Business and Human Rights in a Time of Change (Christopher L. Avery, Nov. 1999)
5. A case in point: Nike
During the past decade many companies facing human rights controversies have learned the hard lesson that human rights advocates, the media, and consumers will no longer be satisfied until they see real and verifiable change not only in company policy but also in company conduct. A case in point: Nike.
In 1996 accusations were made that Nike's Asian factories were sweatshops where workers were underpaid and mistreated. The allegations included:
i) salaries were less than required by local law and/or below subsistence level;
ii) working conditions were unsafe and protective clothing was lacking;
iii) forced overtime was used;
iv) workers were fired for becoming pregnant;
v) workers were prohibited from talking with co-workers;
vi) workers were fired for seeking to improve working conditions or for going on strike;
vii) a Taiwanese factory manager lined up 125 assembly-line workers and slapped them with the sole of an athletic shoe;
viii) a Korean factory manager made workers lick the factory floor as punishment; and
ix) workers at one factory were forced to run around three warehouses for punishment; a dozen fainted in the 100-degree heat.[447]
Nike's response over time was, like other companies that have faced human rights allegations, reactive and slow. Nike's response is summarised below as a four-stage process. Elaine Bernard, Executive Director of the Harvard Trade Union Program, has noted five common stages in a company's response to criticism of their social and labour record in developing countries:
i) Denial: The company denies any knowledge of human rights violations or denies that the violations are occurring. "Most of their denials…include statements to the effect that 'we meet all the local standards, and are good employers.'"
ii) Blame others: As the violations are corroborated, the company blames others for the shortcomings, perhaps their suppliers/contractors, or the local government for its failures of enforcement, or the workers themselves for their failure to complain.
iii) Damage control: The company engages in damage control by taking the offensive and denouncing its critics who are labelled "as 'zealots,' or 'troublemakers,' or 'publicity hounds.'…the claim is made that the critics have 'a political' or 'labor agenda.'" Sometimes the company threatens to bring a defamation lawsuit.
iv) Reassert control over damaged corporate image: The company attempts to recapture the high ground by establishing and publicising a code of conduct, often with assistance from a public relations firm.
v) Give the appearance of compliance: The company may seek to give the appearance of compliance and enforcement of the code of conduct by hiring auditing firms or high-profile monitors. Sometimes the company seeks to "divide and conquer" its critics by splitting the human rights community between those who support this sort of monitoring and those who insist on more systematic, independent monitoring and enforcement.[448]
5.1 Stage 1: Deny allegations, attack critics
Nike started by strongly denying the allegations, saying it was a leader in improving working conditions in the developing world, offering "highly-desirable jobs."[449] The company said: "Wherever Nike operates around the globe, it is guided by principles set forth in a Code of Conduct that binds its production subcontractors to a signed Memorandum of Understanding."[450] Nike claimed that "every Nike subcontractor is subject to systematic, unannounced evaluation carried out by Ernst & Young"[451] and that "our own reviews, as well as Ernst & Young's, have shown that the Code [of Conduct] is complied with in all material terms…."[452] Nike also attacked its critics, saying:
i) the allegations were organised by U.S. labour groups that didn't want to see jobs going overseas;
ii) its critics were citing outdated information; and
iii) organisations criticising Nike had suspect motives and were engaging in irresponsible criticism.[453]
5.2 Stage 2: Half-measures
As negative publicity continued, Nike joined Business for Social Responsibility, began a dialogue with the Robert F. Kennedy Center for Human Rights on how to ensure that the rights of workers are protected, and joined President Clinton's Apparel Industry Partnership (aimed at voluntarily working to assure consumers that goods are produced under acceptable labour conditions; see section 3.4).[454]
Then in 1997 Nike sent Andrew Young to investigate the alleged abuses. Young is a human rights leader, former U.S. ambassador to the U.N., and former mayor of Atlanta. He heads an Atlanta consulting firm, GoodWorks International. After Young's 15-day Asian tour of 12 Nike factories, he/GoodWorks International issued a report in June 1997 that generally was favourable about Nike's record.[455] It did identify some problems and made some recommendations for improvement, e.g.:
i) workers didn't know enough about their rights or about Nike's code of conduct;
ii) few factory managers spoke the local language, which inhibited workers from lodging complaints;
iii) Nike should promote the development of "worker representatives";
iv) Nike should expand its dialogue with the human rights community and labour groups within the countries where they produce goods; and
v) Nike should consider using independent monitors because factories are controlled by absentee owners and Nike had too few supervisors on site.
