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BEST PRACTICE

Companies don't become


model citizens ovemight.
Nike's metamorphosis
from the poster child for
irresponsibility to a leader
in progressive practices
reveals the five stages
of organizational growth.

The Path to Corporate


Responsibility
by Simon Zadek

N IKE'S TAGLINE, "JUST DO IT," is an


inspirational call to action for the
millions who wear the company's ath-
than it might have otherwise. Since the
1990s, Nike has traveled a bumpy road
on this front, but it has ended up in a
letic gear. But in terms of corporate re- much better place for its troubles. And
sponsibility, the company hasn't always the lessons it has learned will help other
followed its own advice. In the 1990s, companies traverse this same ground.
protesters railed against sweatshop con- Over the past decade, I have worked
ditions at its overseas suppliers and with many global organizations, includ-
made Nike the global poster child for ing Nike, as they grappled with the com-
corporate ethical fecklessness. Nike's plex challenges of responsible business
every move was scrutinized, and every practices. This experience has shown me
problem discovered was touted as proof that while every organization learns in
of the organization's irresponsibility unique ways, most pass through five dis-
and greed. The rea! story, of course, is cemable stages in how they handle cor-
not so simple. porate responsibility. Moreover, just as
Nike's business model - to market organizations' views of an issue grow
high-end consumer products manufac- and mature, so does society's. Beyond
tured in cost-efficient supply chains - is getting their own houses in order, com-
no different from that ofthousands of panies need to stay abreast ofthe pub-
other companies. But the intense pres- lic's evolving ideas about corporate roles
sure that activists exerted on the ath- and responsibilities. A company's jour-
letic giant forced it to take a long, hard ney through these two dimensions of
look at corporate responsibility faster learning - organizational and societal -

DECEMBER 2004 125


BEST P R A C T I C E T h e Path t o G o r p o r a t e Responsibility

invariably leads it to engage in what I links between the company's practices years was to shift its marketing policies
call "civil leaming."(To map this process and the alleged negative outcomes ("It to make this hazard clear to new mothers
for your organization, see the sidebar wasn't our fault"). Think of Royal Dutch/ rather than, for example, trying to edu-
"The Clvil-Leaming Tool.") Shell's handling of the controversy cate them generally about ways to en-
around carbon emissions. For years, the sure their babies' overall nutrition. The
Organizational Learning company-along with the rest ofthe en- current public debate on obesity high-
Organizations' learning pathways are ergy sector - denied its responsibility lights the same dynamics-food compa-
complex and iterative. Companies can for emissions created by the production nies' instinct is to simply aim for com-
make great strides in one area only to and distribution of its energy products. pliance, while the public clearly wants
take a few steps backward when a new Today, Royal Dutch/Shell acknowledges a far greater commitment from them.
demand is made of them. Nevertheless, some accountability. But unlike some "It's the business, stupid." At the
as they move along the learning curve, of its competitors, the company contin- managerial stage, the company realizes
companies almost invariably go through ues to resist environmentalists' demands that it's facing a long-term problem that
the following five stages. that it accept responsibility for emis- cannot be swatted away with attempts
"It's not our Job tofixthat" In the de- sions from its products after they have at compliance or a public relations strat-
fensive stage, the company is faced with been sold. egy. The company wilt have to give man-
often unexpected criticism, usually from "We'll do just as much as we have agers ofthe core business responsibility
civil activists and the media but some- to." At the compliance stage, it's clear for the problem and its solution. Nike
times from direct stakeholders such as that a corporate policy must be estab- and other leading companies in the ap-
customers, employees, and investors. lished and observed, usually in ways parel and footwear industries increas-
The company's responses are designed that can be made visible to critics ("We ingly understand that compliance with
and implemented by legal and commu- ensure that we don't do what we agreed agreed-upon labor standards in their
nications teams and tend to involve ei- not to do"). Compliance is understood as global supply chains is difficult if not im-
ther outright rejections of allegations a cost of doing business; it creates value possible without changes to how they set
("It didn't happen") or denials of the by protecting the company's reputation procurement incentives, forecast sales,
andreducingtheriskof litigation. Until and manage inventory.
Simon Zadek (simon@accountability.org recently, for example, much ofthe food "It gives us a competitive edge." A
.uk) is the CEO ofAccountAbility, a London- industry has understood "health" as the company at the strategic stage learns
based institute that promotes account- avoidance of legally unacceptable "non- how realigning its strategy to address
ability for sustainable development, and health." When Nestle came under fire responsible business practices can give
a senior fellow at Harvard University's for the health dangers of its infant for- it a leg up on the competition and con-
John F. Kennedy School of Government In mula - activists claimed that mothers tribute to the organization's long-term
Cambridge, Massachusetts. An anthology in developing countries would end up success. Automobile companies know
of his writings on corporate responsibility, mixing the powder with contaminated that their future depends on their abil-
Tomorrow's History, was recently pub- water, thereby compromising their chil- ity to develop environmentally safer
lished by Greenleaf. dren's health - its response for many forms of mobility. Food companies are

