Integrating Values - The Legality, Morality, and Social Responsibility of Nike - Essay Example

Integrating Values - The Legality, Morality, and Social Responsibility of Nike Introduction The importance of ethics and social responsibility in business has been the subject of debate since time immemorial. For many businessmen, ethical values are not very pertinent to the business. However over the period of time, legal and ethical responsibilities are started to be regarded as one of the prime decisive factor of a business’s success (Ferrell, Fraedrich & Ferrell, 2009). The reason why it is necessary to regulate business practices by legal and ethical evaluation is because business is an essential constituent of the human society (Roa, 2007). Business organizations today are coming to realize that the famous dictum by Milton Freidman, the social responsibility of business is to increase its profits, may not hold much wisdom. This is well-exemplified in the example of Nike. Nike is a world-renowned producer of sportswear and other sports items. However, the company has had to face some major issues in the past related to its unethical conduct. Despite the fact that Nike is not the sole organization to be found guilty of unethical practices, it became the hub of censure and denigration because of its international presence and significant market share. In response, Nike took myriad of steps to improve its image and to make the process of manufacturing transparent. However, these measures have failed to be of much consequence. This paper will analyze the business practices of Nike in the context of three main values i.e. law, ethics and social responsibility. Legal Section The criticisms that were levelled against the organization bring to light the legal implications of carrying out business. It is necessary for a business to have a strong legal framework. The legal framework of a business compromises of the nature of work that is to be performed, the financial assets of the business and the long- and short-term goals that the business aims to achieve (Nathanson, 1995). The legal structure of the business gives rise to legal expectations that the society has from the business. Thereby, there are certain legal responsibilities that all businesses are required to meet as a constituent of the social contract that it has with the society. The legal responsibilities of a business are in effect manifestations of the society’s perception of “codified ethics” and reflect the primary perceptions of just conduct as defined by the law (Carroll & Buchholtz, 2008). The business is accountable to the society for the fulfilment of this role; failing to do so, the business is subjected to a political process where the dissidents are dealt with. Thus, public companies are liable to certain legal responsibilities and are required to comply with them as part of their role in producing goods and services for the society. Nike, however, has been the subject of criticism due to the fact that its policies and practices have not been observant of the laws and legal responsibilities set forth for businesses. It was in the early 1990s that criticism against Nike’s practices began to come to light. Nike has been a famous name in the clothing and sports items industry. Seeing the large market share that it had abroad and the appeal of lesser manufacturing costs, Nike outsourced to a number of countries more than a couple of decades ago. There was nothing wrong in subcontracting work to other factories in the Southeast region. Nike did not violate any laws and argued that it provided jobs to many people in the poor countries (Hill & Jain, 2009). However its prime motive was to increment the profits it made and to bring down the costs of manufacturing. For many years before the criticism being levelled against the organization gathered substantial support, ethical and legal aspects of business conduct did not enter the cost-profit equation of Nike. Nike’s factories overseas had poor working conditions despite the fact that Nike itself was a multi-billion dollar company. The factories did not have flexible and relaxed working hours for the employees. In fact, the workers had to work for several hours over and above the normal working time in order to meet the required quotas. Moreover they were forced to comply with stringent rules and regulations when they were working to qualify for wages that were even lower than the minimal pay. In leaked reports regarding the working conditions in sweatshops in Vietnam, it was documented that the production processes were being carried out in violation with many local rules and regulations and were causing atmospheric pollution, resulting in more than three-fourths of the labour force having respiratory problems (Reclaim Democracy, 2009). This was being enforced without taking into consideration that more than three-fourths of the labour force in Vietnam had respiratory issues (Hill, 2009). The practices of the company are in conflict with the laws set forth in the countries the sweatshops are in. For instance, Nike made use of child labour in Cambodia and Pakistan in the 1990s for the production of soccer balls. Article 11(3): of the Pakistani constitution states that children under the age of 14 years are not allowed to work in factories. Article 37(e) also challenges the poor working conditions children were made to work in since it states that the work conditions should be humane and fair (Paycheck, 2011). Such practices continued for years at an end, with the legal and ethical issues culminating into graver problems by the time as the business practices in these sweatshops started to become known. When legal investigations into the business practices of the company took place, it was found out that Nike has also been guilty of false advertising under the Business and Professions Code section 17500. Nike was documented to have made six wrong claims regarding its business practices. According to Nike, its workers were not exposed to sexual harassment or physical abuse, its products were manufactured in compliance with the laws regarding wages and hours as well as those on safe and healthy working conditions, free meals and health care were given to workers. These claims were found to be wrong and in violation of Business and Professions Code section 17200 (Reclaim Democracy, 2009). Since Nike was charged with illegal business practices, its popularity went down gravely, affecting its profits. It had to deal with a number of lawsuits and had to take drastic measures to bring about changes in its strategic planning and operations. This goes on to prove that it is necessary for a company to take into account its legal responsibilities. However, complying with the law only will not make the business fulfil its societal expectations perfectly and holistically. This is because the law is