Epgp (one year) 2009-10_be_group assignment_group 4_30nov09

Business Ethics

Group Assignment

EPGP 2009-10 - Term II- Group Submission
30-Nov-2009

Instructor: Prof. Lalitha Sreenath
Prof. M.R. Sreenath

Submitted by:
Abhishek Pangaria - #1
Altaf Hussain Siddiqui - #4
Rajendra Inani - #27
Shikhar Mohan - #34
Tarandeep Singh - #37
Vaibhav Samant - #38

Table of Contents

1 Evaluate critically Nike’s Memorandum of Understanding and Reebok’s Human rights Production
Standards. Do they differ in any important aspects? Which do you favour and why?..........................3
1.1 Introduction.................................................................................................................................3
1.2 A comparative analysis of Nike’s and Reeboks codes vis-à-vis a) The industry, b) Each other
including points of similarities and dissimilarities..............................................................................5
2 What do you think of Phil Knight’s explanation that Nike isn’t “gouging” by pointing to operating
profits that are in line with industry average? By what criterion would you determine “gouging” or
exploitation?........................................................................................................................................11
3 Does shifting production among countries, such as from South Korea to Indonesia, raise any
human rights concerns? ......................................................................................................................13
3.1 Trends and reasons – Koreans from Producing To Managing ...................................................13
3.2 Ramification and repercussion...................................................................................................14
3.3 Exploitation and human right violation......................................................................................15
3.4 Workers Revolt..........................................................................................................................16
3.5 Corrective actions......................................................................................................................16
4 What responsibilities does a multinational corporation have regarding labor standards and
environmental standards in foreign countries? ..................................................................................18
4.1 Human Rights ............................................................................................................................18
4.2 Labour Standards.......................................................................................................................19
4.3 Environment .............................................................................................................................20
4.4 Global laws and bodies..............................................................................................................21
5 References........................................................................................................................................23

Business Ethics – Group Assignment Page |2

1 Evaluate critically Nike’s Memorandum of Understanding and
Reebok’s Human rights Production Standards. Do they differ in any
important aspects? Which do you favour and why?

1.1 Introduction

Nike, one of the world’s biggest footwear companies was established in 1968 by a Stanford
University graduate, Phil Knight. In 1988, Nike with a turnover of more than $5 billion and net
profits in excess of $450 million, overtook Reebok as the undisputable world’s No.1 footwear
company. Both the companies adopted similar strategies consisting of a considerable use of
international subcontracting and the promotion of their products by major names in sport.

These strategies paid dividends and both the companies generated huge profits to the
promoters. Perhaps due to jealousy on account of their swift success, Nike and Reebok
were subjected to numerous attacks by the media on their rampant use of subcontracting.
The companies were accused of amassing vast fortunes by paying paltry wages to people
who manufactured their shoes in developing countries. Sports figures who promote these
two brands are paid very high contracts. Comparison between manufacturing cost of a pair
of sneakers (especially the labor component) and the retail price represents very high
margin. However the most significant damage to the public image of both companies were
surveys carried out by some journalists and trade unionists which revealed that
subcontractors of both the companies do not respect even the basic rights of their workers.
Disturbed by the negative publicity, both companies began emphasizing their ethical work
practices and establishing model labor codes. Reebok set up model factories which respect
very strict conditions, in particular as regards child labor. It also established a Reebok prize
which is awarded each year to individuals or associations working for the promotion of
human rights.

In the 1990s, a wave of voluntary corporate codes appeared; triggered by attention for
developments which posed great legitimacy problems to firms, such as tacit support for
oppressive regimes, international environmental damage or outsourcing to countries with
inferior labor conditions. Well-known examples are the problems associated with investing in
Burma, human rights in Nigeria, oil spills in Alaska, the Brent Spar affair in the North Sea
and sweatshops in Asia. As a response, an increasing number of companies started to draw
up codes to voluntarily commit themselves to specific norms and values. These codes have


been developed either individually or under the co-ordination of business sup-port groups,
such as the International Chamber of Commerce.

Industry initiatives and continued focus of international organizations, governments and
social interest groups, resulted in a veritable cascade of codes. A well-known example of this
particular collaboration has been the sporting goods industry. Throughout the 1990s, the
industry initiated a wave of codes drawn up by different stakeholders. In addition to three
Business Support Groups (BSGs), three Social Interest Groups (SIGs) and three
International Organizations (IOs), four leading companies in the sector developed their own
codes of conduct.

In 1992, Nike adopted a Code of Conduct & Memorandum of Under-standing. It was one of
the earliest adopters of a code of conduct on labor rights with its suppliers (CEP, 1998).
Since then, the company there has been revisions to the code on two occasions.