126 HARVARD BUSINESS REVIEW


The Path to Corporate Responsibility BEST PRACTICE

struggling to develop a different con- ness' capacities and responsibilities to proach can be adapted and used by any
sciousness about how their products af- address societal problems. Many civil company facing any number of issues.
fect their customers' health. And phar- advocates, for instance, believe phar- (See the exhibit "The Four Stages of
maceutical companies are exploring how maceutical companies should sell life- Issue Maturity.") In the early stages, is-
to integrate health maintenance into saving drugs to the poor at reduced sues tend to be vague and their poten-
their business models alongside their prices; after all, the drug companies can tial significance well below conven-
traditional focus on treating illnesses. afford it more than the patients can. The tional thresholds used by the financial
"we need to make sure everybody pharmaceutical industry has claimed community to determine materiality.
does it" In the final civil stage, compa- over the years that such price limits These issues are often first identified
nies promote collective action to ad- would choke off its research and devel- through a company's interactions with
dress society's concerns. Sometimes this opment efforts. But today, drug compa- nontraditional sources of knowledge,
is linked directly to strategy. For in- nies are exploring how to sustain R&D such as social activists. As one senior
stance, Diageo and other top alcohol while pursuing price reductions in de- business manager explains, when he
companies know that as sure as night veloping countries and how to integrate deals with nongovernmental organiza-
follows day, restrictive legislation will the prevention of illness into their busi- tions,"! see the future of our markets,
come unless they can drive the whole ness models. our products, and this business."
sector toward responsible practices that Danish pharmaceutical company As issues mature, they become ab-
extend well beyond fair marketing. Novo Nordisk has created a practical sorbed into mainstream professional
Among other activities, these compa- tool to track societal learning on some debate and eventually into practice.
nies have been involved in educational of its core business issues-animal test- Once leading companies adopt uncon-
initiatives that promote responsible ing, genetically modified organisms, and ventional commitments and practices
drinking. Likewise, energy companies access to drugs. The drugmaker's ap- around certain societal issues, laggards
understand that their industry has to
grapple with the sometimes unethical
ways in which governments use the
windfall royalties they earn from oil and
The Five Stages of Organizational Learning
gas extraction. So they are supporting
the UK's Extractive Industries Trans- When it comes to developing a sense of corporate responsibility, organizations
parency Initiative, which urges govern- typically go through five stages as they move along the learning curve.
ments to report the aggregate revenues
they derive from resource extraction.
Some organizations look even further ORGANIZATIONS DO WHVTHEVDOIT
ahead and think about metastrategy: DEFENSIVE Deny practices, To defend against attacks to their
the future role of business in society and outcomes, or reputation that in the short
the stability and openness of global so- responsibilities term could affect sales, recruitment,
productivity.and the brand
ciety itself
COMPLIANCE Adopt a policy-based To mitigate the erosion of economic
Societal Learning compliance approach value in the medium term because
A generation ago, most people didn't asacost of doing of ongoing reputation and litigation
business risks
think tobacco was a dangerous health
threat. Just a few years ago, obesity was MANAGERIAL Embed the societal To mitigate the erosion of economic
seen as a combination of genetics and issue in their core value in the medium term and
unhealthy lifestyle choices-certainly not management to achieve longer-term gains by
the responsibility of food companies. processes integrating responsible business
practices into their daily operations
Today, ageism is rarely seen as a corpo-
rate responsibility issue beyond compli- STRATEGIC Integrate the societal To enhance economic value
ance with the law-but in an era of dra- issue into their core In the long term and to gain first-
matic demographic shifts, it soon will be. business strategies mover advantage by aligning
The trick, then, is for companies to be strategy and process innovations
with the societal issue
able to predict and credibly respond to
society's changing awareness of partic- crviL Promote broad To enhance long-term economic
ular issues. The task is daunting, given industry participation value by overcoming any first-
the complexity of the issues as well as in corporate mover disadvantages and to realize
stakeholders' volatile and sometimes responsibility gains through collective action
underinformed expectations about busi-

