© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 3 Ethics, Social Responsibility, and Sustainability Insert Photo Credit Here © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning Objectives • Examine ethics in international management and some of the major ethical issues and problems confronting MNCs • Discuss some of the pressures on and actions being taken by selected industrialized countries and companies to be more socially and environmentally responsive to world problems © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning Objectives (continued) • Explain some of the initiatives to bring greater accountability to corporate conduct and limit the impact of corruption around the world © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Sustaining Sustainable Companies • Shift in focus from traditional marketresponsive strategies to broader approaches – Help incorporate business and social or environmental goals • Triple bottom line approach – Simultaneously considers social, environmental, and economic sustainability – Could help harness business and managerial skills to impact human and environmental conditions © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Ethics • Study of morality and standards of conduct • Victim of subjectivity as it yields to the will of cultural relativism – Cultural relativism - Belief that: • Ethical standard of a country is based on the culture that created it • Moral concepts lack universal application © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Ethical Dilemmas • Dilemmas arising from conflicts between ethical standards of a country and business ethics are most evident in: – Employment and business practices – Recognition of human rights, including women in the workplace – Corruption © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Corporate Social Responsibility (CSR) versus Ethics CSR Ethics • Actions taken by a firm to benefit society beyond the requirements of the law and the direct interests of the firm • Based more on voluntary actions • Study of or the learning process involved in understanding morality • Area of ethics has a lawful component and implies right and wrong in a legal sense © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Ethical Theories and Philosophy Kantian philosophical traditions Aristotelian virtue ethics Utilitarianism Eastern philosophy © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Kantian Philosophical Traditions • Entities have responsibilities based on a core set of moral principles that go beyond those of narrow self-interest • Reject consequences as morally irrelevant when evaluating the choice of an agent • Ask one to consider choices as implying a general rule, or maxim – Must be evaluated for its consistency as a universal law © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Aristotelian Virtue Ethics • Focus on core, individual behaviors and actions and how they express and form individual character • Consider social and institutional arrangements and practices in terms of their contribution to the formation of good character in individuals • For Aristotle, moral success and failure largely come down to a matter of right desire, or appetite © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Aristotelian Virtue Ethics (continued) • Virtue theory – States that one’s formation is a social process – Relies heavily on existing practices to provide an account of: • What is good • What character traits contribute to pursuing and realizing the good in concrete ways © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Utilitarianism • Form of consequentialism • Favors the greatest good for the greatest number of people under a given set of constraints • Acts are morally correct if they maximize utility – Attained when the ratio of benefit to harm is greater than the ratio resulting from an alternative act © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Eastern Philosophy • Broadly includes various philosophies of Asia – Indian philosophy, Chinese philosophy, Iranian philosophy, Japanese philosophy, and Korean philosophy • Holds that: – People are an intrinsic and inseparable part of the universe – Attempts to discuss the universe from an objective viewpoint are inherently absurd © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Human Rights Issues • Present challenges for MNCs – Absence of universally adopted standards of what constitutes acceptable behavior • Basic rights – Life, freedom from slavery or torture, freedom of opinion and expression, and a general ambiance of nondiscriminatory practices • Women’s rights and gender equity can be considered a subset of human rights © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Issues Faced by Women in the Workplace • Most still experience the effects of a glass ceiling – Lack of promotions to upper management positions – Partially due to social factors and perceived levels of opportunity or lack thereof – Pervasive throughout the world © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Issues Faced by Women in the Workplace - Examples • Japan – Women employees are subject to sexual harassment, two-track recruiting processes, and unequal opportunities for growth • France, Germany, and Great Britain – Witnessed an increase in the number of women in managerial positions but only in low-level managerial positions © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Labor Policy Issues Political, economic, and cultural differences interfere with the establishment of a universal foundation for employment practices Difficulty in deciding working conditions, expected consecutive work hours, and labor regulations Frequent offshoring due to differences in labor costs Ensuring that all contractors along the global supply chain are compliant with company standards © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Labor, Employment, and Business Practices in China • Workers are not paid well – Forced to work 12-hour days, seven days a week to meet demand – Some cases involve the usage of child labor • Example - Foxconn – 2010 - Issue of low wages headlined after a number of workers committed suicide © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Environmental Protection and Development • Poor countries are more focused on improving the welfare of their citizens • Environmental Kuznets Curve (EKC) – Relationship between per capita income and the use of natural resources and/or the emission of wastes has an inverted U-shape © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Environmental Kuznets Curve (EKC) • Reasons behind the inverted U-shape of the EKC – Composition of production and/or consumption – Preference for environmental quality – Institutions that are needed to internalize externalities – Increasing returns to scale associated with pollution abatement © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Figure 3.1 - Environmental Kuznets Curve © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Environmental Protection and Development (continued) • United Nations Climate Change Conference, 2015 – Tried to achieve an international consensus on environmental reform – Adopted the Paris Agreement © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Phenomena in Response to Globalization • Difficulty in attempts to balance organizational and cultural roots • Offshoring low-cost labor-intensive practices • Transferring a large percentage of current employees of all types to foreign locations – Creates issues related to corporate citizenship © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Reconciling Ethical Differences across Cultures • Integrative Social Contracts Theory (ISCT) – Attempts to navigate a moral position that does not force decision makers to engage exclusively in relativism versus absolutism – Offers one framework to help reconcile fundamental contradictions in international business ethics between home and host countries © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Corporate Social Responsibility (CSR) • Social, economic, and environmental expectations of each company are based on the desires of the stakeholders – Pressurize MNCs to pay greater attention to CSR • Nongovernmental organizations (NGO) – Private, not-for-profit organizations – Seek to serve society’s interests by focusing on social, political, and economic issues © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Nongovernmental Organizations • Urge MNCs to be more responsive to a range of social needs in developing countries • Activism has helped generate substantial changes in corporate management, strategy, and governance • Regarded as counterweights to business and global capitalism © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Nongovernmental Organizations (continued) • Collaborate with MNCs on social and environmental projects – Contribute to the well-being of the community and to the reputation of the MNC © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Responses to Social and Organizational Obligations • MNCs follow codes of conduct, including the U.N. Global Compact, the Global Reporting Initiative, and “SA8000” standards – Commit to maintain certain standards in their domestic and global operations – Help offset the concern that companies move jobs to avoid higher labor or environmental standards – Contribute to raising the standards in the developing world © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Responses to Social and Organizational Obligations (continued) • Fair trade – Organized social movement and market-based approach – Aims to help producers in developing nations obtain better trading conditions and promote sustainability © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Sustainability • Development that meets humanity’s needs without harming future generations • Helps companies recognize that dwindling resources will eventually halt productivity • World Economic Forum, Davos, Switzerland – Focused on how sustainable consumption can be used to ease problems related to the need for rapid business scaling © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Corporate Governance • System by which businesses are directed and controlled – Specifies distribution of rights and responsibilities among stakeholders – Spells out rules and procedures for corporate decision-making • Provides the structure for setting company objectives and means for attaining those objectives and maintaining performance © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Corporate Governance (continued) • Rules and regulations differ among countries and regions – The UK and U.S. systems are outsider systems because of dispersed ownership of equity among a large number of outside investors – Many continental European countries are insider systems in which ownership is more concentrated • Differences in legal systems affect shareholders’ and other stakeholders' rights © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Corporate Governance: Crony Capitalism • Occurs in nations with: – Less well-developed legal and institutional protections – Poor property rights • Emerges where weak corporate governance and government interference can lead to: – Poor performance – Risky financing patterns – Macroeconomic crises © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Foreign Corrupt Practices Act (FCPA) • Makes it illegal for U.S. companies and their managers to attempt to influence foreign officials through: – Personal payments – Political contributions • In complying with the provisions, U.S. firms must be aware of changes in the law – Makes FCPA violators subject to Federal Sentencing Guidelines © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Other Anticorruption Measures • Formal agreement by many industrialized nations to outlaw the practice of bribing foreign government officials – Includes nations that belong to the Organization for Economic Cooperation and Development (OECD) – Fails to outlaw most payments to political party leaders but does indicate growing support for antibribery initiatives © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Other Anticorruption Measures (continued) • Organization of American States (OAS) InterAmerican Convention Against Corruption – Established by Latin American countries • Transparent Agents Against Contracting Entities (TRACE) standard – Developed as a means of preventing the shift of corrupt practices to suppliers and intermediaries © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. International Assistance • Governments and corporations are collaborating to provide assistance to locales through global partnerships • Recent study identified the top priorities around the world for development assistance – Uses a cost-benefit analysis of where investments would have the greatest impact © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Table 3.3 - Copenhagen Consensus Development Priorities Source: Copenhagen Consensus 2012. © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. U.N. Sustainable Development Goals • Poverty - End poverty in all its forms everywhere • Food - End hunger, achieve food security and improved nutrition, and promote sustainable agriculture • Health - Ensure healthy lives and promote well-being for all at all ages © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. U.N. Sustainable Development Goals (continued 1) • Education - Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all • Women - Achieve gender equality and empower all women and girls • Water - Ensure availability and sustainable management of water and sanitation for all © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. U.N. Sustainable Development Goals (continued 2) • Energy - Ensure access to affordable, reliable, sustainable, and modern energy for all • Economy - Promote sustained, inclusive, and sustainable economic growth; full and productive employment; and decent work for all • Infrastructure - Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. U.N. Sustainable Development Goals (continued 3) • Inequality - Reduce inequality within and among countries • Habitation - Make cities and human settlements inclusive, safe, resilient, and sustainable • Consumption - Ensure sustainable consumption and production patterns • Climate - Take urgent action to combat climate change and its impacts © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. U.N. Sustainable Development Goals (continued 4) • Marine ecosystems - Conserve and sustainably use the oceans, seas, and marine resources for sustainable development • Ecosystems - Protect, restore, and promote sustainable use of terrestrial ecosystems; sustainably manage forests; combat desertification; halt and reverse land degradation; and halt biodiversity loss © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. U.N. Sustainable Development Goals (continued 5) • Institutions - Promote peaceful and inclusive societies for sustainable development; provide access to justice for all; and build effective, accountable, and inclusive institutions at all levels • Sustainability - Strengthen the means of implementation and revitalize the global partnership for sustainable development © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. In the International Spotlight - Cuba • Would you advise a company to become an early investor in Cuba? • Do you think Airbnb’s investment in Cuba will eventually see success and become a reliable profit stream? • Do you think Cuba will ultimately become an attractive long-term tourist destination for Americans? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss 1. How might different ethical philosophies influence how managers make decisions when it comes to offshoring of jobs? 2. What lessons can U.S. multinationals learn from the political and bribery scandals in recent years, such as those affecting contractors doing business in Iraq (Halliburton) as well as large MNCs such as Siemens, HP, and others? Discuss two © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 1) 3. In recent years, rules have tightened such that those who work for the U.S. government in trade negotiations are now restricted from working for lobbyists for foreign firms – Is this a good idea? Why or why not? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 2) 4. What are some strategies for overcoming the impact of counterfeiting? – Which strategies work best for discretionary (for instance, movies) versus nondiscretionary (pharmaceutical) goods? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 3) 5. Why are MNCs getting involved in corporate social responsibility? – Are they displaying a sense of social responsibility, or is this merely a matter of good business? Defend your answer © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Brief Integrative Case 1.1 Page 101 Advertising or Free Speech? The Case of Nike and Human Rights Nike Inc., the global leader in the production and marketing of sports and athletic merchandise including shoes, clothing, and equipment, has enjoyed unparalleled worldwide growth for many years. Consumers around the world recognize Nike's brand name and logo. As a supplier to and sponsor of professional sports figures and organizations, and as a large advertiser to the general public, Nike is widely known. Nike was a pioneer in offshore manufacturing, establishing companyowned assembly plants and engaging third-party contractors in developing countries. As an early adopter of this manufacturing model, Nike has faced a variety of ethical and moral challenges over the last three decades. In 1996, Life magazine published a landmark article about the labor conditions of Nike's overseas subcontractors, entitled “On the Playgrounds of America, Every Kid's Goal Is to Score: In Pakistan, Where Children Stitch Soccer Balls for Six Cents an Hour, Their Goal Is to Survive.” Accompanying the article was a photo of a 12-year-old Pakistani boy stitching a Nike-embossed soccer ball. The photo caption noted that the job took a whole day, and the child was paid US$0.60 for his effort. Up until this time, the general public was neither aware of the wide use of foreign labor nor familiar with the working arrangements and treatment of laborers in developing countries. Almost instantly, Nike became a poster child for the questionable unethical use of offshore workers in poorer regions of the world. This label continued to plague the corporation as many global human interest and labor rights organizations have monitored and often condemned