importance. Tens of thousands

367

of company spokespersons and public relations

organizations could be gagged from speaking out on
controversial matters (Byrum, 2003). News segments
on US businesses would be meager, with companies
holding back all information that could be questioned by the most discriminating listener (Lane,
2003). Advertising revenues could be lost and jobs
cut in all segments of business reporting.

Public
However, the public may have the most to lose if
the California ruling were to hold. The information
the public receives from official corporate sources
would be sparse and press conferences would be rare.
News leaving any company would be older and
diluted by the pens of lawyers. Media accounts on
divisive issues would be lopsided or flatly uncontested by the accused. The robust, uninhibited debate so necessary in a democracy could be
jeopardized in all issues involving corporations
(Parloff, 2002).

Is the ruling really that bad?

Many have argued that the courts ruling would be
beneficial if upheld. If businesses are liable for the
statements they make, consumers would be protected from lies, and companies would have strong
incentive to maintain responsible conduct. Much
like the pollution standards imposed on industrial
companies, speech standards would force businesses
to operate according to specific guidelines, and those
companies would quickly conform their practices to
stay in business. Even without imposed standards,
many companies are striving to conduct business in a
socially responsible manner (e.g.,Timberland,
Hallmark Channel, Verizon, and Office Depot) (PR
News, 2004). Furthermore, for a corporation to
maintain its share in the competitive marketplace, it
must remain in the public eye and must continue the
public dialogue demanded by consumers and
shareholders. If the company shares correct information reviewed by a capable lawyer something
many companies already do would it really have
anything to fear? Alan Caplan commented,

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Kristen Bell DeTienne and Lee W. Lewis

The companies that dont lie, the companies that dont

misrepresent things, dont have any problem with this
decision. Dont forget, if a company misrepresents its
product and gets sales, theyre just taking sales away
from someone else. . .. If a company is going to issue
press releases, they are going to have to tell the truth.
That shouldnt upset any corporation (Edwards, 2002).

Caplans solution sounds simple: tell the truth,

but unfortunately the dilemma is anything but simple. The commercial speech definition is complicated not so much because of legal system
inadequacies as it is the sophistication of corporate
operations. Can we reasonably hold any company
with over a million employees across 50 countries to
a standard of current, exact information regarding all
its facilities and affiliates at all times under penalty of
law? If any misstatement regarding such issues as
labor and environmental practices were to carry legal
implications, then global companies attempting to
communicate more CSR information to stakeholders would be faced with challenging obstacles.
Interesting comparisons can be drawn between
requiring CSR reporting and imposing the Sarbanes-Oxley standards that went into effect in the
United States in November, 2004 (McKenna, 2004).
The Sarbanes-Oxley Act requires independently
verified internal accounting controls that are designed to protect stockholders and stakeholders from
accounting errors and fraud (Hagerty, 2004). One of
the drivers of the Sarbanes-Oxley Act is to create
conditions under which employees at all levels of the
organization are encouraged to tell the truth and to
appropriately use internal controls to drive accurate
reporting.2 Could CSR statements also be used to
encourage employees at all levels to tell the truth
about corporate practices?
Early estimates were that the Sarbanes-Oxley Act
would cost companies an average of U.S. $2 million
each per year (Gerena-Morales, 2004). However,
reports have shown that the average cost for compliance was actually U.S. $16 million per company
for 2004 (Dierickx, 2004). Compliance spending is
expected to rise in 2005 (Hagerty, 2004). Foreign
issuers of securities in the United States have longer
to comply with Sarbanes-Oxley. Nevertheless, the
expense and hassles of complying with the Act has
led some foreign companies to regret having listed in
the U.S. and to be frustrated by the extreme diffi-

culty of backing out (Jenkins, 2004). Large German

companies estimate it will cost them $30 to $80
million Euros ($21-$56 million Pounds) to maintain
their U.S. listings (Jenkins, 2004). Only time would
tell whether imposed CSR standards would carry
similar costs, and if they would deter foreign
involvement in U.S. financial markets.