DECEMBER 2004 127


BEST P R A C T I C E The Path to Corporate Responsibility

must either follow suit or risk the con- of these actions played a big part in From Denial to Compliance. Nike's
sequences, m 1991. when Levi Strauss dragging the rest of the players in the business model is based exclusively on
publicly launched its "terms of engage- industry toward common approaches to global outsourcing. Simply put, the com-
ment"- which defined the labor stan- responsible btisiness practices. pany has rarely produced a shoe or a
dards for Levi's business partners and T-shirt outside of its design studio. By
was one of the world's first corporate- How Nike Just Did It the time the company was singled out in
conduct policies-every other company Nike's story illuminates better than a 1992 Harper's Magazine article for the
in its industry looked the other way, most the tensions inherent in manag- appalling working conditions in some
arguing that labor standards in other ing corporate performance and societal of its suppliers' factories, almost all of
people's factories weren't their respon- expectations. In the 1990s, the company its competitors were using a similar
sibility. When the Body Shop adopted was blindsided when activists launched sourcing model. Labor activists in the
human rights policies in the mid-1990s, an all-out campaign against it because early 1990s were exerting enormous
most mainstream companies deemed of worker conditions in its supply chain. pressure on premium-brand companies
its practices unfeasible. And when BP There's no doubt that Nike managed to to adopt codes of conduct in their global
CEO Sir John Browne acknowledged in make some extraordinary errors. But it supply chains. These groups targeted
his infamous Stanford Business School also learned some important lessons. Nike because of its high-profile brand,
speech that BP had a co-responsibility to Today, the company is participating in, not because its business practices were
address the challenges associated with facilitating, convening, and financing any worse than its competitors'.
global warming, he was taking a leader- initiativesto improve worker conditions The company's first reaction was de-
ship role and betting that others would in global supply chains and promote fensive. "We said, 'Wait a minute; we've
have to follow-as indeed they did. Each corporate responsibility more generally. got the best corporate values in the
world, so why aren't you yelling at the
other folks?'" one of Nike's senior man-
The Four Stages of Issue Maturity agers recalls."That was a stupid thing to
do. It didn't get us anywhere. If any-
Pharmaceutical company Novo Nordisk created a scale to measure the maturity thing, it raised the volume higher."The
of societal issues and the public's expectations around the issues. An adaptation of company realized it couldn't just shut
the scale appears below and can be used by any company facing any number out the noise. It eventually responded to
of societal issues.
activists' demands for labor codes and,
after further pressure, agreed to exter-
nal audits to verify whether these codes
were being enforced.
LATENT Activist communities and NGOs are aware ofthe Nike hired high-profile firms or indi-

L
societal issue. viduals to conduct the audits, which
There is weak scientific or other hard evidence.
were initially one-off events. But these
The issue is largely ignored or dismissed by the
business community, companies and individuals had little
n n actual auditing experience or credibil-
EMERGING There is political and media awareness ofthe ity in labor circles, and the approach
societal issue. backfired. Statements such as former
There is an emerging body of research, but data are UN Ambassador Andrew Young's casual
still weak.
conclusions that all was well in Nike's
Leading businesses experiment with approaches
supply chains were publicly challenged
to dealing with the issue.
and subsequently proved to be flawed
CONSOLIDATING There is an emerging body of business practices or overly simplistic. Consequently, many
around the societal issue. labor activists believed Nike's early,
Sectorwide and issue-based voluntary initiatives failed attempts at building credibility
are established. were proof of insincerity.
There is litigation and an increasing view ofthe need Companies frequently resist accept-
for legislation.
ing new responsibilities because they
' Voluntary standards are developed, and collective
see how risk-taking organizations are
action occurs.
criticized for their efforts to do just that.
Legislation or business norms are established. But the pressure on Nike was so intense
The embedded practices become a normal part of that it couldn't afford to wait until the
a business-excellence model. whole sector advanced. Labor activists'
demands for action were cascading into