1) To incorporate the 1997 standards developed by the Apparel Industry Partnership,
2) To take into account Nike’s new labor initiatives.

Similarly in the same year, Reebok set out Human Rights Production Standards. Reebok
had always supported human rights causes, witnessing the company's opposition to
Apartheid in 1986, sponsorship of Amnesty International's concert tour and the creation of
the Reebok Human Rights Award, both in 1988.

The most important role in developing the codes for the sporting goods industry have been
three international organizations viz. International Labor Organization (ILO), World
Federation of the Sporting Goods Industry (WFSGI) and Federation Internationale de
Football Associations (FIFA). ILO code was framed in 1970s and is still used as one of the
most important reference codes. WFSGI, which represents the interests of the sports
industry world-wide, formed a Committee on Ethics and Fair Trade in 1995, which monitors
the Pakistan Soccer Ball/ Child Labor Initiative aimed at the elimination of child labor.
WFSGI formulated a model code aimed to ensure that members satisfy the highest ethical
standards in the manufacturing operations. FIFA exerts direct influence over its licensees/
companies by its ability to issue and withdraw licenses to produce its goods. FIFA adopted a
Code of Labor Practice in 1996.

The sporting goods industry has a clear consumer focus, in which company and brand
image, including the issue of negative customer response play an important role. For Nike


and Reebok, both known for their significant marketing and advertisements budgets and
large-scale publicity campaigns with famous independent and free-spirited athletes, the
contrast with the child labor employed in the production of their products can be severally
damaging to their image.

There were two additional aspects that reinforced Nike's and Reebok's commitment to
implement the codes. Firstly, almost all Nike and Reebok footwear is produced outside the
US by subcontractors in the Asia-Pacific region. Only specialized and technical components
of a strategic nature are manufactured in the US. For both companies, approximately one
third of footwear is produced in China and another one third in Indonesia. The code of
conduct also functions as an additional set of control mechanisms on the sub-contractors.

A second important aspect is importance of the issue in the mind of the consumers of the
US, the biggest market for both companies. The US government has been the only home
governments that has shown concern for labor practices in the sporting goods industry and
as Nike and Reebok have been singled out as industry leaders they have become the
targets of Special Interest Group campaigns, both internationally and in the US.

As of now both Nike and Reebok have made public the information about the way in which
the codes are put into practice. Nike gives details about its approach to enforcement, the
penalty system in case of non-compliance, inspections, in-dependent monitoring programs
and the development of a labor practices department. Reebok discloses information on
audits, its quarterly monitoring project and the formation of task forces. In addition, several
SIGs scrutinize both companies on implementation, monitoring and evaluation.

1.2 A comparative analysis of Nike’s and Reeboks codes vis-à-vis a) The
industry, b) Each other including points of similarities and dissimilarities.

The basic principles defining the ethical strategy of these two enterprises are set forth below.
The Reebok code can be divided into three distinct parts.
The first part (A) concerns the basic commitment of Reebok to the respect of human rights
and its determination to work with business partners who share this commitment.

The second part (B) is the central component of the Reebok human rights production
standards, which include all Reebok's requirements of its trade partners. Reebok refers to
four fundamental human rights at work which are covered by ILO core Conventions.

The third part (C) concerns the implementation of the standards. Mention is made at the end
of this table of the Reebok Human Rights Award, even though it is not directly mentioned in


the code and forms a separate document. The Reebok Award can be considered as part of
the implementation of Reebok's social commitment. Despite the criticisms made of the
practices of some of Reebok's suppliers, it is interesting and paradoxical to note that the
Reebok Award enjoys an undeniable prestige and has contributed to the attempts by the
enterprise to improve its social image.

Part A

Keywords A commitment to human rights

Basic principles Reebok attaches considerable importance to the standards of its
business partners as regards human rights. The respect of these
rights is one of Reebok's characteristics

Desired result Improvement of the morale and performance of its employees
and, by extension, increased productivity

Moral/ethical goal Implementation of the principles concerning human rights which
are just, adapted to different cultures and encourage employees
to be proud of their work

Part B

Keywords Human Rights Production Standards

Freedom of association Reebok will seek business partners that share its commitment to
and bargaining the right of employees to establish and join organizations of their
own choosing. Reebok will seek to ensure that no employee is
penalized because of his or her non-violent exercise of this right.
Reebok recognizes and respects the right of all employees to
organize and bargain collectively

Child labour Prohibited. Definition of the term "child":

- less than 14 years of age;

- younger than the age of compulsory education fixed at the
national level;