Supreme appeals
Nike found the California ruling unacceptable and
quickly took measures to appeal to the U.S. Supreme
Court. In a move of terrific seriousness, Nike hired
Tom Goldstein of Goldstein & Howe in Washington
DC. to construct its appeal.3 Goldstein believed
Nikes position had the symptoms of a case that
would capture the attention of the court. He said,
What you have is the California Supreme Court
setting itself up as the lowest common denominator
for the planet. When . . . a single jurisdiction effectively, by fiat, adopts what will have to be a national
rule, then the U.S. Supreme Court is very likely to
step in (Edwards, 2002). The U.S. Courts acceptance would be rare indeed, for it would normally
reject an appeal in a case that has not been resolved in
lower courts, and even among those cases resolved
previously, the court accepts less than one percent of
the appeals (Greenhouse, 2003).
The case, however, would provide the U.S. Supreme Court an opportunity to clear up the hardest
definitional issue thats ever come up in the history
of commercial-speech cases, said New York University law professor Burt Neuborne (Tkacik, 2003).
The court currently has a definition of commercial
speech established from a case in 2001, which defines commercial speech as speech that does no
more than propose a commercial transaction, an
unclear, narrow definition at best. By accepting the
case and making a firm ruling, the court could set a
precedent that would finally resolve the nebulous
issue of commercial speech. Indeed, one California
justice urged Washington to reconsider the dichotomous approach to commercial and noncommercial
speech (Greenhouse, 2003). Corporate politics and
sophisticated advertising schemes have furthered the
hybridization of commercial and noncommercial
speech. This combining of speech categories

The Pragmatic and Ethical Barriers

increases the need for clear legal standards, but makes
the creation of a definitive line between commercial
and noncommercial speech difficult to draw. Thus,
the Supreme Courts ruling is needed as well as
timely.
On January 11, 2003, the U.S. Supreme Court
accepted the Nike case, sending the corporate and
political world into a flurry of legal advocacy.

Choosing sides
Soon after the announcement that the U.S. Supreme
Court would hear the case, numerous agencies,
entities, and organizations began filing amicus litmus
(friend of the court) briefs to express concern and
opinion for the cases outcome. The following
points list some entities that supported Kasky, and
the questions and concerns they raised regarding the
cases outcome.
 Reclaim Democracy: A Colorado-based anticorporate group concerned about corporations
being given a constitutional corporate right to
lie (Nikes vs. Kasky, 2004). What would
happen to corporate America and consumers if
companies were no longer responsible for
correct speech?
 Sierra Club: As a well-known environmental
activist group, the Sierra Club is always on the
lookout for companies violating social responsibility (Graulich, 2002). If Nike were to win
the case, what precedent would the victory set
for companies that allegedly violate civil
responsibility? Would irresponsible corporations see Nikes victory as a green light to
continue environmental or human rights abuses
and then cover up under misleading, but protected, speech?
The following entities are among the gamut of
major corporations, government bodies, and private
organizations that supported Nike, and the questions
they submitted to the discussion:
 ACLU: As a determined defender of civil rights
and an active participant in controversial issues
across the country, it is concerned about the
robustness of public debate (Tkacik, 2003).

369

Would Nikes labor dispute be better resolved

through public discourse than in a courtroom?
 European Union: As a multinational entity
with law and policy developing in multiple
stages across various borders, the EU depends
heavily on the transparency of business communication to promote country-to-country
investing within the Union and to the United
States (Bush, 2003). How would international
businesses react if they could suddenly be sued
in the U.S. for using the same transparent
speech required to do business abroad? If U.S.
companies suddenly became relatively silent
compared to companies in other countries,
how might international investors react?
 PR Organizations: These entities are most
concerned with the abundance, timeliness, and
correctness of information delivered to the
public, and in helping companies maintain
open dialogue with consumers and shareholders (Bush, 2003). How would corporate withdrawal from public discourse affect the roles of
PR representatives? What sources would the
public turn to for information if companies
stopped communicating?
Many interests were at stake with the doubleedged consequences of this lawsuit and the national
precedent that was to be established by the U.S.
Supreme Court. Regardless of the direction the
court could have voted, the ripple effects would
have touched hundreds of organizations and entities.

