NIKE AND HUMAN RESOURCE MANAGEMENT PRACTICE
©Barry Gilheany
This paper examines the corporate code of conduct of
the global sportswear manufacturer Nike, and relates it to two aspects of
contemporary Human Resource Management (HRM) practice: the implementation of
labour codes and the management of Transnational Corporations (TNCs) or
Multinational Corporations (MNCs). It reviews certain issues concerning labour
relations at Nike’s suppliers and investors’ needs for proper social and
ethical information. It then looks at how codes of conduct (in particular
prohibition of child labour) can conflict with the needs of communities in
which the manufacturing sites of Nike’s suppliers are located. In turn, the
paper fits this case study into the wider context of the strategic modus
operandi of MNCs.
Globalisation and the dispersion of industry supply
chains have generated an impassioned debate over the best means of enforcing
labour standards in emerging centres of production. Pressures exerted by trade
unions, non-governmental organisations (NGOs) and consumer groups have led many
global corporations to formulate their own “codes of conduct” and a plethora of
monitoring mechanisms to ensure compliance with them. However relatively little
is known about the effectiveness of these codes of conduct and compliance
mechanisms and how they relate to other means of enforcing labour standards.
Richard Locke and his colleagues attempt to fill this lacuna by drawing on a
variety of data on the code of conduct in operation at Nike Inc. (Locke et al.
2007)
Nike has more than 22,000 employees and over 800
contracted suppliers in about 52 countries, employing more than 550,000 workers
on any given day manufacturing sports and fitness footwear, apparel, equipment
and accessories for global distribution. Over 400 of these suppliers are based
in Asia (Hartman, 2008). Nike’s Code of Conduct, first sent out to
manufacturers in 1992 binds all Nike contract manufacturers and requires that
“all manufacturing partners must post this Code in all major workspaces,
translated into the language of the worker, and must endeavour to train workers
on their rights and obligations as defined by this Code and applicable labour
laws.” It seeks contractors committed to best practice in the areas of free
collective bargaining for workers, health and safety, impact on the
environment, forced labour and child labour, working hours and documentation
and inspection (Hartman, p.511).
Throughout the course of the 1990s, Nike was
subjected to ongoing criticism for sourcing its products in factories/countries
where low wages, poor working conditions and human rights problems were
rampant. There were a series of public relations disasters for Nike involving
underpaid workers in Indonesia, child labour in Pakistan and Cambodia, and poor
working conditions in China and Vietnam. Its 1992 Code of Conduct represented a
shift from Nike’s previous position that as workers in these factories were not
Nike’s responsibility it therefore had no responsibility towards them. Since
1998, Nike has increased the minimum age for footwear factory workers to 18 and
that for all other workers to 16. It has also insisted that all footwear
suppliers adopt United States Occupational Safety and Health Administration
(OSHA) standards for indoor air quality (Locke et al. p.26).
Nike’s Code of Conduct and that of other major MNCs
bring the following HRM issues into focus. For most of the twentieth century,
labour standards were predominantly regulated at the national level through a
mix of law, union-management agreements and company policy. However, these
national and international standards have been progressively undermined by the
emergence of global supply chains and the dispersal of authority across
national regimes as well as among global buyers and their myriad buyers. It is
in this context that corporate codes of conduct have developed (Locke et al
p.22).
Critics of corporate codes of conduct argue that
their purpose is not to protect
labour rights, but instead to limit the liability of global brands such as Nike
and to protect their reputation. But their defenders argue that they are
appropriately flexible responses to the realities of dispersed global
manufacturing networks and the relative powerlessness of developing countries to
fully enforce labour laws and regulations through systematic factory
inspections (Locke et al, p.23).
There are related debates on the transparency
displayed by those tasked to enforce compliance audits and on the diversity of
codes of contact and on the uneven quality of audits with some codes being
monitored by internal company staff and others being subject to audits carried
out by third-party, external consultants or NGOs. Locke et al. conceptualise
codes of conduct as one element in a larger integrated system for the
management and enforcement of labour standards. This involves the empowerment
of workers on the shop floor as a complement to legal regulation (Locke et al.
p.24).