- in accordance with national legislation defining the term "child"
for persons over the age of 14

Forced labour Prohibited. The term "forced labour" includes work which is
required as a means of political coercion or as punishment for
holding or for peacefully expressing political views

Non-discrimination Reebok will seek business partners that do not discriminate in
hiring and employment practices on grounds of race, colour,
national origin, gender, religion or political or other opinion

Working hours - Maximum: 60 hrs a week on a regular basis

- Preference will be given to business partners who use 48-hour
work weeks


- Overtime: Remuneration according to national legislation and
local practice

Wages/remuneration - In accordance with local regulations

- Local standards (if higher)

Reebok will seek business partners who share its commitment to
the betterment of wage and benefit levels that address the basic
needs of workers and their families

Occupational safety Reebok will seek business partners that strive to assure
and health employees a safe and healthy workplace and that do not expose
workers to hazardous conditions

Part C

Keywords Application of Standards

Selection of trade Reebok will apply this code in the selection of its trade partners
partners

Pressure on trade Reebok will seek compliance with these standards by its trade
partners partners

Coercion Reebok opposes the use of force to suppress any of these
standards and will take account of such action in evaluating
subcontractors

Information Reebok seeks business partners providing full information on the
means of production used

Control Reebok will take measures to monitor the correct application of
the standards, for example through the use of on-site inspection
of production facilities

The Reebok Award The Reebok Human Rights Award for initiatives which have
made a major contribution to the human rights cause


Nike's code of conduct is however subdivided into two sections: one, made up of ethical
guidelines, applies to the enterprise as a whole; the other regulates the obligations of its
trade partners. This is produced as a table below :

Keywords The Nike Code of Memorandum of Understanding.
Conduct Obligations of
subcontractors/suppliers

Basic principles Principles governing Nike expects compliance with the same
the conduct of principles by its trading partners
business:

- trust

- teamwork

- honesty

- mutual respect

Human rights Respect of human
rights

Forced labour Forced labour -- prison or otherwise --
must not be used at any stage of
production

Non- Nike is a company No discrimination in hiring, salary,
discrimination made up of persons of benefits, advancement, termination or
all origins, which retirement on the basis of gender, race,
appreciates individual religion, age, sexual preference or ethnic
diversity and is origin
dedicated to equal
opportunity for each
individual

Safety and In accordance with local regulations
health

Health In accordance with local regulations
insurance, life
insurance and
workers'
compensation

Responsibility of To do what is expected
a global of a leader by
enterprise participating in the
betterment of people's
lives through sport and
fitness

Legal In accordance with local trade legislation
requirements as regards:


-minimum wages

-overtime

-child labour

- leave, public holidays

- mandatory retirement benefits

Compliance with:

- local regulations

- practices established by Nike

Nike may request an independent
monitoring of plants at any time. In the
event of non-compliance with the
Memorandum, Nike may require that the
situation be corrected or it may terminate
its trade relations.

All subcontractors must keep any
documentation which may be necessary
to prove the correct application of the
recommendations contained in the
Memorandum and agree to provide these
documents to Nike for any inspections
required by the company

Environment To minimize impact on
the environment.
Implementation of the
three "Rs" of
environmental action:
Reduce, re-use and re-
cycle

Nike and Reebok both have more or less similar externally oriented code, intended to
monitor the conduct of its business partners. However unlike that of Puma’s code which is
very specific, the code of Nike and Reebok are vague, although one can say that Reebok’s
codes are in slightly more detail than Nike’s. Puma also uses more quantitative standards
and this precise attention to detail gives Puma more authority in effective monitoring. Also,
neither of Nike or Reebok code specifies a time horizon.


Compliance mechanisms are a problem, with both Nike and Reebok codes. None of them
describe a complete monitoring system. They only state that the supplier must retain
relevant documentation and information in case of inspections. Neither of Reebok and Nike
codes refer to sanctions (for the adopting companies or their business partners) or to
financial commitments. The lack of sanctions is rather common for company codes in
general.

Nike’s latest version deals with an additional social and an environmental issue. The number
of quantitative standards increased slightly, the reference to standards from host country
only to home and host both, and a minimum working age has been added. Nike has
repeatedly increased the minimum age. While it was 14 in 1998, it’s most recent code
mentions 18 years for footwear and 16 for apparel, accessories or equipment. With regard to
monitoring, a third party check has been added.

The study of compliance mechanisms in both Nike’s and Reebok’s codes shows that the
way in which the code will be put in practice is not clear. Thus the probability of compliance
by companies and their business partners decreases, thus also lowering codes' credibility.
Neither of the codes details any fixed financial commitment to the cause of monitoring or
enforcing the code.