An unexpected response
The anticipating public was shocked when, on June
26, 2003, the Supreme Court voted in a 6-3 decision
to dismiss the case back to the San Francisco Courts,
saying that a ruling would be premature due to an
incomplete factual record. The justices acknowledged the importance of the case and complexity of
the issue, stating that Nikes speech represents a
blending of commercial speech, noncommercial
speech, and public debate, which Nike claims defeats
the premise of the California Supreme Court decision. Justices Sandra Day OConnor, Anthony
Kennedy and Stephen Breyer contended in a
lengthy dissent that the court should have tackled

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Kristen Bell DeTienne and Lee W. Lewis

these questions, saying that the court has an obligation to define commercial speech (Kilpatrick, 2003).
Eager parties on both sides of the case voiced
disappointment, saying the issues they had hoped to
have resolved were left unanswered. The courts
decision essentially returned the burden of distinguishing ethical commercial speech to public hands.
Perhaps this is best; it may be unrealistic for the
public expect the Supreme Court to answer this
controversy with a tidy, packaged ruling for an issue
best resolved on a case-by-case basis. Stoll (2002)
contends that with a weak system of international
law, consumers use the media to monitor companies
and effectively become the watchdogs of unacceptable behavior. This relationship is necessary because
companies then have incentive to behave correctly
regardless of legal constraints because of the fear of
deserved moral reprobation for unacceptable actions
(Stoll, 2002). Thus, leaving the public and local
districts with the charge over the corporate speech
issue may be most beneficial for all parties involved
for the time being.
The case returned to California where Nike had
nothing to gain by going to trial, and further damages
to sustain if it lost. Thus, on September 12, 2003,
Nike made a charity settlement with Kasky, contributing $1.5 million over the next 3 years to the
Fair Labor Association, an organization that monitors
companies treatment of workers (Campbell, 2003).4
Unfortunately, this settlement just leaves the issue
hanging, thus encouraging future, similar lawsuits
that must be resolved on a case-by-case basis rather
than by an overarching legal precedent.
Nike versus Kasky will certainly stimulate the
activities of corporate lawyers and increase their
influence on CSR disclosure. The questions raised in
this article ask whether liability threats will leave
companies reporting substantiated information in
detail and abundance, or being more bland and dull
to avoid legal predators. There will probably be
much of both. Eliot Schrage, Professor at Columbia
Business School and former vice president of global
affairs at Gap, believes this case will actually improve
CSR communications, Smart companies will not
use it as a shield to block disclosure. Rather, they
will use it as a sword to sculpt and craft a more
accurate and transparent program that can withstand
even silly law suits (Murray, 2003). The relationship between corporate lawyers and PR departments

and senior executives should be reexamined to

strengthen the influence of the two disciplines on
corporate communication. This would serve to
protect companies from liability and cause them to
be more judicious in selecting material reported
to the public, which could cause some otherwise
descriptive press releases to be plain and less informative (Graulich, 2002).
Although the Nike versus Kasky case has been
resolved, the debate and issues it generated will have
lasting practical consequences for the future of CSR
reporting as companies attempt to find a standard for
how to disseminate this important information to
stakeholders who demand this information. Although
specialist institutions have not yet materialized to
tackle all these issues, business researchers have been
submitting valuable ideas for decades, most notably in
the area of corporate social responsibility accounting,
which is discussed below.

CSR statements as a possible solution

This article has presented two major ethical and
technical dilemmas that corporations must hurdle
when communicating with the public. First, how
should a company report on its operations to answer
critics accusations, meet consumers needs, and
comply with legal restrictions? Second, from an
ethical standpoint, what reasons justify the broadcast
of CSR information to the public, and what medium of disclosure is most ethically appropriate? The
remainder of this article will consider how audited
CSR statements, created in accordance with standardized, accepted principles, could help companies
solve these dilemmas.
In CSR statements, companies doing business in
the U.S. could be required to disclose specified
information regarding their manufacturing conditions or sustainable development practices, just as
they must disclose specified financial information in
their 10-Ks and balance sheets. These statements,
like their financial counterparts, would be independently audited and would be included in the
companys annual report. Social auditing would let
companies know what they must assess (the relevant
social criteria) and give them the analytical skills to
do so (metrics, measures, and indicators of appropriate/inappropriate behaviors and activities)

The Pragmatic and Ethical Barriers

(Davenport, 2000). The reporting company would
be liable for misstatements in these documents, but
in a predictable, structured manner following legal
guidelines established beforehand that everyone
would understand.
During the past three decades, researchers have
discussed the merits of issuing formal CSR statements of some kind to provide clear, complete
knowledge to stakeholders and the public at large
(Bowman and Haire, 1975; Filios, 1984; Robertson
and Nicholson, 1996). Filios (1984, 1986) writes that
firms would benefit by establishing a standardized
terminology and classification system regarding
social cost and benefit items to help regulate
CSR reporting. Robertson and Nicholson (1996)
promote CSR disclosure in formal mission statements with specific goals and monitoring activities as
a powerful way to give unity of purpose to individuals within the company and increase public
opinion without. Sillanpaa (1998) states that audited
CSR reports help companies generate increased
understanding of their corporate identity and gain
greater confidence from stakeholders. The article
now discusses some specific, contemporary reasons
CSR statements would benefit companies within the
context of the Nike case.