Young concluded that "Nike is doing a good job in the application of its Code of Conduct, but Nike can and should do better." He said he saw no evidence of "systematic abuse or mistreatment" of workers and that Nike factories were "clean, organized, adequately ventilated, and well-lit.…I was expecting to see a far worse situation." Young did not address the issue of wages, saying that he was not qualified to assess pay in a global economy, and that minimum wage standards need to be addressed by governments "through national law or international standards."[456]
Nike bought full-page ads in the New York Times and other major newspapers, drawing attention to the conclusions of the Young report.[457]
The Young report was strongly criticised by human rights groups and others for reasons including:
i) it failed to address the issue of wages, not even making the point that Nike has a responsibility to pay a living wage;
ii) Young spent only 3 to 4 hours at each factory, the visits were pre-announced, and he did not re-visit any factories;
iii) Young's interviews with workers were conducted using Nike interpreters, and Young had no way of knowing whether the interpretation was accurate;
iv) The interviews with workers were conducted on the factory premises, leading two Asian human rights organisations to comment:
Chinese workers do not know who Mr. Young is, and probably assumed he was part of the company. Workers naturally assume that a well-dressed foreign visitor who is introduced by management in the confines of the factory is connected to the company. In these circumstances, most workers would fear punishment if they shared their true feelings. Moreover, in our research, workers told us that management informs them beforehand when visitors are coming and asks them to behave well and clean up the work place. It would not be surprising if workers had been informed about Young's visit before his arrival. Under such circumstances, how can workers be expected to freely express their true concerns and feelings?;[458]
v) Young and his consulting agency were paid by Nike for the report…both Young and Nike refused to disclose the amount paid; and
vi) The report lists 34 NGOs that it says were consulted during the investigation, but in many cases there had been very little or no contact with those listed.[459]
The heavy criticism of Andrew Young's report confirmed that a company must do more than bring in a respected individual to examine its human rights record. The fact-finding process itself must be thorough and sound.
The pressure on Nike did not relent, indeed it accelerated in November 1997 when an internal report by Nike's auditing firm was leaked to the press by a disgruntled employee, resulting in front page coverage in the New York Times. The Ernst & Young report was based on a late 1996 audit of the Tae Kwang Vina factory in Vietnam; the report was delivered to Nike in January 1997 but kept secret until it was leaked to the media 10 months later. The report said that workers at a Nike factory in Vietnam were exposed to carcinogens that exceeded local legal standards by 177 times in parts of the plant, and that 77 percent of the employees suffered from respiratory problems. The report also stated that employees at the site had to work 65 hours a week, far more than Vietnamese law allows, for $10 a week.[460]
When the Ernst & Young report came to light, it led to further criticism of Andrew Young's report. Nike had received the Ernst & Young report in January 1997, but when Andrew Young went to Asia in March-April 1997 he did not even visit the Tae Kwang Vina factory in Vietnam, and did not address the serious health and safety issues in the Ernst & Young report. "Either Nike withheld the Ernst & Young Tae Kwang Vina audit from Andrew Young, or Andrew Young and/or his staff negligently or recklessly ignored the Ernst & Young report."[461]
In April 1998 a civil lawsuit was filed against Nike in the San Francisco, California, Superior Court, alleging that Nike had violated state law by misleading customers about the working conditions in its Asian factories. This was a "private attorney general action" for "unlawful and unfair business practices" that violate California's Business and Professions Code. Such cases can be brought in California state courts more easily than elsewhere in the U.S. because under California's broad consumer protection laws the plaintiff does not need to show that he or she personally suffered injury; it is enough to show that there was a likelihood of deception. The lead attorney said at the time of lodging the complaint, "Nike has failed to tell Californians the truth about their business practices. They misrepresented the conditions in their factories and the wages they paid to protect their profits, and that's illegal."[462] The press statement issued the day the complaint was filed said:
The most damning evidence against the company is contained in a 1997 Ernst & Young internal audit. Despite Nike's claims in a January 1996 letter that its Memorandum of Understanding certifies compliance with "applicable government regulations regarding occupational health and safety [and] environmental regulations," Ernst & Young's inspection of a Vietnamese Nike shoe plant found evidence of widespread health and safety violations.[463]
The purpose of the complaint was stated to be to get Nike "to correct the discrepancy between its public rhetoric and its actual labor practices overseas….to force the company to bring its labor practices up to the level of its claims."[464] The complaint says that Nike misrepresented the truth when the company made claims including:
i) that Nike workers were not subjected to punishment or sexual abuse;
ii) that Nike products are made in accordance with laws governing wages and hours;
iii) that health and safety regulations are followed at Nike factories;
iv) that Nike pays average line-workers double the minimum wage in Southeast Asia;
v) that Nike workers receive free meals and health care;
vi) that the Andrew Young (GoodWorks International) report proves that Nike is doing a good job and "operating morally";
vii) that Nike guarantees a "living wage" for its workers.[465]
The complaint refers to extensive documentation that contradicts Nike's claims, including the above-mentioned Ernst & Young report. The complaint accuses Nike of violations of California law including negligent misrepresentation, fraud and deceit. It asks for Nike to turn over any profit made through unfair business practices and to undertake a corrective advertising campaign to explain how its products were produced.