Comparing the sporting goods codes with other firms shows up an interesting fact. Reebok
and Nike stand out for their degree of quantification, as 61% of the 84 reference codes that
were taken as a sample in a study do not include any quantitative standard (Source ILO).

Also, of the whole set of other reference companies at the time these codes came into
being, one quarter clearly stipulates monitoring systems and processes. The sporting goods
sector is slightly more involved in monitoring than the average company from the reference
group. Only Nike's latest codes mention the possibility of third-party monitoring (by a
designated auditor).

To conclude, Reebok seems to have a larger perspective in its code. Its aims and means
are broader and seems more comprehensive. Vis-à-vis Reebok, Nike completely ignores
areas such as

1. Commitment to human rights

2. Non-discrimination

3. Specific work hours

4. Fair wages

Business Ethics – Group Assignment P a g e | 10

5. Child labour

6. Right to assemble peacefully

Reebok’s code is more proactive and mentions surprise checks and future selection on the
basis of rights. For the many reasons listed above we would thus prefer Reeboks code of
conduct over Nike’s.

2 What do you think of Phil Knight’s explanation that Nike isn’t
“gouging” by pointing to operating profits that are in line with
industry average? By what criterion would you determine “gouging”
or exploitation?

gouge (gouj) n.

1. A chisel with a rounded, troughlike blade.
2. A scooping or digging action, as with such a chisel.
3. A groove or hole scooped with or as if with such a chisel.
4. Informal A large amount, as of money, exacted or extorted.
tr.v. gouged, goug·ing, goug·es
5. To force out the eye of (a person) with one's thumb.

Gouging in the context of this case study is about exploitation, of taking more than what is
rightfully yours, from someone who can ill afford to give it to you. Phil Knight’s explanation as
a senior executive comes as a surprise.

Very clearly gouging is not a function of the quantum of profits. A firm could be making
losses and still be “gouging”, infact gouging more. It could similarly also be making huge
profits and still be gouging.

Similarly, gouging isn’t a function of whether everyone else in the industry is making similar
profits or losses. If firms decide to function in the same ruthless manner, like a pack of
robbers instead of a single robber it doesn’t reduce the crime – that of exploiting. So
comparing Nike’s profits to that of its competitors assumes the others are the paragons of
ethical behavior. Nothing in the reading suggests that this is the case.


It could also be the case that the entire industry is underperforming and resorting to wrong
practices to cut costs. In this case too gouging will still happen, even though profits may not
exist at all and the industry might be heading into a tailspin.

The facts of the cases suggest clearly that Reebok and Nike are ‘gouging’ the workers. That
is infact the entire rationale for the creation of a code that will ensure this does not happen.

Nike’s supernormal profits (Exhibit 2) of 39%, coupled with findings of independent
investigators also corroborates the appeal of social groups that Nike is making profit and the
expense of others.

Further corroborating this view is the fact that Adidas and Puma and Fila, the industry cited
as a reference point by Phil, also infact came out with a similar code of conduct following
Nike’s and Reeboks adoption of these codes. Clearly they were not on the right path either.

For us gouging has nothing to with profits and is simply a function of how a firm makes its
profits.

It extends beyond how an employee treats its employees. It extends to how a company
treats society and the environment - infact any resource that a company utilizes in the act of
production. Gouging is when a company takes more than it should. In the case of workers
that translates to not respecting the rights of employees and making sure they are made to
work the correct number of hours and are adequately compensated for it. Gouging is when a
company does not care for the health of the workers, safety and working environment and is
simply focused on making money. Similarly, gouging an also be the case of Union Carbide in
India – which made huge profits at the cost of the lives and health of thousand so of people
in Bhopal.

We don’t have a problem with a firm making profits, not 40% as in Nike’s case or even 500%
for the sake of argument. What is important is how the firm is making these profits. If the
profit comes by exploiting the poor and helpless workers then its gouging.

Mostly avoiding gouging doesn’t cost a lot. The steps required are extremely small in terms
of financial outlay and do not add much to bottom lines, however even if they do, these steps
must be taken for the sake of making profits in an ethical manner. A firms profits cant be
justified of they come through the exploitation of workers the society and the planet.