Reasons to require CSR statements

The need for a standardized reporting procedure
among all multinational companies has increased in
recent years for several reasons. First, globalization
has played a major role in influencing the ambiguity
of business practices and the difficulty of consistent
reporting among companies. The growth of the
global marketplace has been remarkable. In the early
1990s, 35,000 multinational corporations worked
with 170,000 foreign affiliates. Before the end of the
decade, 60,000 multinational companies had accumulated more than 500,000 foreign affiliates and
produced one quarter of the global output (Florini,
2003). The majority of these companies do business
in low-wage, low-regulation countries. Companies
committing social abuses may be beyond the regulation of scattered governments, but these companies
are not beyond the discrimination of informed customers. CSR statements would create a playing field
of transparency and comparability between global

371

companies and allow customers and investors to

compare accurate, categorized information according to specific criteria.
Second, formal CSR statements would encourage companies to improve transparency by providing a safe vehicle to disclose information while
further distinguishing CSR reporting from traditional advertising. Because legal guidelines could be
clearly established with CSR statements, companies
could provide much more information to the
public with greater confidence. In addition to the
legal implications of traditional advertising, a
greater emphasis on clear, consistent disclosure
would further deemphasize flashy reporting methods and could set a precedent for a humble
approach to CSR reporting. From an ethical
standpoint, this would certainly be the most
appropriate approach because transparent, audited
CSR reporting is less deceptive and would provide
more complete information to stakeholders (Stoll,
2002). Mike Lawrence, executive vice-president at
Cone, a communications and marketing agency
based in Boston, said, we say its better for people
to find you than to broadcast your visibility in
social responsibility, but if youre going to broadcast it, then you must do it humbly. . . You should
never claim that the company is perfect when you
do choose to make public claims about social
responsibility (Murray, 2003).
Third, current CSR reporting is mostly piecemeal,
anecdotal, and generated without third party credibility. A KPMG survey indicated that 44% of the
non-financial Fortune 250 companies produce an
annual report of their social performance (Reynolds,
2001); however, each of these companies reports
according to its own standards, codes, and measurements mitigating the accuracy and comparability of
the statements (Davenport, 2000). Additionally, less
than 20% of these reports were verified by an independent party (Reynolds, 2001). Furthermore,
although the increasing desire for a common CSR
standard is optimistic, the fact that dozens of entities
have created their own CSR standards such as the
UN Global Compact and the Social Accountability
8000 has further muddled the issue (Reynolds,
2001). The analogy would be to offer companies a
selection from among 50 sets of Generally Accepted
Accounting Principles to prepare their income
statements. Only a requirement for audited CSR

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Kristen Bell DeTienne and Lee W. Lewis

reports under a standard set of principles would allow

for credibility, consistency, and comparability.
Fourth, customers and investors are demanding
more CSR information from companies, and current research suggests this information strongly
influences purchase and investment decisions. A
national consumer survey in 1996 indicated that
almost 80% of shoppers would avoid a retailer selling
garments made in sweatshops (McCabe, 2000).
Although in practice consumers purchase less discriminately than they indicate on surveys, much of
this apparent divergence may be due to lack of
common, reliable CSR information. Furthermore,
investors are dramatically increasing their use of
CSR information for investment choices. Epstein
and Freedman (1994) discovered that individual
investors desired more CSR information than is
currently provided. The Social Investment Forum
indicates that in 1984 about $40 billion in U.S. assets
under professional supervision underwent some sort
of CSR screening. In 1995, the total was up to $639
billion, and by 2001 that total almost quadrupled to
over $2.3 trillion (Florini, 2003). CSR statements
could meet the needs of consumers and investors
alike and provide the comparability and legitimacy
needed to base more purchase and investment
decisions on this information.
Fifth, if companies were required to report CSR
information information used by the public for
investment and purchase decisions more companies would incorporate responsibility initiatives into
their overall corporate strategy (Murray, 2003).
Much recent research has strongly suggested that
philanthropic initiatives be anchored in the strategy
of the corporation and professionalized for greater
accountability (Argenti and Forman, 2002; McAlister and Ferrell, 2002; Porter and Kramer 2002;
Stormer, 2003), thus improving the substance
behind any disclosure of responsibility (Murray,
2002). When companies align their social endeavors
with causes fundamentally linked to their business
expertise, they grant credibility to their philanthropic practices (Porter and Kramer, 2002), which
then allows CSR disclosure to be an extension of the
companys overarching social commitment.
Empirically, when companies give strategically
and carefully account for resources dedicated to
social objectives, they professionalize the philanthropic functions within the organization (Argenti