unable to cover the wide range of issues that the business is faced with such as business over the Internet etc. Moreover, the law is not revised as consistently as changes in technology are taking place. Laws may also represent the imperialistic interests of the politicians who made them. Therefore, because of the inadequacy of the laws to embrace the full range of business behaviours, ethical responsibilities are required to cover those practices which are expected or forbidden by the society even though they are made the law (Carroll & Buchholtz, 2008). Ethical section Utilitarian Ethical Analysis Ethics as a branch of philosophy is not a new dictum. It dates back to over 2500 years ago to the time of the great philosophers including Aristotle and Socrates. Ethics, also known as moral philosophy, entails to the branch of philosophy that pertains to the philosophical introspection or study of moral issues. According to Guha (2007), the moral dogmas that this branch of philosophy covers are related to the particular problems, analysis and judgments of human conduct and disposition. Related to the notion of ethics is the Utilitarian ethical theory. Utilitarianism has several forms but generalizing the concept, it refers to an action being morally correct only if it produces the maximum about of pleasure and the least degree of pain compared to an alternative available action (Payne, 2011). The essence of theory is that it transcends above the motives and interests of the personal self and brings into consideration the effect of the action on the interests of other people. According to Cavico and Mujtaba (2005), it is not the nature of the action that decides whether it is good or bad; rather it is its consequences that are the determinant of the morality of the action. Utilitarianism does not discriminate amongst people and the consequences of the action on everyone affected are considered, regardless of the person’s economic status, political clout, annual income etc. A numerical model has been formulated to find out the morality of an action. This numerical Utilitarian approach requires that the action to be analyzed be articulated comprehensively along with the figures and bodies that are directly or indirectly impacted by the outcomes. The consequences of the action on each of the affectees are classified as either good or bad. The good and bad consequences are now added up and it is seen whether the good consequences outweigh the bad ones; if they do, the action os regarded to be morally just. Being cognizant about the Utilitarian theory is important in business management because the managers are often required to consider the positive and negative monetary outcomes of an action. The Utilitarian theory brings into limelight the ethical consequences of a business’ actions and how they affect a person’s happiness and so helps to justify why managers may have to give up their personal self-interests for the greater good (Cavico & Mujtaba, 2005). Kantian Ethical Analysis Kant’s ethical theory relates to the definition of an action of right depending on the maxim of agents. It differs from the Utilitarian theory of ethics on the grounds that it is independent of the consequences of action. The chief principle of Kantian ethics is the categorical imperative. Kant gives several depictions and formulations of this theory, which according to him mean the same thing. The categorical imperative asserts to the notion that whatever action is taken, it should be taken on the basis of reason only and sensible desires should not be taken into consideration, as evidenced in Kant’s statement “I am never to act otherwise than to will that my maxim should become universal law” (P. L. E. 2009). This implied that there are no exceptions to moral rules; for example, murder would always be wrong and there is no justification for it to be right. The outcomes of a decision are not in our control and so ethics is not dependent on the results of an action, as proclaimed by Utilitarianism (P.L.E., 2009). He was of the perspective that the prime purpose of life is not simply to seek and pursue happiness. This is because happiness is not completely in our control and there is interplay of luck too. Moreover, rational ethics are those that are unconditional and universal in nature (P.L.E., 2009). For Kant, determining whether a decision is moral or not can be done through the application of the categorical imperative. The word categorical means the absolute test for morality and imperative means that acting rightly regardless of the effects of the action on one’s self-interest. The Kingdom of Ends test is one way of finding out the categorical imperative. The test meant that the despite the fact that an action may yield great profits, if it happens to treat people unfairly it is not moral. The Agent-Receiver test is another formulation for determining the categorical imperative. According to this test, the person taking the action judges its morality by considering its effects on him if he did not have knowledge whether he would be the agent, i.e. the giver, or the receiver of the act. If one, disregarding the role that he has to play, does not want the act to be carried out on him, then the act is considered wrong. The Universal Law precept is another means of deducing the categorical imperative. According to this formulation, the action is judged by considering its efficacy if everyone carried it out. If the action is not efficient and loses its meaning when everyone performed it, it self-destroys itself and thereby is not moral (Cavico & Mujtaba, 2005). Therefore the categorical imperative requires that we use reason to judge business decision and no human being is excluded from this principle. It is relatively easier to follow the categorical imperative in business as opposed to other facets of life. For instance in decisions such as whether the work force is only a means of generating more profit, it is easier to apply Kant’s ethical theory and regard these decisions to be immoral (Bowie & Schnieder, 2011). Kantian ethics, as expressed in the formulations of categorical imperative, imply that managers should give reasonable to their work force and organize businesses in a balanced way (Bowie & Schnieder, 2011). Ethical Egoism Ethical egoism is a normative theory by nature and encompasses the ethics of how people ought to behave (Cavico & Mujtaba, 2005). The essence of the theory of ethical egoism is that people should aim to further their own personal interests. They should help out others and promote their interests as long as this furthers their self-interests. Such actions are morally correct. However, according to Pojman and Fieser (2008), the moral perspective of ethical egoism does not mean that the person functions to promote his/her immediate self-interests. The ethical principles propounded by the moral