3 Does shifting production among countries, such as from South Korea
to Indonesia, raise any human rights concerns?

3.1 Trends and reasons – Koreans from Producing To Managing

The most prevalent trend in shoe manufacturing since the early 1980s has been the shift
of footwear production from Taiwan and South Korea to Indonesia and Thailand, and
above all to China. This has been carried out, primarily on the grounds of cost reduction
alone. Looking more deeply into the reasons, it can be concluded that this change was
predictable. Taiwan and South Korea themselves were chosen because of their, low
costs, at the time, and they expanded through their (Original Equipment Manufacture)
basis. Nike was among the first companies that started outsourcing manufacturing in
Asia, based on a business plan that Phil Knight (Founder of Nike) chartered, on the
premise that all athletic shoes would be manufactured in the economies of East Asia.

Korean and Taiwan labour once considered cheap was no longer attractive thanks to the
exceptional economic growth both these economies had witnessed. The U.S.
Generalized System of Preferences (GSP) is a program designed to promote economic
growth in the developing world by providing preferential duty-free entry for about 4,800
products from 131 designated beneficiary countries and territories. GSP was instituted
on January 1, 1976, by the Trade Act of 1974. South Korea and Taiwan were no longer
under this once these economies started flourishing in late 1980’s. So the other import
incentive for US shoe companies was no longer valid for business in Korea and Taiwan.
Next destination for these companies was south east Asia.

The South East Asian countries were not chosen for their inherent skills, quality levels,
brands or country reputation but solely because of their low cost labour. Nike started
moving out of Korea and Taiwan in 1980’s, when their advantage – low cost –
disappeared; they were vulnerable and lost that large part of their industry that had
nothing competitive to offer. Nike's operations moved to Indonesia (as well as China,
Thailand and Vietnam) from South Korea in the late '80s after rising worker militancy
forced Seoul to permit workers to organize. The Indonesian dictatorship promised low
wages and an environment where strikes are not allowed and trade unions independent
of the regime are forbidden.


What South Korea and Taiwan contractors picked up during their hay days were the
contracts, the confidence of their Western partners, material and machinery, support
industry and so on. So the strategy of South Korea and Taiwan emerged as a two-part
operation. This looked to retain part of the industry that was able, with support from the
Government, to upgrade its product and ‘attack’ the higher quality shoe sector. It also
looked to retain a foothold in the low cost sector by assisting the newly developed shoe
industries in countries such as China, Indonesia, Thailand and more recently Vietnam.
Joint ventures with manufacturers in these countries became widespread as the need for
technical knowledge, design skills, material supplies and contact/liaison with Western
buyers brought about these new alliances.

3.2 Ramification and repercussion

Korean and Taiwanese manufactures started setting up shops in Indonesia and china. In
the Korean owned plants (and in several of the Indonesian owned ones as well) the top
management was Korean. Middle level managers and supervisors were either Korean or
Indonesian. But the production workers are all Indonesian, predominantly young women
in the 16 to 22 age group, usually from other parts of rural Java. These workers were
often inept, unskilled, and malnourished and seldom had problems to understand the
work and carry out operations.

Inability to meet deadlines or to meet quality requirements became a problem and the
use of ‘strong arm’ methods by supervisors from Korea or Taiwan to impose more rigid
discipline on a slack workforce, were often ineffective but common. Exhaustible
production targets and stringent quality standards levied on completely inexperienced
workforce in factories led to desperate measures on the Asian supply side – just to keep
the western contracts. Indonesian government was not mute but also not aggressive as
it was getting the coveted foreign investment and rising exports. It barely increased the
minimum wages slightly, that too was indicative and not mandatory. Overtime for
workers was rampant as those who were not able to finish their quota had to work extra
hours to finish it. The cost of living in Indonesia's rural areas is far below that in urban
areas, where Nike's factories are located. In the cities, Nike's wages are woefully
inadequate. And it is the workers who experience outright malnutrition because of those
wages.

This practice continued because of widespread poverty and unemployment in Indonesia
at those times. It is true that Indonesian workers make more by working in the
shoe factories than they would have, had they remained on their farms. But sacrifice of


human rights was the cost they had to pay working here. The shoes worth $80 for in the
United States are assembled by Indonesian women, working in squalid factories, who
receive approximately twelve cents per pair. Many of the workers in the Indonesian
factories come from the surrounding countryside where they live in poverty. The
conditions they move to are better, but not much. Some of the problems they face are:

• Low wages and long hours

• Industrial accidents

• No workers’ rights – trade unions were illegal in Indonesia.

3.3 Exploitation and human right violation

Indonesian workers knew that if they do complain or protest but they can lose their jobs.
The Korean contractors say they cannot afford to pay the workers more and Nike says
that it is difficult to control what is happening in individual factories. This means that in a
nation where unemployment is high and employees can be easily replaced, workers will
continue to be open to exploitation.