128 HARVARD BUSINESS REVIEW


The Path to Corporate Responsibility BEST PRACTICE

Nike's core and highly profitable youth


markets in North America and Europe. The Civil-Learning Tool
So in 1996, Nike "went professional" in
creating itsfirstdepartment specifically The civil-learning tool Is intended to are still in defensive mode. Cases in
responsible for managing its supply help companies see where they and point: BP's aggressive stance on pub-
chain partners* compliance with labor their competitors fall on a particular lishing the amount of royalties it pays
standards. And in 1998, Nike established societal issue. It can help organizations to host governments; Rio Tinto's adop-
a Corporate Responsibility department, figure out how to develop and position tion of a human rights policy when
acknowledging that acting responsibly their future business strategies in ways most companies would not go near the
was far more than just reaching com- that society will embrace. idea; and Levi Strauss's groundbreaking
pliance; it was an aspect ofthe business The tool factors in the two different "terms of engagement," which set out
that had to be managed like any other. types of learning, organizational and the company's responsibilities to work-
Managing Responsibility. By the societal. When an issue is just starting ers In its global supply chains.
turn ofthe millennium, Nike's labor- to evolve, companies can get away with Additionally, events in one industry
compliance team was more than 80 defensive actions and deflections of can affect companies in a different in-
strong. The company had also hired responsibility. But the more mature an dustry or organizations in the same in-
costly external professionals to audit its issue becomes, the further up the learn- dustry that are facing different issues,
roughly 900 suppliers. Even so,new rev- ing curve an organization must be to For example, the heated public debate
elations about Nike's failure to adhere avoid risk and to take advantage of op- about the pricing of drugs in poorer
to its own labor codes constantly came portunities. communities has created a broader de-
to light. Many outsiders took this as As the tool makes clear, there is a bate about the fundamentals of intellec-
proof that the company still lacked any point where the risky red zone turns tual property rights and the merits of
real commitment to address labor stan- into the higher-opportunitygreen zone. a preventive approach to health at a
dards. Those inside Nike's walls were The question for most companies is, time when the pharmaceutical indus-
incredibly frustrated by their failure "Whereisthat line for my organiza- try makes its money from treating ill-
to move past this ongoing crisis. After tion?" The answer depends on a host of nesses. Similarly, the emergence of obe-
a particularly painful documentary on factors, and a company's actions can ac- sity as an issue for the food industry has
Nike aired in the United Kingdom, the tually shift the line in its favor. A com- been accelerated by both rising health
CEO assembled a team of senior man- pany might step way out in front of an care costs and the devastating impact
agers and outsiders led by Nike's vice immature issue while most of its rivals of litigation on the tobacco industry.
president for corporate responsibility,
Maria Eitel.The team was instructed to
leave no stone unturned in figuring out
how to get beyond the company's con-
tinued failure to effectively comply with
its own labor codes.
I Higher-Opportunity
Green Zone

The team's review didn't focus on


the behaviors of factory managers and
MANAGERIAL
workers, as many previous studies did;
the group considered issues at the fac-
tory level symptoms of a larger systemic
COMPLIANCE
problem. Instead of looking down the
supply chain, the team studied the up-
Risky Red Zone
stream drivers. After six months, it con-
DEFENSIVE
cluded that the root ofthe problem was
CONSOLIDATING INSTITUTIONALIZED
not so much the quality of the com-
pany's programs to improve worker con- Issue Maturity
ditions as Nike's (and the industry's) ap-
proach to doing business. conduct; it had the unintended effect of instance, the company's tight inventory
Like its competitors, Nike offered per- actively encouraging its buyers to cir- management often led to shortages
formance incentives to its procurement cumvent code compliance to hit targets when forecasting errors were made.
teams based on price, quality, and deliv- and secure bonuses. And there were That created urgent short-term needs
ery times. This standard industry prac- other tensions between Nike's short- for more goods to satisfy market de-
tice undermined Nike's many positive term financial goals and its longer term mand, which drove procurement teams
efforts to comply with its own codes of strategic need to protect the brand. For to take what they could get. Often, this