theory of ethical egoism are much more universal than serving one’s immediate interests; rather the principles further the notion that everyone should further and promote their best interests. Keeping the inadequacy of the theory in defining what the best interests of people are, the theory can be applicable in business. Ethical egoism in business pertains to enhancement of the interests of the company. The theory can be exemplified by considering the stockholder theory. The oneself entails both the investors and the owners. According to ethical egoism, owners would strive to promote their interests and those of the investors. Apparently, this may appear as selfish and not moral at all. However, considering Adam Smith’s perspective that if perfect conditions are generated for businesses to work in, then wealth is provided to everyone (Dwyer, 2008). The aforementioned theories serve to highlight the importance of ethics in business conduct and practice. Not observing ethics and serving to promote one’s own selfish interests are going to create obstacles in the functioning of the business. This is seen in the example of Nike. Nike disregarded the ethics of manufacturing and production. When considering the consequences of the production, one can appreciate that although the company made products at lower costs, use of children in factories and the terrible work conditions in the sweatshops, brought pain and distress to the workers. Nike did not take into consideration the feelings of its workers, making them work long hours and also paying them less compared to the profits that it was generating. In doing so, the company went against the ethical principles as put forward by the Utilitarian theory. The intent of Nike was also not moral. Since Kantian ethics judges business decisions on reason, it is obvious that Nike did not consider other people’s interests. It is a well-acknowledged ethical principle to provide humane working conditions to labour force and not to hire young children for hazardous work. Nike transgressed this too. Even when considering ethical egoism, Nike did not act in its best interests because the use of child labour and the prevalence of poor working conditions brought down the popularity of the company and hence its profits. Social Responsibility Section With the changes that have been brought about in the legislation which address the ethical perspectives of the conduct of a business, the public’s awareness regarding social responsibility has also accrued. Increasingly where businesses are formulating new strategies to increase the returns on their investment, they are also taking into account their social responsibility. Social responsibility of a business can be defined as the “economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point of time” (Vallabhaneni, 2009). There are two main models of social responsibility. The economic model of social responsibility adheres to the notion that society derives the most advantage when businesses are left alone to manufacture goods required by the society. On the other hand, the socioeconomic model of social responsibility pertains to the view that the business should not solely consider profit maximization; it needs to address the impact of its decision on the society. Considering the socio-economic model, it can be appreciated that giving importance to social responsibility guarantees much more sustainable business practice, helps to conserve natural resources, improves the lifestyles and working conditions of the employees and brings about a balance in the economic return and social return of the business (Pride, Hughes & Kapoor, 2009). How socially responsible has Nike been in the past? In the past, Nike has been regarded as the poster child of irresponsibility. This is largely because of the human right issues mentioned before. However, given the intense criticism and censure that it was subjected to, Nike has tried to be more socially responsible. There are a number of steps that it took to address the four tenets of social responsibility mentioned previously. It formed a code of conduct for work conditions and labour standards for its factories overseas. A compliance team has been set up which regulates the operation of factories against these standards. It has tried to make the process of production transparent by enlisting its overseas factories on its website and providing their addresses (Nike, 2011). It has embraced a Triple Bottom Line strategy, which embodies the effects of the company’s actions on people, planet and profits. It has also striven to improve its image by advocating public reporting of its operations. Moreover, it is giving thought to the sustainability of its products and business ventures, as exemplified by the launch of a new product, Considered; the philosophy behind the name being that the company is addressing the entire assortment of elements and consequences of the product before it is launched in the market (University of Delaware, 2008). These are amongst some of the social responsibility steps that the company has taken in response to the huge setback that it had to face as consequence of its unethical practices. Conclusion Summing up the essay, it is necessary for a business to integrate values in order to ascertain progress and sustainability. Focusing on legal, ethical or social issues is not sufficient because each of these aspects on isolation is not sufficient enough to cover the entire operation and behaviour of a business. Often businesses comply with legal responsibilities out of fear of litigation but do not consider other values as important. However, it can be well-understood from the case of Nike that it is essential to focus on ethical and social perspectives of a company’s operations as well for sustainable business functions and profits. Thereby, it is recommended for businesses operating in the contemporary world, where the society is now more aware of the social role of businesses, to integrate and comply with legal, ethical and social values. Failing to do so can result in much dire consequences than Nike. Reference List Bowie, N. E. & Schnieder, M. (2011). Business Ethics For Dummies. For Dummies. Carroll, A. B. & Buchholtz, A. K. (2008). Business and Society: Ethics and Stakeholder Management (7th ed.). Ohio, OH: Cengage Learning. Cavico, F. & Mujtaba, B. (2005). Business Ethics: Transcending Requirements through Moral Leadership. Boston: Pearson Custom Publications. Dwyer, S. L. (2008). Thinking Ethically in Business. California, CA: Humanities-Ebooks. Ferrell, O. C., Fraedrich, J. & Ferrell, L. (2009). Business Ethics: Ethical Decision Making and Cases (7th ed.). Ohio, OH: Cengage Learning. Guha, D. (2007). Practical And Professional Ethics (vol. 4 : Educational Ethics. New Delhi: Concept Publishing Company. 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