April 13, 2005
On April 13, 2005, Nike released its second Corporate Responsibility Report and the first released since 2001. Below is MSN's assessment of the strengths and weaknesses of the Nike CR report. (Our assessment does not look at sections of the report dealing with environmental, community, or employee diversity issues.)
Nike's decision to publicly disclose the names and addresses of all approved factories producing Nike brand products represents a major breakthrough toward greater transparency and corporate accountability in the industry. It opens up Nike's global supply chain to public scrutiny and could motivate other companies to do the same.
To date, most major retailers and brands have refused to voluntarily disclose factory locations where their apparel products are made, arguing that this is "proprietary information," and that releasing this information would allow competitors to gain access to trade and product design secrets.
Companies have been equally opposed to proposals for government regulations that would require all apparel companies to disclose factory locations, despite the fact that such regulations would create a level playing field and eliminate concerns about competitive advantage.
Nike's decision to publicly disclose factory locations exposes the "proprietary information" argument for what it is - an attempt to hide factory conditions from public scrutiny. If a company that has invested as much as Nike has in its brand and product design can disclose factory locations, there is no reason other companies cannot do the same.
Nike has disclosed the names and addresses of all approved factories producing Nike brand products - over 700 factories. The list does not currently include factories making products for Nike's other wholly owned brands, such as Converse, Cole Haan, and Bauer Nike Hockey. Nike says that in 2005 it will be working on "a timetable for addressing CR in all of our brands."
The Nike report is much more candid than previous company public statements and reports about the prevalence of worker rights violations in its global supply chain and in the garment industry in general. This in itself is an important step forward, since most of the company's earlier reports were viewed by the anti-sweatshop movement as public relations efforts to minimize the impact of independent reports of worker rights abuses.
Percentage of Nike audits (factory monitoring by Nike compliance staff) with one or more instances of noncompliance:
The report gives considerable attention to restrictions on freedom of association in countries like China where a large and growing percentage of its production is located.
Lack of worker awareness of basic code of conduct provisions is also identified as a major challenge for the company.
According to the report, over the next few years, Nike will focus on the following priority issues:
The report reveals that Nike compliance staff carry out internal audits of 25-33% of active factories per year. Findings and corrective action from these audits is not publicly disclosed, although composite findings by geographic region are provided in the CR report.
The Fair Labor Association (FLA), of which Nike is a "Participating Company," carries out external audits of 5% of Nike's active factories per year. FLA audit findings and corrective action are publicly disclosed.
While health and safety issues are most frequently reported in FLA external audits of Nike supply factories, the FLA's own Second Annual Report admits that violations of freedom of association, harassment and abuse, discrimination, and wages and benefits provisions are underreported because of problems with the quality of the audits.
According to the report, in 2004, 36% of Nike footwear was made in 17 contract factories in China. This does not include Converse brand running shoes. In addition, Nike apparel and equipment were made in 96 contract factories. With the elimination of the quota system at the end of 2004, production of Nike products in China is likely to increase significantly.
The report points to the following worker rights issues that are endemic to the Chinese garment and footwear industries: the lack of freedom of association, lack of clarity as to what constitutes the law ("inconsistencies between national and local laws"), the common practice of management falsifying factory records on working hours and wages, and issues specific to the migrant labour system.
The report also notes that audits carried out by the US non-profit monitoring organization Verité of 142 factories in China producing for a number of companies found that 93% of factories audited employed excessive overtime. (The FLA's Second Annual Report also points to waivers granted by local governments in China allowing excessive working hours as major systemic problem in that country.)
The Nike report advocates constructive engagement with Chinese suppliers and the Chinese government as the best approach to addressing these systemic issues.
The Nike report recognizes that factory monitoring doesn't necessarily lead to remediation (long-term compliance). It highlights the need for labour rights training for management personnel and workers.
The report also acknowledges the need to deal with "root causes" of noncompliance, such as pricing, quality demands and order deadlines.
The report refers to recent initiatives in which Nike is consulting or engaging with labour and non-governmental organizations, including two in which MSN has participated - the February 2004 Stakeholder Forum, involving representatives of trade union, environmental and labour rights NGOs, investors and suppliers; and the ongoing MFA Forum, examining how to address the negative impacts of the quota phase-out.
Despite the advances described above, there continue to be a number of weaknesses and limitations in Nike's Corporate Responsibility reporting, including the following:
Reporting on the findings of internal monitoring by geographic region doesn't allow for evaluation of progress made at the country or factory level. Reporting on findings and corrective action by factory, or at least by country, would be far more useful. Connecting the dots between the specific factories now listed on the Nike website and the findings of internal and external monitoring, as well as corrective action taken, would act as a major incentive to suppliers to achieve and maintain compliance with the Nike code and local laws.
The Nike report acknowledges that wages and working hours are inextricably linked (inadequate wages compel workers to work excessive hours), but fails to acknowledge that the company has a responsibility to ensure that workers receive wages that meet their basic needs by local standards. The report skirts the living wage issue, focusing instead on increased productivity as the solution to the problem.
Labour rights training for workers and management personnel is certainly needed, but what happens when workers exercise their rights? Will Nike make a commitment to stay in factories where workers organize and bargain collectively?
While the report touches on the pricing issue (whether prices paid to suppliers allow for code compliance) and talks about code compliance being a factor in Nike's sourcing decisions, suppliers need concrete incentives for code compliance - a commitment to long-term business relationships, adequate prices (investment in wages), and reasonable order schedules. While the report talks about incentives and sanctions, it is weak on specific commitments.
According to the report, Nike supports duty-free market access for apparel exports from developing countries.
Although Nike has made a number of efforts to consult and engage with labour and non-governmental organizations, as the Nike Report Review Committee states, "future reports would benefit from coverage of how Nike engages with its keenest critics."