DECEMBER 2004 129


BEST P R A C T I C E The Path to Corporate Responsibility

would force suppliers to cut comers to nies working to get the labor piece right. cepted labor standards underpinned by
push the envelope on delivery times, Several muitistakeholder initiatives were UN conventions.
which would drive up overtime in the launched that focused on the develop- Responsible Business Strategies.
factories - exactly what Nike's labor ment of credible and technically robust Nike's underlying business strategy
code was trying to prevent. To cap it all, approaches to compliance. Most well- wasn't static as it moved up the corpo-
when something went wrong and Nike's known in the United States are the Fair rate responsibility learning curve. The
reputation took a hit, the procurement, Labor Association (FLA), which was ini- prevailing trade agreement in the ap-
marketing, and inventory management tially established with support from the parel industry, the Multifiber Arrange-
teams weren't the ones that suffered Clinton administration as the Apparel ment (MFA), was nearing its end. The
financially. The brand shouldered the Industry Partnership, and the SA8000 MFA had established country-based gar-
burden, and the legal and other costs standard, which evolved with help from ment import quotas to the all-important
were charged to the corporate center, parties outside the United States. The U.S. market. The growth of Nike's ap-
not to those whose behavior had caused multistakeholder Ethical Trading Ini- parel supply chains during the 1990s
the problem in the first place. tiative (ETI) emerged from the United was partly driven by cost grazing-the
Nike realized that it had to manage Kingdom. Each initiative has distinct ongoing search for lower prices. But the
corporate responsibility as a core part of characteristics, involves diverse com- MFA had reinforced that need to graze
the business. Technically, it was rela- panies, and associates with different because companies had to search the
tively easy to reengineer procurement NGOs, labor organizations, and public world for spare quota. The MFA also in-
incentives. The review team proposed bodies. But all have broadly responded hibited businesses like Nike from mak-
that Nike grade all factories according to the same need to develop, monitor, ing longer-term procurement commit-
to their labor conditions and then tax or and comply with now commonly ac- ments to their suppliers and thwarted
reward procurement teams based on
the grade ofthe supplier they used. But
commercially and culturally, it wasn't
so simple. Nike's entrepreneurial cul- Being Good Doesn't Always Pay
ture extended from brand management
to procurement. Any challenge to that There is no universal business case for being good, despite what we might
spirit was considered by many as an af- wish. Civil regulation, attacks by NCOs to damage corporate reputations,
front to a business model that had de- and the like rarely cause measurable, long-term damage to a fundamentally
livered almost continual financial suc- strong business. In the short term, which is what most investors focus on,
cess for three decades. variations in financial performance are usually attributable to business fun-
Nike's resistance to shifting its pro- damentals such as design,cost of sales, and market forecasting.
curement methods cannot be dismissed Nike has been highly profitable the past three decades-a period in which
as some irrational distaste for change. it was also subjected to continuous and vociferous opposition to its busi-
It knew that constraining its procure- ness practices. Consider the global media coverageof the company's alleged
ment teams would involve real costs malpractices and the widespread anti-Nike protests at North American uni-
and commercial risks. And the hard re- versities (a core market segment for Nike), Yet institutional investors have
ality was that Nike's efforts to secure shown a startling disinterest in Nike's handling of its labor standards.
adequate worker conditions delivered The high-profile,two-year case of activist Marc Kasky versus Nike brought
little to the financial bottom line in the the company before the California and federal supreme courts for allegedly
short term-which was the sole focus for misrepresenting the state of labor standards in its supplier factories. Even
the bulk of the company's mainstream now, after an out-of-court settlement, the case raises the specter of further
investors. (For more on the business im-
legal action against Nike and others based on similar claims of commercial
plications of doing good, see the side-
misstatements. Yet the case has barely raised an eyebrow from the main-
bar "Being Good Doesn't Always Pay.")
stream investment community. Coping with such challenges, it seems, is sim-
Nike's challenge was to adjust its busi-
ply an acceptable overhead cost of doing business.
ness model to embrace responsible prac-
tices - effectively building tomorrow's That's not to say, however, that responsible business practices cannot pay.
business success without compromising As with any business opportunity, the chances to make money by being good
today's bottom line. And to do this, it must be created, not found. Reinventing one's business isn't easy. And doing
had to offset any first-mover disadvan- so in socially responsible ways involves a major shift in managerial mind-
tage by getting both its competitors and s e t - f r o m a risk-based, reputationai view of corporate responsibility to one
suppliers involved. focused on product and process innovations that will help to realign the
It has turned out to be a long and business and the market according to shifting societal concerns.
rocky path for Nike and other compa-