Common abuses include low wages that fail to meet basic costs of living, substandard
and unsafe working and living conditions, long hours of overtime for which employees
are not compensated, and sexual harassment. In addition to these, women are often
forced into indentured servitude. Lured by recruiters who promise wonderful
opportunities in distant lands, young women often pay money in recruitment and contract
"fees", tying themselves to contractual obligations that can last for years. Because their
wages are often paltry sums, the women may receive no wages for years as they
attempt to pay off these debts. If the women try to return home without fulfilling their
contractual obligations, they are often blacklisted, fined, or arrested. Many women are
not paid even without such debt. Sweatshops often fail to pay their employees on time, if
at all. The workers, who are often unaware of their rights, have no choice but to continue
to work because sweatshop managers threaten and punish them for insubordination.

Many of these factories, as well as the women's living quarters, are crowded, filthy, and
rat-infested. They are located behind barbed wire fences that are monitored by armed
guards. Not only are the women not allowed to come and go freely, but they are
forbidden to have visitors. Thus, they are not given the opportunity to air their grievances
to anyone who may be in a position to help them. Additionally, the women are always
under the threat of corporal punishment. The women are verbally abused, spat on, and
beaten.


Companies like Nike and Reebok would often have manufacturers at same locations
fighting for more contracts and competing in terms of cost reduction. The worker in these
factories would invariably suffer due to this. A quarter of factories were found to present
more serious problems which ranged from a lack of basic terms of employment and
excessive hours of work to unauthorized sub-contracting, confirmed physical or sexual
abuse and the existence of conditions which could lead to death or serious injury.
Workers have been found to suffer from sexual and verbal abuse, lack of medical
attention and compulsory overtime. N cases female workers have been found to have
gained jobs through sexual favors. Supervisors would often beat and yell at workers to
make them work faster and refuse to let them go to the toilet. Women and children were
paid below the government minimum wage and forced to do unpaid overtime.

3.4 Workers Revolt

Along with the campaigns of human right's groups, companies like Reebok and Nike
began to see protests from the factory workers themselves. While Indonesia, China, and
Vietnam all have minimum wage laws on the books, Nike contractors had successfully
appealed these wages with the governments of these countries year after year, allowing
them to pay wages well below the minimum rate. Nike contractors further circumvented
wage laws by paying new employees an apprentice rate for several months into an
employee's tenure. In April 1997, more than 10,000 workers from Nike's Indonesian
factories went on strike to protest low and unpaid wages, while 1,300 workers in Vietnam
went on strike hoping for a raise of one cent per hour. The next year, 3,000 Nike workers
in China protested dangerous working conditions and low wages. All of these protests
took place in spite of the fact that these sorts of worker strikes are illegal in these
countries.

3.5 Corrective actions

Human rights and aid groups have for years criticized Nike and Reebok for not doing
enough to tackle poor working conditions in its manufacturing and supply chain,
particularly in developing countries. Nike’s Chairman Phil Knight admitted that the
company had been slow to respond to evidence of poor conditions in the past but said
that the company was actively looking into this.

In 1997, leaders in the apparel and footwear industry, nongovernmental organizations,
and consumer groups met with President Clinton to announce a Workplace Code of
Conduct. It includes prohibitions against child labor, forced labor, harassment and abuse,


and discrimination, and it sets standards for health and safety, freedom of collective
bargaining, fair wages and benefits, and overtime compensation.

As pressure from the public and human rights groups began to mount, Nike made efforts
to improve working conditions for its contracted workers. In 1998, dangerous petroleum-
based chemicals used in most factories were replaced by less harmful alternatives. In
1999, wages in the Indonesian factories were increased to rates higher than minimum
wage. The company also agreed to allow random factory inspections from the Fair Labor
Association, and to set up independent monitoring with both US and international
organizations. Finally, Nike added its own on-staff team of nearly one hundred workers
who are responsible for performing inspections of the company's partner factories.
Inspectors must score the factory on factors ranging from employee safety to humane
working conditions. They then meet with factory managers to address problems that
were found.

In 2002, Nike issued a company Code of Conduct to all its factories, regulating the
conditions and safety requirements that work should be conducted by. The company's
2004 Responsibility Report established further health and labor standards, and
described increased monitoring plans. This 2004 report was considered a major victory
for workers and many human right's groups, because Nike included a full list of its
factories and their addresses throughout the world. This has allowed for independent
monitoring and investigations. While these were perceived as positive efforts on Nike's
part, the human rights campaign against the company have not ended. According to the
Educating for Justice group, between 50 and 100 percent of Nike factories require more
working hours than those permitted by the Code of Conduct. In 25 to 50 percent of
factories, workers are required to work 7 days a week, and in the same percentage of
factories, workers are still paid less than the local minimum wage.

