Human Resource Perspective from Nike - Case Study Example

HR perspective from Nike case study 0 Introduction Securing the rights of its employees is a critical issue for companies worldwide in order to stabilize their performance. However, under certain conditions the rights of employees become of secondary importance for a firm, a phenomenon most commonly in production units established in poor countries, where the control over the labour standards applied is difficult. On the other hand, the violation of labour standards can cause severe damages on a firm’s market image, in addition to the legal consequences of the relevant practices. Because of the implications related to the specific field, firms worldwide tend to introduce various measures for securing the alignment of their practices with labour laws and ethics. This paper refers to the global operations of a leading firm in the global footwear industry, Nike. Particular emphasis is given to the firm’s performance in regard to its codes of conduct and Corporate Social Responsibility (CSR). The implications of the firm’s strategies in regard to the above two areas are discussed; at the same time, the relationship between the above strategies and the HRM is analyzed, both in regard to Nike and for the business theory and practice in general. It is proved that Nike has not managed to secure the alignment of its operations with the principles of CSR while the application of the firm’s code of conduct is problematic, especially in production units established in poor and developing countries. 2.0 HR Perspectives for Nike – Corporate Social Responsibility 2.1 Issues highlighted in the case studies – Code of conduct/ CSR The case studies present a series of important HR issues related to the operation of Nike in the global market. In the first of the case, studies, then one of Qin et al. (2007) emphasis is given to the terms of operation of the firm’s suppliers. In the relevant research about 800 firms/ suppliers of Nike worldwide are explored, as of the rules of conduct applied in their workplace (Qin et al. 2007, p.21). Qin et al. (2007) noted that the development of extensive supply chains by firms operating internationally has made the control of the workplace conditions quite difficult. Because it has been proved difficult for national laws to secure the respect of labour law in international business activities private organizations have been involved in the process: for example, reference can be made to the ‘Fair Labor Association, FLA’ (Qin et al. 2007, p.23). Despite the above efforts gaps have been identified in the protection of labour standards in ‘global supply chains’ (Qin et al. 2007, p.23). Multinationals have been asked to develop their own codes of conduct in order to cover the need of people worldwide to work under fair working rules. In other words, the protection of labour law at international level is highly depended on the discretion and the willingness of international firms to promote fairness and equality. In the case of Nike, the following issues should be highlighted: a) Nike is the most powerful firm of the athletic footwear sector; the firm’s market share, in the specific industry, globally, has been estimated to 33% making the organization the leading firm of the industry (Qin et al. 2007, p.24); b) the operations of Nike have been related to a negative phenomenon: the use in the company’s production process, i.e. from its supply chains, of persons who do not meet the criteria for lawful work, such as children (Qin et al. 2007, p.24). Also, complaints have been made for various violations of human rights by the firm’s suppliers (Qin et al. 2007, p.24). It should be noted that the firm’s suppliers are based, on their high majority, in poor countries such as ‘Indonesia and Cambodia’ (Qin et al. 2007, p.25). China is included in the countries that support the activities of Nike by covering a major part of the firm’s production process; for the firm’s suppliers in China complaints for ‘unpaid work, unhealthy work conditions and child labour’ (Qin et al. 2007, p.25 have been also made. Nike has faced these allegations by referring to its code of conduct: this code has been appropriately updated in 1998 so that the rights of the firm’s employees, and of its suppliers’ employees, are secured; a term for the increase of the minimum age, the 18 years, of the firm’s employees has been added (Qin et al. 2007, p.25). However, because the problems related to the labour standards of the firm’s suppliers continued Nike had to take further action: in 2001 Nike introduced a scheme for controlling the performance of its suppliers in regard to the alignment of their operations with the firm’s rules of conduct; the above scheme was named as ‘Compliance Rating Programme’ (Qin et al. 2007, p.26). The scheme was based on the following idea: the performance of Nike’s suppliers, as of the alignment of their operations with law and the firm’s rules of conduct, would be evaluated using ‘grades, from A to D’ (Qin et al. 2007, p.26). In the relevant process data gathered from visits in the workplace, of suppliers, and from Non-governmental organizations, such as the FLA, already mentioned above, would be used for deciding on the grade that should be given to each supplier (Qin et al. 2007, p.26). The success of the firm’s initiatives in securing the respect of its rules of conduct by its suppliers has been explored by Qin et al. (2007) by referring to data retrieved from the firm’s Compliance Rating Programme and from relevant audits. It has been proved that the high majority of the firm’s suppliers perform at a low to average level as of their alignment with the firm’s rules of conduct. Indeed, in the relevant scale, from A to D, as applied in the firm’s Compliance Rating Programme, most suppliers were giving a B (Figure 