and Forman, 2002, p. 200). Greater professionalism

and accountability in CSR helps focus the spending
of social investing funds, encourages careful project
management skills, and extends the monitoring of
project outcomes, thus benefiting the interests
served by the company while enhancing corporate
reputation (Argenti and Forman, 2002, p. 201).

Concerns related to required CSR statements

This paper now considers some of the concerns or
complications related to the requirement of audited
CSR statements and the responses to those issues.
First, some have suggested that the audits would be
too expensive for corporations (Filios, 1984;
Raynard, 1998). Although the additional audits
would clearly increase accounting expenses, truly
large costs would be incurred only by companies
with the most complex and widespread manufacturing patterns. Many businesses operate in the U.S.
where the audit would be local and the expenses
would be modest. Moreover, the argument about
additional expense was certainly brought up when
financial statements and audits were first introduced
during the 1930s, but businesses adapted and these
requirements are now seen as a usual cost of business.
Second, one might argue that operating practices
differ so dramatically between different industries
that a common CSR standard would be impossible
to implement across sectors. For example, applying a
common environmental standard to a highly automated engine factory and a uranium mine might
prove to be difficult. The solution could be to
establish different sets of industry-specific requirements based on sound ethical principles that apply to
all businesses. A regulating body could be formed to
enforce compliance and adjust the standards for
fairness. Companies in similar sectors could then be
compared, and an underlying ethical standard would
prevail across all industries.
Third, few, if any, professional services organizations are equipped or qualified to conduct CSR
audits and help companies create CSR statements,
although many accounting and PR firms are now
offering these services (Murray, 2003). The problem
lies in the credibility of the PR and accounting
sectors with respect to social responsibility. Many are
skeptical about the influence of PR firms in social

The Pragmatic and Ethical Barriers

responsibility reporting (Murray, 2003), and in a
post-Kasky landscape, the dangers of applying typical
advertising methods to CSR reporting abound.
Some have seen accounting firms as the ideal institution to conduct CSR audits and determine the
parameters of CSR reporting and terminology
(Filios, 1984), but research suggests the public
doubts the ability of accountants to conduct accurate
audits in the realm of CSR (Epstein and Freedman,
1994). Recently, the demise of Andersen and other
corporate scandals pointing back to accounting
practices have blighted the ethical credibility of
accountants.
The field is looking for new institutions and
organizations to competently and ethically address
the issues of corporate responsibility (Murray, 2003).
This need could be filled by other institutions, such
as the Fair Labor Association, which is one of many
that have been actively involved with investigations
of offshore operations and have expressed interest in
widespread CSR auditing (Florini, 2003). Additionally, other types of consulting, investigating, and
even law firms may quickly become qualified to
create statements and/or conduct CSR audits as the
market for these services continues to rapidly expand
(Murray, 2003).

The final score

Lawrence Tribe pondered the Supreme Court decision to dismiss the case. Although the U.S. Supreme
Court had declined to rule on the case for the time
being, the controversial issue surrounding the application of commercial speech regulation to CSR disclosure was immortalized, and would surely come up
again in due time. Although the full effects of the case
remain to be seen, it had undoubtedly altered the
landscape of social accountability and disclosure.