Nike for its labor practices around the world. In the years following, Nike executives were frequent targets at public events, especially at universities where students pressed administrators and athletic directors to ban products that had been made under “sweatshop” conditions. Indeed, at the University of Oregon, a major gift from Phil Knight, Nike's CEO, was held up in part because of student criticism and activism against Nike on campus.1 Nike took immediate action to repair its damaged brand. In 2001, the company established a Corporate Responsibility and Sustainability Committee to ensure that labor practices were ethical across its supply chain. By 2003, the company employed 86 compliance officers (up from just three in 1996) to monitor its plant operations and working conditions and ensure compliance with its published corporate code of conduct. In 2005, Nike became the first among its peers to release a complete listing of all of the overseas factories that it contracts for labor. That same year, Nike released the pay scales of the factory workers and addressed actions it was taking to further improve conditions. Even so, the stigma of past practices—whether perceived or real—remained emblazoned on its image and brand name. Nike found itself constantly defending its activities, striving to shake this reputation and perception. In 2002, Marc Kasky sued Nike, alleging that the company knowingly made false and misleading statements in its denial of direct participation in abusive labor conditions abroad. Through corporate news releases, full-page ads in major newspapers, and letters to editors, Nike defended its conduct and sought to show that allegations of misconduct were unwarranted. The action by the plaintiff, a local citizen, was predicated on a California state law prohibiting unlawful business practices. He alleged that Nike's public statements were motivated by marketing and public relations and were simply false. According to the allegation, Nike's statements misled the public and thus violated the California statute. Nike countered by claiming its statements fell under and within the protection of the First Amendment, which protects free speech. The state court concluded that a firm's public statements about its operations have the effect of persuading consumers to buy its products and therefore are, in effect, advertising. Therefore, the suit could be adjudicated on the basis of whether Nike's pronouncements were false and misleading. The court stated that promoting a company's reputation was equivalent to sales solicitation, a practice clearly within the purview of state law. The majority of justices summarized their decision by declaring, “because messages in question were directed by a commercial speaker to a commercial audience, and because they made representations of fact about the speaker's own business operations for the purpose of promoting sales of its products, we conclude that these messages are commercial speech for purposes of applying state laws barring false and misleading commercial messages” (Kasky v. Nike Inc., 2002). The conclusion reached by the court was that statements by a business enterprise to promote its reputation must, like advertising, be factual representations and that companies have a clear duty to speak truthfully about such issues.2 In January 2003, the U.S. Supreme Court agreed to hear Nike's appeal of the decision in Kasky v. Nike Inc. from the California Supreme Court. In Page 102 particular, the U.S. Supreme Court agreed to rule on whether Nike's previous statements about the working conditions at its subcontracted, overseas plants were in fact “commercial speech” and, separately, whether a private individual (such as Kasky) has the right to sue on those grounds. Numerous amici briefs were filed on both sides. Supporters of Kasky included California, as well as 17 other states; Ralph Nader's Public Citizen Organization; California's AFL/CIO; and California's attorney general. Nike's friends of the court included the American Civil Liberties Union, the Business Roundtable, the U.S. Chamber of Commerce, other MNCs including Exxon/Mobil and Microsoft, and the Bush administration (particularly on the grounds that it does not support private individuals acting as public censors).3 Despite the novelty of this First Amendment debate and the potentially widereaching effects for big business (particularly MNCs), the U.S. Supreme Court dismissed the case (6 to 3) in June 2003 as “improvidently granted” due to procedural issues surrounding the case. In their dissenting opinion, Justices Stephen G. Breyer and Sandra Day O'Connor suggested that Nike would likely win the appeal at the U.S. Supreme Court level. In both the concurring and dissenting opinions, Nike's statements were described as a mix of “commercial” and “noncommercial” speech.4 This suggested to Nike, as well as other MNCs, that if the Court were to have ruled on the substantive issue, Nike would have prevailed. Although this case has set no nationwide precedent for corporate advertising about business practices or corporate social responsibility (CSR) in general, given the sensitivity of the issue, Nike has allowed its actions to speak louder than words in the years since. As part of its international CSR profile, Nike has assisted relief efforts (donating to tsunami relief in 2004 and Haiti earthquake relief in 2010) and advocated fair wages and employment practices in its outsourced operations. Nike claims that it has not abandoned production in certain countries in favor of lowerwage labor in others and that its factory wages abroad are actually in accordance with local regulations, once one accounts for purchasing power and cost-of-living differences.5 The Nike Global Community Impact Fund (formally called the Nike Foundation), a nonprofit organization supported by Nike, is also an active supporter of the Millennium Development Goals, particularly those directed at improving the lives of adolescent girls in developing countries (specifically Bangladesh, Brazil, China, Ethiopia, and Zambia) through better health, education, and economic opportunities. The Nike Global Community Impact Fund