The complaint was pending at the time Nike announced some changes to its policies in May 1998. The case was never argued on its facts; instead Nike moved for the complaint to be dismissed saying that even if the facts argued against it were true (which Nike did not accept) there would be no basis under law for finding Nike liable. Nike argued that its claims were made not in paid advertisements but in the context of statements to shareholders, over the internet, and to reporters, which Nike considered to be non-commercial speech protected by the First Amendment of the U.S. Constitution.[466] The Superior Court judge in February 1999 held in favour of Nike and dismissed the case, finding no legal basis for it to proceed.[467] The judge did not explain his precise reasons for dismissing the case; this is not required when a motion to dismiss is granted.[468] The case is being appealed by the plaintiffs, who argue in their appellate brief that Nike's statements about its labour practices were commercial speech intended to induce consumers to buy its products and that the lower court erred because the First Amendment does not protect commercial speech that is false, deceptive or misleading. The brief also argues that even if Nike's statements were noncommercial speech the action must be allowed to proceed because the First Amendment does not bar the action.[469]
5.3 Stage 3: Announcing change
In a May 1998 speech to the National Press Club, Philip Knight, Nike's Chairman and CEO, announced that Nike would tighten air quality standards at its overseas factories to meet the same standards as in the U.S., would raise the minimum age of its workers, and would allow independent local labour and human rights experts to participate in factory inspections (and publish summaries of their findings). When announcing these initiatives, he said:
It has been said that Nike has single-handedly lowered the human rights standards for the sole purpose of maximizing profits. The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse. I truly believe that the American consumer does not want to buy products made in abusive conditions.[470]
Human rights advocates welcomed this announcement, but expressed disappointment that there was no reference to the underlying issue of wages. They also cautioned that it would be important to wait to see how the independent inspections would be conducted and which organisations would be allowed to participate. Some advocates also noted that until there is more respect for freedom of association and freedom of expression in the countries where Nike locates its factories, workers will always risk reprisal if they speak up.[471]
5.4 Stage 4: Steps towards implementing change; more remains to be done
Nike reportedly has now introduced improvements in its Asian factories. Overtime has been reduced, new ventilation systems have been installed, lead-based paints and solvent-based adhesives have been eliminated. The number of workers at Tae Kwang Vina factory reporting nose and throat complaints reportedly fell to 18% of the labour force in 1998 from 86% in 1997.[472] There is a new system for workers to submit complaints and suggestions into a box for which only union representatives have a key.[473]
Human rights advocates recognise the progress that Nike has made in health and safety issues, but there is continuing concern about wage levels, and about how the factories will be monitored.
Nike has asked the International Youth Foundation (IYF), an NGO based in the U.S., to undertake work at Nike Asian factories to assess worker and community needs and devise projects for workers relating to education, health, nutrition, education, and vocational skills training.[474] The IYF is "an independent, international, nongovernmental organization dedicated to the positive development of children and youth throughout the world."[475] The IYF is to carry out this work through a new IYF division called The Global Alliance for Workers and Communities, a partnership of business, public and non-profit organizations founded by Nike, Mattel, the IYF, the World Bank, and the John D. and Catherine T. MacArthur Foundation. The primary goals of the Alliance are stated as follows:
- identify life aspirations and workplace issues based on research and worker feedback;
- assess worker/community needs;
- develop and implement programs to address these issues and worker aspirations and needs;
- provide regular reports and updates to the public demonstrating results by company and country.[476]
Phil Knight, Nike's CEO, made the following comment when The Global Alliance was launched:
We believe this initiative takes the right approach - it builds directly on input from workers themselves; it complements our existing independent monitoring activities; and it creates an excellent platform through which Nike can make significant investments to improve the quality of life for its young adult workers throughout the world.[477]
Regarding factory monitoring, the IYF/Global Alliance is being asked to help "build an improved ability to assess factory environments among local non-government organizations."[478] The IYF/Global Alliance however emphasises that it is not a factory monitoring agency, that it will not be monitoring factory conditions, and that its focus will be on assessing the needs of workers.[479] Nike says the monitoring will involve international accounting company PriceWaterhouseCoopers:
Since 1994, Nike has required independent external third-party monitoring of our factories by international accounting organizations such as Ernst & Young (until 1998) and PriceWaterhouseCoopers. The Apparel industry Partnership and outside observers agree that this form of external monitoring, when coupled with NGOs, is an effective method to ensure compliance with Nike's code of conduct.[480]
Nike has signed on to the Apparel Industry Partnership's Fair Labor Association agreement (see section 3.4), so its factories will be subjected to an external monitoring process.