130 HARVARD BUSINESS REVIEW


The Path to Corporate Responsibitity BEST P R A C T I C E

the stable conditions needed to advance In terms of worker conditions, the company reaches the limits of organic
opportunities for brands to invest in move toward lean manufacturing could growth in some of its core markets. Now
technological and managerial progress. reduce the total number of people em- that it has entered the world of value-
The MFA's expiration on January l, ployed, especially if fewer, more stable channel economics, Nike must concern
2005, will accelerate the consolidation supply chains lead to advanced produc- itself with high product volumes and
of supply chains. With disperse supplier tion technologies. But the shift could low margins while also maintaining its
relationships and no quotas to destabi- also improve conditions for the remain- commitment to its labor codes.
lize, experts argue, the scene is set for ing workers over time. Because lean Although it is a king-size operator in
changes in the apparel industry that will manufacturing requires employees to the market for premium goods, Nike
be as significant as the advent of glob- leam new skills, it would put upward has far less leverage in the market for
alized supply chains themselves, which pressure on wages and improve man- value items, in which it must deal with
was a major factor in Nike's original agement's behavior toward workers. retailers like notorious cost-squeezer
success. Clearly, Nike and its competitors will Wai-Mart. Furthermore, value custom-
It's not just that there will be fewer soon have new opportunities to create ers focus on price and are generally less
and larger suppliers. Intensified compe- value and new ways to align those op- responsive to ethical propositions-par-
tition is pushing apparel makers to portunities with responsible business ticularly those involving faraway prob-
shorten the time between design and practices. The challenge is to manage lems like worker conditions in Asia or
market even as they continue to cut the transition to a post-MFA world in a Latin America. Nike's public position
costs. The industry will probably move responsible fashion. on these issues is clear: It is committed
to some form of lean manufacturing- Nike's 2004 acquisition ofthe athletic to maintaining its labor compliance
shifting away from traditional top-down apparel and footwear brand Starter also standards in all product lines and in all
managerial styles toward greater worker affects Nike's strategy in terms of cor- supply chains. But the business model
self-management that delivers more porate responsibility. Starter is sold at underlying value-channel economics re-
flexibility and productivity. Some esti- large retailers such as Wal-Mart, Kmart, quires that Nike find new ways to keep
mates suggest possible manufacturer and Target, and the acquisition is a key its social commitments. Part of N ike's
cost savings of up to 25%. element of Nike's growth strategy as the response to this challenge has been to

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BEST PRACTICE The Path to Corporate Responsibility