1). In other words, the study of Qin et al. 2007) indicates that in Nike there are critical HR issues, such as the non-compliance of the firm’s suppliers with the labour standards set by the company, as these standards are included in labour laws at national and at international level. Figure 1 – Rating of Nike’s suppliers using the Compliance Rating Programme (source: Qin et al. 2007, p.30) The second study which focuses on the labour standards of Nike sets similar concerns. More specifically, Hummels and Timmer (2004) had tried to check the performance of Nike as of ‘its labour conditions, child labour and security’ (p.73). The above researchers refer primarily to the company’s code of conduct, where its rules in regard to the labour standards applied across its units are included (Hummels and Timmer 2004, p.77). Among these standards particular emphasis is given to the right of each individual to decide whether he will work for the company or not, meaning that no forced work in the company is allowed, but also to the avoidance of ‘discrimination and harassment’ (Hummels and Timmer 2004, p.77). In addition, for Nike the respect for each employee’s rights and dignity is a vital part of corporate conduct (Hummels and Timmer 2004, p.77). However, the findings of the research developed by Hummels and Timmer (2004) for checking the performance of Nike in regard to the application of its code of conduct seem to be disappointing. For example, in a report related to the firm’s operations in Indonesia, reference is made to numerous complaints by the firm’s employees for a variety of issues/ problems, such as poor working conditions, excessive working hours, with no extra payment, low salaries, harassment and so on (Hummels and Timmer 2004, p.77). In the firm’s production units in Mexico similar labour problems were identified: ‘poor working conditions, harassment, low wages and numerous violations of other employee rights’ (Hummels and Timmer 2004, p.77). The firm has been found also to violate the labour restrictions on child labour, a problem that has been highest in the firm’s units in Cambodia (Hummels and Timmer 2004, p.77). 2.2 Implications for wider HR practice As explained above, Nike has a detailed code of conduct; still, the application of this code’s rules in practice is not adequately supported for the organization. At this point, it would be vital to check the literature related to this subject; in this way the implications of such practice for the wider HR practice could be retrieved. The global footware industry is highly competitive; the industry’s firms are at similar level of performance with the exception of Nike. Indeed, Nike has managed to achieve a standard growth, despite the risks and the turbulences related to the global market. In Figure 2 below, the performance of Nike, compared to its rivals, is presented. Figure 2 – Footware industry worldwide, from 1991 to 1997 (source: Locke 2002, p.3) In the above Figure the superior market position of Nike towards its competitors is made clear. However, profitability is not the sole criterion for assessing the success of an organization; the organization’s performance in promoting ethics and CSR is a key criterion for deciding whether the chances of the organization for long term growth are many or not. It should be noted here that the introduction of a Code of conduct in a business cannot imply, by itself, the high performance of the business in promoting ethics. Instead, it should be necessary for the relevant Code of conduct to be appropriately structured, including mechanisms of control, so that its application in practice is fully supported; otherwise, its existence has no particular value (Locke and Romis 2010, p.8). In regard to the content of the codes of conduct Hopkins (2004) has made the following comments: a code of conduct should include rules referring to a variety of business issues, including: ‘fair business practices, employee rights and the alignment of business operations with the laws applied in the particular sector’ (Hopkins 2004, p.13). Nike’s code of conduct includes such rules but severe problems have appeared in the application of these rules in practice. From a different point of view Dawkins, J., and Lewis, S., (2003) explain that the most common problem that organizations have to face in regard to the development of their code of conduct is the following: the rules including in the specific code should not threaten the interests of shareholders, a target though that it is quite difficult to be achieved. Frey and Cruz-Cruz (2009) highlighted an important issue in regard to Nike’s CSR practices: it is noted that despite the organization was negatively exposed towards its customers were news for the violation of employee rights in the firm’s production units in poor countries was published, the firm did not try to justify its position by referring to the lack of responsibility by its side. Rather, the firm changed its CSR so that employee rights are secured not just in its own units but also to the units of its suppliers (Frey and Cruz-Cruz 2009, p.3). Of course, the effectiveness of this strategy should be also proved in practice in order to assess whether the measures taken have been appropriate or not for facing the particular problem. It should be noted that the incorporation of a CSR framework in its organization is not optional; it is mandatory, especially if referring to organizations operating globally (Udomkit 2013, p.161). On the other hand, those who are against CSR have argued that CSR increases the organization’s power, at the level that the organization is allowed to intervene in critical social issues (Carroll and Shabana 2010, p.88). Moreover, it has been argued that the priority of each business should be the ‘maximization of the profits of its shareholders’ (Carroll and