Human rights advocates will be closely scrutinising the various procedures for monitoring Nike's factories, to see how they work in practice. They are watching to see which local NGOs will be involved in the monitoring process, how they will be involved, and whether the fact-finding process is carried out with sufficient independence, expertise and thoroughness.
In early 1999 Nike became embroiled in controversy again. It was discovered that Joseph Ha, Nike Vice President and Special Assistant to Nike CEO Philip Knight, made the following remarkable statement in an 11 January letter to Cu Thi Hau, President of the state-run Vietnam General Confederation of Labour:
It was obvious that a few U.S. human rights groups, as well as a Vietnamese refugee who is engaged in human rights activities, are not friends of Vietnam. Their ultimate goal is political rather than economic. They target Nike because Nike is a high profile company and a major creator of jobs in Vietnam. Nevertheless, this is the first step for their political goal which is to create a so-called "democratic" society, modeled after the U.S. No nation needs to copy any other nation. Each nation has its own internal political system. Nike firmly believes in this.[481]
A senior executive at Nike was denouncing human rights groups just after the international community had called for an end to attacks on human rights defenders. In December 1998 Amnesty International joined other human rights organisations and human rights defenders from over 100 countries (including Wei Jingsheng and Nobel laureates José Ramos Horta and the Dalai Lama) in Paris for the first-ever world summit of human rights defenders. Amnesty International's Secretary General Pierre Sané said: "I think all those who contributed to the conception of the UDHR [Universal Declaration of Human Rights] in 1948 would be horrified to listen to the personal testimonies from these brave individuals gathered here who have been persecuted by their governments merely for peacefully trying to defend the rights set out in that historic document." He said that human rights defenders were "ordinary people around the world who have shown extraordinary courage by taking it upon themselves to defend the rights of others."[482]
Also in December 1998 the U.N. General Assembly adopted an historic declaration recognising the important role played by human rights defenders. That declaration states that everyone has the right, individually and in association with others, to gather information on human rights and to disseminate that information.[483]
The letter from Nike's Joseph Ha apparently was intended to be kept private, but became public when the Vietnam General Confederation of Labour published it in its official newsletter. Following its publication (and subsequent reporting about the letter in the news media including via BBC radio to Vietnam), Thuyen Nguyen, the Vietnamese-American who heads Vietnam Labor Watch, found that his sources about labour conditions inside Vietnam dried up. Thuyen Nguyen explains:
With this accusation, Nike has taken the protest into the political arena. And politics is not something most Vietnamese want to get involved [in] because politics is too hard to predict and sometimes can be detrimental to one's life and livelihood. As long as we can keep this on the labor issue, we can find people who are willing to help us monitor these factories. People who have been helping us have been doing it out of their desire to improve the factories. But by equating monitoring Nike factories with being political extremists, Nike has made [it] dangerous for these people.[484]
Human rights organisations that sit with Nike on the White House Apparel Industry Partnership (the Lawyers Committee for Human Rights, the National Consumers League, the Robert F. Kennedy Memorial Center for Human Rights, and the International Labor Rights Fund) expressed serious concern about the "anti-democratic and authoritarian values" reflected in Joseph Ha's letter. These organisations called on Nike to take the following corrective steps:
The only way that Nike can recover its integrity in this matter is to reverse publicly, in Vietnam, its position and make clear to the Vietnamese government and the Vietnam General Confederation of Labor that Nike values the work of human rights monitors in general and that, in particular, it recognizes and respects the positive work of the Vietnam Labor Watch organization headed by Mr. Thuyen Nguyen. For this step to carry sufficient weight, it is necessary for Nike to encourage Mr. Thuyen Nguyen publicly to continue his important advocacy work in Vietnam, and to accompany him in meetings with Vietnamese officials to correct the wrong done to him by the letter from Joseph Ha. It is also important that Dr. Ha be sanctioned sufficiently by Nike, by demotion, dismissal or transfer, to convey convincingly to a skeptical public that he did not, in fact, speak for Nike, only for himself.[485]
Nike responded by sending a letter to these organisations that said:
Nike's position on this letter is perfectly clear - the views expressed in the letter were Dr. Ha's and Dr. Ha's alone; they do not represent the position of Nike and are inconsistent with what we have been saying and doing as a company. This position has been articulated in news media interviews, and in a published letter to the Financial Times which ran the first account of this matter.
