People and Organizations - The Nike Case

Corporate Responsibility in a Global Economy: The Nike Case Globalization’s Challenges † Getting Beyond Theoretical Debates † Under What Conditions Can Corporate Profitability And Improvement Of Workplace Conditions Go Hand & Hand? † MIT Sloan’s Research † MIT Sloan’s Role in Engaging Key Stakeholders † Your role(s)—what can should MIT do? What should you and fellow students do? Nike Case Discussion Questions † What’s Nike’s Problem or, “What kept Phil Knight up at night?” † What motivated Nike to take action? † What did Nike do? † What standards should Nike be held to? Who should decide? Who should monitor??? Research: Nike-MIT Collaboration † Data Analysis of Factory Inspection Reports „ (over 900 factories in 51 countries since 1998) † Field Research in China, Turkey, Mexico, U.S., and Europe Factory Conditions Vary Across Sectors & Countries 90 80 70 60 50 40 30 20 10 0 05 610 11 -1 5 16 -2 0 21 -2 5 26 -3 0 31 -3 5 36 -4 0 41 -4 5 46 -5 0 51 -5 5 56 -6 0 61 -6 5 66 -7 0 71 -7 5 76 -8 0 81 -8 5 86 -9 0 91 -9 96 5 -1 00 Frequency M-Audit Scores all regions (Nov. 2002 to Jan. 2005) Figureacross 21: M-Audit Scores Across all Regions M-Audit Score Number of Observations: 697 Average M-Audit Score: 66% What Explains Variation? † Contextual Variables „ (purchasing power, rule of law) † Factory Variables „ (Factory size, age, ownership, type of product, etc.) † Interaction of these 2 types of variables Results 1) Country Effects † A significant proportion of the variation is at the country level † Generally, counties with higher PPP are doing better: the higher the purchasing power, the better the compliance performance based on M-Audit score † Regulatory and institutional factors are more important than economic variables: Countries with higher “rule of law” index are doing better in compliance performance Results 2) Factory Level Effect † Factory age matters: The younger the factory, the better the compliance performance † Factory size matters: generally, smaller factories are doing better in compliance † Ownership structure does not have a significant impact on compliance performance Results 3) Relationship Between Nike and Suppliers † Total count of all kinds of visit, instead of compliance-only-visits, has a significant positive relationship with compliance performance † Length of relationship with Nike has significant positive relationship with some dimensions of compliance performance, such as wage standards, but not others Labor Compliance and Business Performance • † We built a data set for both apparel and footwear, including: (1) M-audit scores; (2) production performance data, including quality measured by defective rate, on time performance, total volume, % commitment capacity to Nike, (3) factory characteristics such as factory size, age, number of Nike visits, length of relationship, etc. The better the labor compliance, the higher the quality. † Factories performing well in delivery also perform well in quality. But Are Things Getting Better? A) Change in Compliance Rating Inspections Change in CR Rating Freq. Percent -3 (Down by 3 degrees) 20 2.62 -2 (Down by 2 degrees) 74 9.70 -1 (Down by 1 degree) 181 23.72 0 (No change) 323 42.33 1 (Up by 1 degree) 116 15.20 2 (Up by 2 degrees) 42 5.50 3 (Up by 3 degrees) 7 0.92 Total 763 100 Note: A is 4, B is 3, C is 2, and D is 1, and the change in CR rating is the score in the most recent audit minus the score from the earliest audit, ranging from –3 to 3. For example, if a factory has a score C in the earliest audit and a score A in the most recent audit, then it has a change of +2. Organizational Design & Political Issues † Quality control, operations, and supply chain management report separately from corporate responsibility/auditing function † Biggest problem: Excessive overtime: Root cause—unpredictable orders and pressure for fast delivery— † Can Nike get competitors to do the same?? MIT / Sloan Role in Outreach Stakeholder Engagement 2 Meetings in July 2005: † Joint-Initiative † FLA – Fair Labor Association † Other Companies / NGOs Summary † Companies can make a difference by leading the way † Took external pressure to motivate action † Need to integrate response into business models and organizational systems † Need Industry wide efforts to make big progress † Universities can make a difference † You can make a difference