Recently, more companies are beginning to deal more directly with China, India,
Indonesia and Vietnam; training indigenous managers and receiving compliance from
the governments and authorities.


4 What responsibilities does a multinational corporation have regarding
labor standards and environmental standards in foreign countries?

The international corporate social responsibility (CSR) movement has developed in
response to these perceived gaps in the regulatory system of different economies. While
the concerns at the core of the CSR movement are not new, the proposition that
multinationals have responsibilities as ‘good corporate citizens’, independent of the
regulatory framework or economy within which they operate, has been hailed as one of
the great ideas of current times. CSR covers a wide range of concerns, but issues that
are currently at the forefront of most CSR-related campaigns are: workplace,
environmental and consumer safety standards.

Workplace covers responsibility towards foreign workers at developing countries. One
solution to the plight of foreign workers would be for multinationals to regulate
themselves, taking action to protect such workers or to boycott contractors in countries
where human rights violations occur. Multinationals should adopt some sort of self-
regulatory measures. The drive to generate profits and remain competitive with other
companies by utilizing cheap foreign labor should not be too strong to affect the rights of
workers. Multinational companies should respect workers' labor and human rights to the
same extent abroad as they do at home. These companies owe some measure of moral
responsibility towards foreign workers whose rights are being violated.

4.1 Human Rights

Businesses should support and respect the protection of internationally proclaimed
human rights within their sphere of influence; and make sure they are not complicit in
human rights abuses. Human rights are universal and belong to everyone equally.

• Equality: Prohibit any distinction in the enjoyment of human rights on such
grounds as race, color, sex, language, religion, political or other opinion, national
or social origin, property, birth or other status.

• Life and Security: The rights to life, liberty and security, and the right to be free
from slavery servitude, torture or cruel, inhuman or degrading treatment or
punishment further develop the notion of personal dignity and security. The rights
of the individual to a just national legal system should also be taken care.


• Personal Freedom: Rights protecting a person's privacy in matters relating to
family, home, correspondence, reputation and honor and freedom of movement.
Freedom of thought, conscience and religion and freedom of opinion and
expression are set out along with the right of peaceful assembly and association
and the right to take part in unions should be granted.

• Economic, Social and Cultural Freedoms: Touching other aspects of the daily
lives of people, the right to social security and to the economic, social and cultural
right indispensable to human dignity and the free development of each individual's
personality. The right to work, and to equal pay for equal work and to just and
favorable remuneration ensuring for the worker and the worker's family existence
worthy of human dignity (which can be supplemented if necessary by other means
of social protection). Right to form and join trade unions, the right to rest and
leisure, reasonable limitations on working hours and periodic holidays with pay.
The right to a standard of living adequate for health and well being, including food,
clothing, housing, medical care, and to social services and security, if necessary,
are also proclaimed as are the rights to education, and to participate in the cultural
life of the community.

4.2 Labour Standards

Businesses should follow the accepted labor laws in the country they operate.
Multinational companies should ensure that its labor policies are aligned to the country
they operate.

• to promote and realize in good faith the right of workers and employers to freedom
of association and the effective recognition of the right to collective bargaining;

• to work towards the elimination of all forms of forced or compulsory labour;

• the effective abolition of child labour

• The elimination of discrimination in respect of employment and occupation.

In order to establish the need for “leveling the playing field,” it must first be demonstrated
that low labor standards in poor countries negatively impact workers in rich countries.
Proponents of attaching labor standards to trade agreements argue that low labor
standards act through two channels:

I. Goods from low labor standard countries displace products made by workers in
high labor standard countries and hence reduce employment in the latter;


II. Multinational enterprises outsource jobs to countries with lower labor standards
to take advantage of lower labor costs.

If raising labor standards of workers in poor countries will not help protect jobs in the
industrialized countries, we can at least expect that mandated standards will improve
wages and working conditions of workers in poor countries. Many multinational
companies have developed international codes of conduct that can assist in improving
labor standards and working conditions in their affiliates and subcontractors in host
developing countries. While these codes of conduct are essentially voluntary in nature,
and there is no guarantee that they will be effective in all circumstances in developing
countries, they serve an important role insofar as they help to focus attention on the
importance of the root causes of underdevelopment and the types of business practices
that may help developing countries to raise per capita incomes and improve conditions of
work.

4.3 Environment

Environmentalists are much concerned of the weak governmental and legal oversight of
multinational corporations. They observe that as local governments seek to attract
foreign investment, their affiliated environmental protection bureaus dare not take strict
measures to address pollution by multinational corporations. They also believe that since
multinational corporations typically perform better than domestic enterprises
environmentally, the sub-par activities of foreign companies won’t attract the attention of
the country’s top environmental authority. This leaves a void in supervision.