Shabana 2010, p.88). In any case, the value of CSR in promoting business performance cannot be doubted. In fact, modern market is quite complex (Kytle and Ruggie 2005, p.4). It would be rather impossible for firms to control their global activities without the existence of a framework that would include the relevant rules; CSR is such framework (Kytle and Ruggie 2005, p.4). However, the specific framework should incorporate provisions for the monitoring of its enforcement (Weigel 2011). When referring to multinationals, these provisions should be preferably aligned with the international labour law since there are many countries, especially the poor countries, worldwide the legal system of which does not include rules for securing employee rights (Rangan et al. 2012). Under these terms, the implications of Nike’s strategy for the HR practice could be described as follows: Nike has introduced a CSR and code of conduct, as all multinationals. This means that the necessity of CSR and code of conduct in securing employee rights could not be doubted (Amaeshi et al. 2008). However, the efforts of the firm in enforcing these rules are not adequate; in fact, the extensive failures reported in regard to the protection of employee rights in the units of Nike’s suppliers leads to the following assumption: the HR framework is valuable in securing labour standards but the terms under which this framework operates are defined primarily by the organization and not by the laws. Therefore, through the case of Nike the distinction between HR practice and CSR / codes of conduct is made clear, with all implications that such distinction can have for employees’ rights globally. 3.0 Conclusion Nike is a quite popular firm in the global market. The firm’s brand name is related to high quality, a fact verified by the extensive use of the firm’s products in major athletic events internationally. It could be expected that the firm would highly support its employees so that their motivation is kept high, a fact that would also secure the performance of the organization. Still, the findings of the two case studies focusing on the firm’s practices in regard to the code of conduct and CSR lead to a different assumption: it seems that Nike has based its success on the limitation of costs as achieved through the use in the production process of cheap labour; indeed, it has been revealed that the firm’s production units are established in poor/ developing countries where the cost of labour can be quite low while the costs for securing the quality of working conditions can be significantly reduced, since in these countries there are no mechanisms for securing employee rights. On the other hand, the firm has introduced a code of conduct that is well-designed and which addresses all critical issues related to labour standards and employees’ rights. However, the application of this code in practice seems to be quite problematic, a fact denoting the weakness of the organization to promote CSR, as such intention is revealed in the organization’s website. In the long term, the specific practice of the firm could severely affect the HR practice: other firms, especially multinationals, that currently emphasize on CSR would possibly consider the practice of Nike as more favourable for their organization’s economic interests; therefore, gradually, the rules incorporating in the HR framework of each organization could be alternated. Instead of being a tool for securing employee rights, HRM could be used for serving just the rights of business owners/ shareholders. 4.0 References Amaeshi, K., Osuji, O. & Nnodim, P. 2008, “Corporate Social Responsibility in Supply Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions and Implications.” Journal of Business Ethics, 81(1): 223-234. Carroll, A. and Shabana, K., 2010. “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice.”.International Journal of Management Reviews, 85-105 Dawkins, J., and Lewis, S., 2003. "CSR in Stakeholde Expectations: And Their Implication for Company Strategy." Journal of Business Ethics 44.2-3: 185-193. Frey, W., and Cruz-Cruz, J. 2009."Three Views of CSR (Corporate Social Responsibility)." Saylor Organization, 1-5. Source URL: http://cnx.org/content/m17318/latest/ Hopkins, M., 2004. "Corporate social responsibility: an issues paper." ILO Working Paper 27: 1-41 Hummels, H. and Timmer, D., 2004. “Investors in Need of Social, Ethical, and Environmental Information.” Journal of Business Ethics 52 (1): 73 – 84. Kytle, B. and Ruggie, J. 2005. “Corporate Social Responsibility as Risk Management: A Model for Multinationals.” Corporate Social Responsibility Initiative Working Paper No 10. Harvard University, 1-21 Locke, R. and Romis, M., 2010. "The promise and perils of private voluntary regulation: Labor standards and work organization in two Mexican garment factories." Review of International Political Economy 17.1: 45-74. Locke, Richard M., 2002. "The promise and perils of globalization: The case of Nike." MIT Working Paper IPC-02-007, 1-39 NIKE, 2014. Organizational website. Available at http://nikeinc.com/ NIKE, 2014. Responsibility. Available at http://nikeinc.com/pages/responsibility Qin, F., Locke, R., Kochan, T. and Romis, M. (2007) “Beyond corporate codes of conduct: Work organization and labour standards at Nike\s suppliers.” International Labour Review 146 (1-2): 21-40. Rangan, K., Chase, L. and Sohel K., 2012. "Why every company needs a CSR strategy and how to build it.” Working Paper 12-088, 1-31 Udomkit, N., 2013. “CSR Analysis: A Reflection from Businesses and the Public in Thailand.” Journal of Management and Sustainability; 3(2); 155-164 Weigel, T., 2011. “ Is Sustainability Sustainable? Issues of Corporate Social Responsibility and Human Rights Sustainability in Modern Business.” UW-L Journal of Undergraduate Research XIV, 1-7 Read More