Locke et al. performed a quantitative analysis of
Nike’s monitoring programmes initially across its global operations span. The
core of Nike’s compliance programme is the M-Audit (management audit) which was
launched in the summer of 2002. It provides in-depth assessment of
labour-management practices and working conditions at its factories and is
conducted by its in-house compliance specialists. A typical M-Audit takes 48
hours to complete and is typically spread over several days. In June 2001, Nike
set up a Compliance Rating Programme using a grading system (from A to D) to evaluate
all their suppliers. The grade, assigned by the local compliance manager,
reflects all the information about a factory collected from the SHAPE
inspections, M-Audits, Fair Labour Association (FLA) audits and factory visits.
The M-Audit data did suggest some modest
improvements in suppliers’ compliance with Nike’s code with greater compliance
in North American, European and African factories than those in Asia but the
Compliance Rating (CR) data painted a very different picture. Because these
ratings are easier to understand and reflect Nike representatives’ evaluation
of a broader spectrum of production features, they are used more often by Nike
managers in production and sourcing decisions. Almost half of the factories did
not experience any change in their CR grade, and over 36 per cent of them
experienced downgrading; thus, workplace conditions had either remained the
same or deteriorated over time in 80 per cent of Nike’s suppliers (Locke et al.
pp. 26-31).
To explain these seemingly contradictory sets of
findings, Locke et al. turned to a detailed matched-pair case study of two
Mexican factories which received nearly identical scores on the M-Audit (87 and
86) but very different CR grades (B and D). In both factories – henceforth to
be referred to as Plant A and Plant B, the same product (T-shirts) is made and
both are subject to the same labour regulations. Unions are present in both
plants; both pay at least the statutory minimum wage; training is provided; and
payroll records are maintained (Locke et al, p.31).
However despite these similarities, Plants A and B
have in practice dramatically different labour conditions in practice. Workers in Plant A are paid better, work within the
statutory working time limits and can choose whether or not to work overtime,
engage in production decisions and participate in representative forums at
work. Workers in Plant B are paid less well, often work longer hours and have
no voice in any aspect of factory decision-making. Not surprisingly, higher
levels of employee satisfaction were reported in Plant A than in Plant B (Locke
et al, p.32)
The contrasts in human resources and work
organisation systems of the two plants illustrate the importance of both in
shaping workplace conditions and provide a template for the changes in HRM
practice over the last four decades which have unevenly paralleled the
evolution of the modern Transnational or Multinational Corporation In Plant A
work was reorganised along the lines of lean production which relies on
multi-skilled, autonomous work groups engaged in a variety of operations. This
new system greatly improved the plant’s efficiency and quality. Also, workers
were empowered to spot abuses on the factory floor and stop production if
necessary. Plant B pursued a more scientific, time-and-motion management
approach, investing heavily in new plant and equipment. Plant B management
aimed to raise productivity and quality through investment in new technology,
strict control over the workforce and various incentives (productivity bonuses)
aimed at achieving ever greater economies of scale (Locke et al, p.33).
The multifaceted evolutionary model that Locke and
his colleagues describe Locke et al, p.34) reflect the essence of the modern
transnational or multinational corporation and of human resource management
within it as elaborated on now. Unlike its domestic counterpart, the
transnational organisation cannot be described in terms of structure alone;
concepts such as ‘process’, ‘capabilities’ and ‘systems’ must also be applied
as well (Harzing & Van Ruyesseveldt, 2000). Bartlett uses the term
‘transnational’ to describe companies which are required to meet the demands of
local responsiveness, global efficiency and transfer of learning
simultaneously. Bartlett and Ghoshal elaborate on this concept by describing
the principal features of the transnational organisation. Among them are a
multiplicity of centres; strategic roles also for subsidiary managers; a
culture of thinking throughout the whole organisation and coalitions with other
actors (Bartlett and Ghoshal, 1987a)
The rise of human resource management philosophy and
practice should be viewed in the light of developments since the late 1970s.
These include the emergence of newly industrialised nations and blocs which
have displaced the traditional industrial sectors in Western Europe and North
America from their pre-eminence; the increasing share of Gross National Product
(GNP) by the service sector which puts a greater premium on knowledge-based labour
and the onset of rapid technological change.