partners with more than five dozen international partners to distribute donated products and funding to a variety of causes across the globe.6 Environmental impact is also a key component of Nike's CSR profile. The company has focused on preserving water in the areas where its products are manufactured, incorporating new technology that minimizes the amount of water needed for dyeing processes. In 2018, Nike achieved 75 percent recycled material in its products, and 96 percent of its waste from the manufacturing process was either recycled or converted into energy. In 2019, Nike's North American energy supply was 100 percent renewable; by 2025, the company plans to power 100 percent of its worldwide facilities with renewable energy sources.7 As part of its domestic CSR profile, Nike is primarily concerned with keeping youth active, presumably for health, safety, educational, and psychological/esteem reasons. Nike has worked with Head Start and Special Olympics Oregon, as well as created its own community program, NikeGO, to advocate physical activity among youth. Partnering with then First Lady Michelle Obama, Nike worked to implement the “Let's Move” campaign into schools across the U.S. In conjunction with the U.S. Olympic Committee, Nike also sponsors Project Play, which aims to reshape the direction of youth sports by encouraging children to stay involved and feel included. In advance of the 2020 Olympics, Nike also launched a free online training program for volunteer youth coaches. Furthermore, Nike is committed to domestic efforts such as hurricane relief and bettering education, the latter through grants made by the Nike School Innovation Fund in support of the Primary Years Literacy Initiative. Despite Nike's impressive CSR profile, if the California State Supreme Court decision is sustained and sets a global precedent, Nike's promotion or “advertisement” of its global CSR initiatives could still be subjected to legal challenge. This could create a minefield for multinational firms. It would effectively elevate statements on human rights treatment by companies to the level of corporate marketing and advertising. Under these conditions, it might be difficult for MNCs to defend themselves against allegations of human rights abuses. In fact, action such as the issuance and dissemination of a written company code of conduct could fall into the category of advertising declarations. Although Kasky v. Nike was never fully resolved in court, the issues that it raised remain to be addressed by global companies. Despite the publicity of the case, at both the state and Supreme Court levels, and the lingering criticism about its labor practices overseas, Nike has thrived over the last decade. With strong and growing sales and profits globally, Nike was ranked as the most valuable apparel brand by Brand Finance in 2019. It is estimated that the Nike brand is now worth US$32 billion—far ahead of rival Adidas (US$17 billion).8 The company has expanded its operations into different types of clothing and sports equipment and has continued to choose successful athletes to advertise its gear. Nike has shown no signs of slowing down, suggesting that its name and logo have substantially recovered in the global market. Questions for Review 1. What ethical issues faced by MNCs in their treatment of foreign workers could bring allegations of misconduct in their operations? Page 103 2. Would the use of third-party independent contractors insulate MNCs from being attacked? Would that practice offer MNCs a good defensive shield against charges of abuse of “their employees”? 3. Do you think that statements by companies that describe good social and moral conduct in the treatment of their workers are part of the image those companies create and therefore are part of their advertising message? Do consumers judge companies and base their buying decision on their perceptions of corporate behavior and values? Is the historic “made in” question (e.g., “Made in the USA”) now being replaced by a “made by” inquiry (e.g., “Made by Company X” or “Made for Company X by Company Y”)? 4. Given the principles noted in the case, how can companies comment on their positive actions to promote human rights so that consumers will think well of them? Would you propose that a company (a) do nothing, (b) construct a corporate code of ethics, or (c) align itself with some of the universal covenants or compacts prepared by international agencies? 5. What does Nike's continued financial success, in spite of the lawsuit, suggest about consumers' reactions to negative publicity? Have American media and NGOs exaggerated the impact of a firm's labor practices and corporate social responsibility on its sales? How should managers of an MNC respond to such negative publicity? This case was prepared by Lawrence Beer, W. P. Carey School of Business, Arizona State University as the basis for class discussion. It is not intended to illustrate either effective or ineffective managerial capability or administrative responsibility. ENDNOTES 1. Ericka Cruz Guevarra, “Oregon Student Organizers Protest Nike over Sweatshops,” The Columbian, July 31, 2017, https://www.columbian.com/news/2017/jul/31/oregon-student-organizersprotest-nike-over-sweatshops/. 2. Marc Kasky v. Nike Inc., No. 994446, 02 C.D.O.S. 3790 (Cal., San Francisco Superior Ct. 2002). https://law.justia.com/cases/california/supreme-court/4th/27/939.html. 3. Linda Greenhouse, “Free Speech for Companies on Justices' Agenda,” New York Times, April 20, 2003, A17. 4. Linda Greenhouse, “Nike Free Speech Case Is Unexpectedly Returned to California,” New York Times, June 27, 2003, A16. 5. “Nike and Child Labour—How It Went from Laggard to Leader,” Mallen Baker, http://www.mallenbaker.net/csr/CSRfiles/nike.html. 6. “What We Do,” Nike Global Community Impact Fund, 2019, https://communityimpact.nike.com/what-we-do. 7. “Protecting the Environment,” Nike, 2019, https://purpose.nike.com/protecting-environment. 8. “Apparel 50: 2019,” Brand Finance, February 2019, https://brandfinance.com/images/upload/apparel_50_locked.pdf. Page 104 Brief Integrative Case 1.2 
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