Led by MNCs, the affluent societies of the developed world account for more than 75%
of the world’s energy and resource consumption and create the bulk of the industrial,
toxic, and consumer waste. Environmentalists contend that these multinationals are now
engaging in flight to "pollution havens" by moving dirty operations to countries where
regulatory standards are less stringent. Through flight to pollution havens, companies
can avoid expensive pollution controls, cut costs by recapitalizing old equipment, and
continue to make products that are no longer considered environmentally acceptable in
the more highly regulated markets of the developed world. Over time, it is claimed that
these practices lead to a environmental hazard as poor nations and localities vie for
plants and facilities that seek only to minimize cost and externalize environmental
responsibility.

Multinational companies should support a precautionary approach to environmental
challenges; undertake initiatives to promote greater environmental responsibility; and


encourage the development and diffusion of environmentally friendly technologies.
Multinationals need to take care of the key challenges related to environment.

Key Environmental Challenges

• Loss of biodiversity and long-term damage to ecosystems

• Pollution of the atmosphere and the consequences of climate change

• Damage to aquatic ecosystems

• Land degradation

• The impacts of chemicals use and disposal

• Waste production

• Depletion of non-renewable resource

While adequate environmental standards may not yet exist in many developing
countries, it can be argued that in the not-too-distant future, standards will rise as income
increases and people become more sensitive toward and concerned about
environmental deterioration. This pattern of environmental regulation following GDP
growth has already been observed among newly industrialized nations such as Taiwan,
Korea, and Singapore. In other words, there may be an important future benefit to
adopting a single global standard if the productive life of capital extends beyond the
period of lax or poorly enforced regulation. Finally, there may be fringe benefits
associated with adhering to higher environmental standards. By committing to standards
that exceed those of the host country, the company might benefit from heightened
employee morale and thus productivity. Adopting an internal corporate environmental
standard ahead of legal requirements avoids special interest group pressures and may
result in positive reputation effects for the firm, improving its public image relative to
competitors.

4.4 Global laws and bodies

OECD (Organization for Economic Co-operation and Development) has come out with
guideline for multinational companies. The Guidelines constitute a set of voluntary
recommendations to multinational enterprises in all the major areas of business ethics,
including employment and industrial relations, human rights, environment, information
disclosure, combating bribery, consumer interests, science and technology, competition,


and taxation. Adhering governments have committed to promote them among
multinational enterprises operating in or from their territories.

The UN Global Compact is a strategic policy initiative for businesses that are committed
to aligning their operations and strategies with universally accepted principles in the
areas of human rights, labour, environment and anti-corruption. By doing so, business,
as a primary agent driving globalization, can help ensure that markets, commerce,
technology and finance advance in ways that benefit economies and societies
everywhere.

Never before were the objectives of the international community and the business world
so aligned. Common goals, such as building markets, combating corruption,
safeguarding the environment and ensuring social inclusion, have resulted in
unprecedented partnerships and openness among business, government, civil society,
labour and the United Nations. Many businesses recognize the need to collaborate with
international actors in the current global context where social, political and economic
challenges (and opportunities) – whether occurring at home or in other regions – affect
companies as never before. This ever-increasing understanding is reflected in the growth
of the Global Compact, which today stands as the largest corporate citizenship and
sustainability initiative in the world -- with over 7700 corporate participants and
stakeholders from over 130 countries.

The Global Compact is a leadership platform, endorsed by Chief Executive Officers, and
offering a unique strategic platform for participants to advance their commitments to
sustainability and corporate citizenship. Structured as a public-private initiative, the
Global Compact is policy framework for the development, implementation, and
disclosure of sustainability principles and practices and offering participants a wide
spectrum of specialized work streams, management tools and resources, and topical
programs and projects -- all designed to help advance sustainable business models and
markets in order to contribute to the initiative's overarching mission of helping to build a
more sustainable and inclusive global economy.


5 References

1. Multi-nationality and Corporate Ethics: Codes of Conduct in the Sporting Goods
Industry by Rob van Tulder and Ans Kolk
2. Journal of International Business Studies, Vol. 32
3. Ethics in international business: multinational approaches to child labor by Ans Kolka,
Rob Van Tulderb
4. www.ILO.org
5. www.Questia.com
6. Emerald Text
7. Google Scholar
8. Wikipedia
9. Nytimes.com
10. Reebok.com
11. Nike.com
12. Puma.com
13. www.oecd.org
14. www.unglobalcompact.org


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