Conclusion
The case of Nike illustrates the decisions of a company acting to remedy the problem of negative
public image and aggressive criticism in an environment of legal uncertainty. The company
responded to this criticism using multiple PR tactics,

373

and as a result, entered an unusual forum that

blended the relatively tolerant ethical standards of
typical advertising with the stringent requirements of
CSR reporting.5
As more companies enter the multinational
arena, and the public becomes more aware of
social and environmental conditions in developing
countries, the need for sufficient, transparent disclosure of corporate conduct will continually increase (Robertson and Nicholson, 1996). Laws and
models surrounding the reporting of operating
practices have yet to be established, but the Nike
case has drawn out the underlying ethical considerations for disclosing this kind of information
and has brought national attention to the need for
standards.
Additionally, corporate America still needs to buy
in to the idea of full disclosure of social responsibility
practices. This will be accomplished as responsible
companies, investors, and consumers continue the
current trend of making social responsibility a
priority in production, finance, and purchase decisions. Recent research indicates that moral operations are profitable, and many more investors screen
companies each year for responsible practices before
investing. As CSR disclosure continually receives
more attention and legitimacy, the public and private sectors will recognize the need for national
standards and will prepare to accept them.
As corporate transparency increases, companies
continue to confront challenging ethical decisions
regarding the relationships formed between business
and society. The study of Nike Corporations
struggle through a public relations crisis can be
helpful in illustrating some of the dilemmas and
alternatives a company faces when disclosing information to the public. The fact that Nike has brought
these ethical and legal issues to light provides us a
definitive example to reference when assessing the
risks involved with corporate communication.

Notes
1

Nikes decisions should be evaluated with consideration given to the high level of legal uncertainty regarding
corporate free speech, the vast operational networks the
company employs, and the pressure placed on the
company from shareholders, customers, and critics.

374

Kristen Bell DeTienne and Lee W. Lewis

Has the Sarbanes-Oxley Act helped to reduce corporate misconduct? Some argue the Act has, through
increased scrutiny of easily abused practices and through
the remediation of weak internal controls (Scrushy,
2004). Additionally, presumably because of the Acts
protection of whistleblowers, the U.S. has seen an
increase in corporate insiders filing complaints about
financial trickery (Geller, 2004). Others argue that the Act
is too intrusive and too costly (Jopson, 2004).
3
Goldstein is the attorney who presented Al Gores case
to the Supreme Court against George W. Bush regarding
the 2000 election results in Florida.
4
By contributing funds to a company engaged in CSR
auditing, Nike avoided legal expenses and admission of
liability while improving its transparency (Linn, 2003;
Murray, 2003).
5
This study makes no judgment of the honesty of Nikes
statements or integrity of its decisions, but instead presents
the decisions as an example of the challenges inherent in
communicating responsibility practices to the public.

Legal
1. Should companies public-relations campaigns be
protected under the First Amendment?
2. What legal risks are taken when a company issues a
press release? What business or reputation risks are
taken by remaining silent on important issues?
3. What is the difference between self-interested
corporate dialogue and commercial speech?
4. Many major corporations such as ExxonMobil
and Microsoft were vocal in defense of Nike
when the case went to the U.S. Supreme Court,
but these companies hesitated for a long while
before doing so because of the risks involved. What
legal or political risks did these companies take in
publicly speaking in behalf of a company being
sued for lying to consumers? Did the benefits of
sending amicus briefs to the Supreme Court outweigh these risks?
CSR statements

Appendix
The Nike case raises a number of multi-disciplinary issues
with respect to ethics, strategy, litigation, and CSR
statements. For anyone interested in further analyzing the
relevant issues involved or in using this as a teaching case,
we provide the following questions.

1. Could audited CSR statements solve the dilemma

of what and how companies should report their
operations to the public?
2. What effect could audited CSR have on the business field of public relations?
3. Would the public trust corporate social responsibility statements in the light of major scandals
involving corporate transparency and fraudulent
financial statements?

Ethical
1. What constitutes an unethical or misleading statement?
2. Was Nikes withholding of the single Ernst and
Young audit ethical, recognizing that the majority
of the audits were very positive?
3. Where does the difference exist between a company putting forth a favorable corporate image and
being misleading?

Strategic
1. Apart from the lawsuit, was Nikes PR campaign an
effective way to change public opinion of the
company? Which method is best used to answer
corporate criticisms?
2. What changes could Nike have made to its campaign to have avoided the lawsuit? Was the lawsuit
foreseeable?
3. How should Nike restructure its PR campaigns to
avoid similar lawsuits in the future?

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Department of Organizational Leadership and Strategy,
Marriott School of Management,
Brigham Young University, 590 TNRB,
Provo.
UT 84602, U.S.A.
E-mail:detienne@byu.edu