The IT revolution in the world of work meant that it became possible to
integrate various production processes to a much higher degree and assign
responsibility for production at much lower organisational levels. Thus the importance of the human contribution
increased. The rise of human resource
management as a more strategic and philosophical approach to personnel and
organisation. Focus within personnel
management shifted from organisational structure to engendering a corporate culture,
employee commitment and making extensive use of staff resources (Paaauwe, J and
Dewe, P., 2000).
Although the HRM activities of multinationals do not
differ per se from those of domestic
organisations, there are five basic differences between the activities of an
international human resource manager from their domestic counterpart: more
functions to perform; more diverse and complex functions; more involvement in
the personal lives of employees; greater
exposure to external influences such as NGOs and unions as per the Nike code of
conduct and staffing and development practices which will vary with different
cultures (Acuff, 1984). There is also possibly the additional factor of risk
exposure, for example, higher costs of expatriate failure, riots and terrorism
(Morgan, 1986).
These differences between domestic and international
HRM functions can ultimately be attributed to two terms: multiculturalism and
geographic dispersion (Adler, 1983) Multiculturalism is defined as ‘the
presence of people from two or more cultural backgrounds within an
organisation’. Geographic dispersion is defined as ‘the location of various
subunits of the parent corporation in different countries’ (Paaauwe, J and
Dewe, P. p.75) Because geographic dispersion and multiculturalism lead to more
complex and uncertain business environments in which there is an inherently
greater operating risk, international HRM will differ fundamentally from
domestic HRM in how it is done rather
than in what is done. The environment
in which Nike has operated since the 1990s where the corporation has had to
respond to consumer group and NGOs pressures regarding the treatment of workers
at the hands of its supplier contractors through its Code of Conduct and the
distinctive type of hands-on, cooperative compliance relationships which it
developed with its suppliers provides the perfect paradigm for HRM policies of
the transnational corporation of the 21st century.
The need for labour policies of transnational
corporations to have regard for the needs of host countries is illustrated by
the unintended consequences of Nike’s reaction to the criticism it received in
the 1990s for buying footballs from companies that used child labour in
Pakistan. Nike initially decided to withdraw from the country but then stayed
and promulgated measures to ensure adherence to labour standards in its supply
chain. However, continuing concerns over the use of child labour and other
labour rights violations led to Nike severing its relations with its Pakistani
supplier Saga Sports and shifting its football production to China and
Thailand. In the words of a local newspaper: ‘By severing its contract with the
local company, Nike scored moral points with its customers in the West at the
expense of 20,000 families who were affected, since 70 percent of local workers
relied on Saga Sports for employment’ (Fazl-e-Haider, 2007). Since then, Nike
reviewed its decision and contracted with a new supplier, the Silver Star
Group, after receiving assurances from it and the Pakistani government that
labour standards would be respected (Grineri and Seppala, 2010).
This case illustrates the practical and cultural
difficulties of enforcing labour standards such as minimum working age and
living wages in developing countries where a minimum working age of 18
considerably exceeds the average school leaving age and where working for a
multinational company is an attractive option for many young people.
Another driver in the adoption of codes of conduct
and compliance standards by corporations like Nike has been the need for the
company to balance the social, ethical and environmental (SEE) interests of its
stakeholders with its fiduciary responsibilities to shareholders. Not
disclosing material information such possible uncertainty and risk created by
adverse publicity about, for example, labour standards in a corporation’s
suppliers is considered equivalent to misleading an investor under SEC
(Securities and Exchange Commission) Regulation S-K (item 303) (Hummels and
Timmer 2004).
This paper has analysed the evolution of Nike’s
corporate code of conduct, compliance standards and work organisation and
labour regimes at its suppliers in the context of two major aspects of HRM; the
difference between HRM functions within transnational corporations and those
within domestic organisations and the value and utility of participative,
empowering labour managerial structures over Fordist, time- and- motion methods.
It has shown how the former formed part of an integrated approach by Nike to
ensure compliance with its labour standards and how it developed human resource
policies appropriate to its standing as a major global player. The manner of Nike’s response to the
pressures exerted on it by NGOs and consumer groups over the abuse of workers’
rights in its supplier outlets provides the perfect paradigm for HRM policies
of the transnational corporation of the 21st century.
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©
Barry Gilheany
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