We do not believe that one remark by one executive in a private exchange should be the basis on which our key relationships with the NGO community are predicated.[486]
On 24 February 1999 Nike Vice President of Law & Corporate Affairs Lindsay Stewart sent a letter to Cu Thi Hau (President of the Vietnam Confederation of Labour, recipient of the 11 January letter from Nike's Joseph Ha). Her letter included the following comments:
We would like to make it clear that the views expressed in that letter [from Joseph Ha] were Dr. Ha's and Dr. Ha's alone; they do not represent the position of Nike and are inconsistent with what we have been saying and doing as a company. Because his job responsibilities do not and will not include working with NGOs, we would like to clarify Nike's position….Over the years, Nike has learned a great deal from a variety of NGOs in many different countries. We value our relationships with all of the organizations [with] which we have had dialogue and developed partnerships….We believe NGOs play an important role in the promotion of human and labor rights around the world. While we do not always see eye-to-eye with some of these groups, we have learned from them, respect their views, and recognize their right to exist and to express their views freely. This is the case with Vietnam Labor Watch - a U.S. based organization which we believe, like others, is dedicated to improving working conditions for workers within Vietnam. We will continue to seek dialogue and build relationships with NGOs as we develop our labor and community programs in Vietnam. We have found these partnerships extremely valuable, [they] bring greater efficiency to our work, and positive impact to people in the factories and their communities….A copy of this letter is being sent to the Lao Dong newspaper.[487]
Joseph Ha reportedly remains in his position at Nike.[488] Joseph Ha's letter - a formal business letter apparently on Nike letterhead from a Nike Vice President (reportedly one of only two Special Advisors to Nike CEO Phil Knight) to an official in another country - must surely have been perceived by the Vietnamese recipient as representing the views of Nike.
If as Nike says Joseph Ha's letter did not reflect the company's thinking, it is difficult to understand how a man so senior in the company could have been so out of touch with the company's high profile, highly publicised new approach to human rights. Whether or not Joseph Ha's letter reflected Nike's thinking, the incident is a reminder that when a company commits itself to a human rights policy, that commitment needs to be internalised into its corporate culture. Announcing a new policy is not enough. The practical implications of the new policy must be explained to all management and staff at headquarters and overseas. This requires training of company employees to raise their level of awareness about human rights and to give them guidance on how the principles should be applied in their day-to-day work. The company's human rights policies need to be backed up with a system of reporting and accountability that ensures adherence is strictly enforced.
Whether or not Joseph Ha's letter in fact reflected Nike's thinking, the strong public reaction to its disclosure reflects a long-standing concern that while companies tend to endorse social responsibility in their public statements, sometimes company officials may be sending a very different message in their day-to-day work and private exchanges. This concern is reflected in the public's scepticism when business people say they prefer "quiet diplomacy" as a method for raising human rights issues with governments. Human rights advocates recognise that sometimes it is important for companies and governments to discuss such issues out of the public spotlight. But in the past "quiet diplomacy" has too often been used by companies as an excuse to do nothing at all about human rights and to avoid accountability. An intelligent company, if it wants to, can find ways to make its support for human rights and the rule of law known through both public and private means, without jeopardising its ability to continue operating in a country. Particularly sensitive issues of course may need to be raised with tact and subtlety, or by a group of companies rather than a single one. While fundamental internationally-recognised human rights are universally applicable across all cultures, multinational companies should be culturally sensitive in the time, place and manner of raising human rights issues, and should acknowledge that human rights violations occur in their home country as well. But cultural sensitivity should never be an excuse for inaction, and private discussions should never be a company's only means of addressing human rights concerns. When "quiet diplomacy" is used, the burden is on business people to convince doubters that such private discussions are in fact taking place and that the right issues are being raised.
In October 1999, Nike became the first large apparel company to disclose the names and locations of overseas factories which make athletic gear carrying the names of U.S. universities (see section 3.4 of this report for details).
Business Week magazine reported in November 1999 that Press for Change, the New Jersey-based labour rights advocacy group, had just completed a survey of 2300 workers at five Nike factories in Indonesia employing 45,000 people. In the survey's interviews (conducted by an Indonesian human rights NGO), more than half of the workers reportedly said they had seen colleagues yelled at or mistreated, and a third said they had been compelled to work overtime. Business Week reported that Nike spokesman Vada Manager said the company had not yet seen the survey but would look into the matter.[489]