Advertising or Free Speech? The Case of Nike and Human Rights
This week’s discussion is about Corporate Social Responsibility (CSR), focusing on the brief case study about Nike (p.101 in the textbook).
Nike pioneered offshore manufacturing by hiring third-party contractors in developing nations to work in its company-owned plants. Among other workers, the contractors hired minors at low pay in” sweatshops.” When the news became public in 1996, Nike faced negative public opinion, and then it established a Corporate Responsibility and Sustainability Committee to ensure that labor practices were ethical across its supply chain.
After that, Nike was sued for allegedly knowingly making false and misleading statements in denying its direct participation in the abusive labor conditions abroad in manufacturing its products. The case was dismissed for procedural issues by the U.S. Supreme Court. Thereafter, Nike has worked on building its CSR profile through relief efforts and advocating fair wages and employment practices in its outsourced operations.
Thinking about Nike’s corporate practices, if you were to start a company that outsourced labor in order to reduce manufacturing costs,
1- what decisions would you make to combine commercial objectives with social goals to improve the impact of corporate social responsibility efforts?
2- How might the two conflict?
Embed course material concepts, principles, and theories, which require supporting citations along with four scholarly peer-reviewed references supporting your answer.
Review Chapters 2 & 3 in International Management: Culture, Strategy, and Behavior
“Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights” (p. 101), in International Management: Culture, Strategy, and Behavior.
Beumer, C., Figge, L., & Elliott, J. (2018). The sustainability of globalisation: Including the ‘social robustness criterion’. Journal of Cleaner Production, 179, 704-715.
Christ, K., & Schaltegger, S. (2020). Multinational enterprise strategies for addressing sustainability: The need for consolidation. Journal of Business Ethics, 1-22.
Richter, U., & Arndt, F. (2018). Cognitive processes in the CSR decision-making process: A sensemaking perspective. Journal of Business Ethics, 148(3), 587-602.
Al-Malkawi, H. (2018). Corporate social responsibility and financial performance in Saudi Arabia. Managerial Finance, 44(6), 648-664.
Alnajdi, O., Calautit, J., & Wu, Y. (2019). Development of a multi-criteria decision making approach for sustainable seawater desalination technologies of medium and large-scale plants: a case study for Saudi Arabia’s vision 2030. Energy Procedia, 158, 4274-4279.
Das, M., Rangarajan, K., and Dutta, G. (2020). Corporate Sustainability in SME’s: Asian Culture. Journal of Asia Business Studies, 14 (1), 109-138.
Murphy, M., Macdonald, J., Antoine, G., & Smolarski, J. (2019). Exploring Muslim attitudes towards corporate social responsibility: Are Saudi business students different? Journal of Business Ethics, 154(4), 1103-1118.
Brief Integrative Case 1.1
Advertising or Free Speech? The Case of Nike and Human Rights Nike Inc., the global leader in
the production and market- in of sports and athletic merchandise including shoes, clothing, and
equipment, has enjoyed unparalleled world- wide 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 organiza- tions, and as a large advertiser to the general public, Nike is widely known.
Nike was a pioneer in offshore manu- facturing, establishing company-owned assembly plants
and engaging third-party contractors in developing coun- tries.
In 1996, Life magazine published a landmark article about the labor conditions of Nike’s
overseas subcontrac- tors, 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
Sur- vive.” 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 arrange- ments and treatment of laborers
in developing countries. Almost instantly, Nike became a poster child for the ques- tionable
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” con- ditions. 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 embla- zoned on its image and brand name.
Nike found itself constantly defending its activities, striving to shake this reputation and
In 2002, Marc Kasky sued Nike, alleging that the com- pany knowingly made false and
misleading statements in its denial of direct participation in abusive labor condi- tions 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 plain- tiff, a local citizen, was predicated on a California state law prohibiting
unlawful business practices. He alleged that Nike’s public statements were motivated by market-
ing 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 protec- tion 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 consum- ers to buy its products and therefore are, in effect, adver- tising.
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 prod- ucts,
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 reputa- tion
must, like advertising, be factual representations and that companies have a clear duty to speak
truthfully about such issues.2
100 Part 1 Environmental Foundation
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 particular, the U.S. Supreme Court agreed to
rule on whether Nike’s previous statements about the working conditions at its subcon- tracted,
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 Com- merce, other MNCs including Exxon/Mobil and Micro- soft, 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 wide-
reaching 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
con- curring and dissenting opinions, Nike’s statements were described as4a mix of
“commercial” and “noncommer- cial” speech. This suggested to Nike, as well as other MNCs,
that if the Court were to have ruled on the sub- stantive 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 recent years. As part of its
international CSR profile, Nike has assisted relief efforts (donating $1 million to tsunami relief
in 2004) 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 lower-wage 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 Foundation, a
nonprofit organization supported by Nike, is also an active sup- porter of the Millennium
Development Goals, particu- larly 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.6 Envi- ronmental 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. Nike has pledged to eliminate all hazardous chemicals
from its supply chain by 2020.
As part of its domestic CSR profile, Nike is primarily concerned with keeping youth active,
presumably for health, safety, educational, and psychological/esteem rea- sons. Nike has worked
with Head Start (2005) and Special Olympics Oregon (2007), as well as created its own com-
munity program, NikeGO, to advocate physical activity among youth. Partnering with the First
Lady Michelle Obama, Nike worked to implement the “Let’s Move” campaign (2013) into
schools across the U.S. Nike also sponsors Project Play (2014), which aims to reshape the
direction of youth sports by encouraging children to stay involved and feel included.
Furthermore, Nike is commit- ted to domestic efforts such as Hurricane Katrina relief and
education, the latter through grants made by the Nike School Innovation Fund in support of the
Primary Years Literacy Initiative.7 Despite Nike’s impressive CSR profile, if the Califor- nia
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 dec- larations. Although Kasky v.
Nike was never fully resolved in court, the issues that it raised remain to be addressed by global