Monday 25 July 2016

NIKE and Human Resource Practice

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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