argue for regulated international labor In early 2004, Nike convened high- tiatives such as the ETI, the FLA, and
standards, which would offset any pos- profile piayers from the international the Global Compact - to explore how
sible competitive disadvantage that labor, development, human rights, and such an alliance could help to address
Nike would incur if it had to go it alone. environmental movements at its Bea- the challenges of a post-MFA world.
Collective responsibility simply makes verton, Oregon, headquarters. Their This alliance might be well placed to ad-
sense. After the acquisition of Starter, willingness to attend was itself a testa- vise governments and agencies like the
Nike sent out letters to stakeholders ex- ment to how far Nike had progressed - World Bank on ways to develop public
plaining its approach: "Whatever the from a target of attack to a convener of programs to assist workers in the tran-
channel where Nike products are sold, erstwhile critics. Even more notable was sition; establish a framework to guide
we have a growing conviction that it is the fact that the topics discussed weren't companies in their realignment oftheir
essential to work with others to move specific to Nike's operations. The con- supply chains; or lobby for changes to
toward the adoption of a common ap- versations focused on the potential neg- trade policies that would confer bene-
proach to labor compliance codes, mon- ative fallout from the MFA's demise. fits to factories and countries that took
itoring, and reporting to help ensure The end ofthe agreement raises the labor issues into greater account.
broader accountability across the whole challenge of how to assist countries with Nike is, of course, a business, and as
industry. This will take time, but through garment industries that may be sud- such is accountable to its shareholders.
these efforts and with the active partic- denly rendered far less competitive in But the company has taken significant
ipation of all the major players, we be- international markets. For example, a steps in evolving a strategy and practice
lieve we can further contribute to the significant portion ofthe export-oriented that shifts it from being an object of
evolution of supply chain practices, in- garment industry in Bangladesh is at civil activism to a key participant in civil
cluding in the value channel." Nike recog- risk. Today, that sector employs upward society initiatives and processes.
nized that its long-term success required of two million people and accounts for
it to expand its focus from its own prac- 75% of the country's foreign-exchange In dealing with the challenges of corpo-
tices to those ofthe entire sector. earnings. Similar data for countries in rate responsibility, Nike has come to
Toward Civil Action. Nike has been Latin America, Africa, and Asia high- view the issue as integral to the realities
involved in various initiatives designed light the potentially disastrous social of globalization -and a major source of
to bridge corporate responsibility and and economic fallout if the transition learning, relevant to its core business
public policy, starting with the FLA in to a post-MFA world is botched. strategy and practices. That learning
1998. In July 2000, CEO Phil Knight at- The MFA is ending partly because of prompted the company to adopt codes
tended the launch ofthe Global Com- the lobbying by NGOs and governments of labor conduct, forge alliances with
pact, UN Secretary-General Kofi Annan's of key exporting countries; they argued iabor and civil society organizations,
multistakeholder initiative designed to that the agreement was a barrier to develop nonfinancial metrics for com-
encourage responsible business prac- trade for developing countries. Even pliance that are linked to the company's
tices. Knight was one of the 50 or so though companies will be downsizing, management and its broader gover-
chief executives of companies, NGOs, relocating, and consolidating in re- nance, and engage in the international
and labor organizations from around sponse to the MFA's demise, the busi- debate about the role of business in so-
the world who were at the event He ness community was not a significant ciety and in public policy.
was the only CEO of a U.S. company in player in this trade change and, in fair- As Nike's experience shows, the often
attendance; since then, many more U.S. ness, cannot be held responsible. How- talked-up business benefits of corporate
organizations have associated them- ever, the public is already focusing on responsibility are, at best, hard-won and
selves with the initiative. At the launch. which companies are laying off work- frequently, in the short term, ephem-
Knight announced Nike's "support of ers and with what effects. Nike is one eral or nonexistent. When accusations
mandatory global standards for social of a few companies that believe, regard- arise, it's easy for companies to focus
auditing," asserting that "every company less of how this situation arose, they on the low-hanging fruit-employee mo-
should have to report on their perfor- must be part of the solution if they rale, for instance, or the immediate need
mance" against these standards. His pro- don't want to be seen as part of the to defend the brand. But making busi-
posal meant that Nike's suppliers and problem. ness logic out of a deeper sense of cor-
competitors would have to share the fi- So Nike has joined a group of organi- porate responsibility requires coura-
nancial burden of securing a regulated zations - including companies such as geous leadership - in particular, civil
level of worker conditions in global sup- U.S. retailer the Gap and UK retailer leadership-insightful learning, and a
piy chains. When the social performance Asda; NGOs such as Oxfam Interna- grounded process for organizational
records of all the companies were made tional and AccountAbility; labor orga- innovation. ^
public. Knight believed, Nike would be nizations such as the International Tex-
revealed as a leader, which would help tile, Garment, and Leather Workers Reprint RO412)
protect the brand. Federation; and multistakeholder ini- To order, see page 151.

132 HARVARD BUSINESS REVIEW


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