Keepers of Responsibility? Non-Governmental Organisations (NGOs)

Sondra L. Duckert

Exam Report - Grade 10 (B)

CSR: Managing the Social Impact of Business Copenhagen Business School Friday, 4. APRIL, 2014

! ! ! ! ! ! ! ! ! !

Keepers Of Responsibility?

Non-Governmental Organizations (NGOs)

! ! ! ! ! !

Character count: 15.939 (18.847 w/spaces) Q2: Discuss what makes NGO campaigns against corporations successful. Illustrate your discussion by choosing a specific campaign that has taken place in the past.

! !

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"1

Preface Non-governmental organizations and activists have steadily become a large part of the global scene. They are about the business of advocating for change within firms based on collective beliefs or ideas regarding the environment and societal issues. They have been very effective at challenging firms that display unethical behavior or those who are placed themselves in the path of social risk. Their ability to affect economic and political policy has increased over the years by targeting corporations directly with boycotts, street protests or using social media to spread their message of injustices and bringing attention to their causes. The aim of this report therefore, is to present insights into how NGOs are able to influence policy and create successful campaigns against offending corporations as well as discuss the issue of responsibility ownership according to Iris Young and her views on ‘liability’ and ‘social connection model’ of political responsibility.

By drawing on an existing case study involving Nike’s 1991-1992 scandal that began in Indonesia, this report will discuss the impact NGOs had on Nike’s response strategies and the pressures it exhibit in getting Nike to accept social responsibility by implementing sweeping reforms throughout the company including its global supply chains.

!

Case Study: NIKE, Inc. In 1992, Harper’s magazine displayed images depicting deplorable labor conditions of children working in apparel supply factories that assembles Nike products. The article written by activist, Jeff Ballinger exposed Nike’s labour practices by comparing wages of Indonesian factory workers to those of an American professional athletic endorsement contract. However Nike’s problems did not began with the endorsement, according to Ballinger. Their problems began in the early 1990’s when it was made aware that their high-end products made by low wage labourers caught the attention of Ballinger, who in 1991 produced a report for the Asian-American Free Labor Association (AAFLI) about labour and safety issues in Indonesia. Ballinger then use a ‘one country-one company’ strategy to drive public outrage against Nike and its labour practices in Indonesia (Ballinger). With mounting criticism and protesters demonstrating at the 1992 Barcelona Olympics denouncing their labour practices, Nike responded first with resistance, and later with silence. Their argument was that they

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"2

were not accountable for problems at the factories, and that it was the responsibility of the factory owners and the Indonesian government.

In 1992, Nike adopted a Code of Conduct policy to address working conditions. In 1993, Ballinger founded Press for Change, an NGO advocacy group that was created to not only raise awareness about Nike’s labour practices and low-wages in their overseas supply chains but to also help the workers of those supply chains. However, it was after an American TV personality Kathie Lee Gifford, admitted to labour abuses of her own clothing line in Honduras that the focus boomerang on Nike as being the poster child for worker exploitation (Spar).

In the coming years a number of things happened that further added to Nike legitimacy problem. First there was the introduction of legislation solutions by the American government that covered overseas labour abuses. Second, Nike giant retail stores ‘Niketown’ drew large protests. Third, a popular American comic Doonesbury, created comic strips about Nike labor issues for a week. Fourth, Nike hired the former mayor of Altanta, Georgia, Andrew Young to do damage control, but it did not work and anti-Nike protests continued to grow. Even as accusations against Nike grew from a series of reports from Vietnam labor watch, Australia and New York, Nike’s continued to deny that they were responsible for labour and safety issues; which only made the critics voices louder (Spar).

When young consumers on college campuses in the US began to protest against not only Nike but also against college contracts with Nike, this became an advantage for Adidas to gain a stronger hold in the market (Spar), as people refused to buy Nike products. Adidas faced the same labor problems as Nike, however they were smart to admit wrong doing and began working with NGOs to solve the problems (Spar).

In 1998, as a result of ‘normative delegitimation’ campaigns against Nike, they began to address their problems. Phil Knight finally admitted that,“the Nike product had become synonymous with slave wages, forced overtime, and arbitrary abuse. I truly believe the American consumer doesn’t want to buy products made under abusive conditions.”1 However this did not stop a lawsuit brought by Marc Kasky against Nike for unfair and deceptive practices under California Unfair Competition Law and False Advertising Law, on !1 Quoted in John H. Cushman, Jr., “Nike to Step Forward on Plant Conditions,” San Diego Union-Tribune , May 13, 1998, p. A1.

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"3

behalf of the workers in Indonesia. In 2003, Nike and Kasky settled the case for 1.5 million US dollars and Nike was ordered to strengthen workplace safety and implement educational programs for factory workers (Campbell).

Reforms were announced and Nike introduced a NGO management strategy that included training programs, labor standards upgrades and education as well as new codes of conduct for suppliers and independent monitoring. The interesting note about the plan was that it was made not for their stakeholders, customers nor employees in Indonesia, but specifically for NGOs. By 2001 Nike had not only published its first CSR report, they donated $7.7 million US dollars to create The Global Alliance for Workers and Communities (Spar).

!

Managerial strategies response to Nonmarket stakeholders As it has been presented above, Nike’s first response to the labour crisis was to deny responsibility for their workers in Indonesia. To investigate Nike’s strategy that was used in disputing nonmarket stakeholders, i.e. NGOs, the essay will follow a framework developed

by Anne T. Lawrence, that was based on previous cases involving disputes between firms and nonmarket stakeholders. The result of those cases revealed four ‘major’ managerial strategies, and three factors that influences strategies.

Lawrence’s four managerial strategies are: 1) to ‘wage a fight’ means that a firm is defiant of nonmarket stakeholder wishes 2) to ‘withdraw’ means to abandon the dispute and pursue objectives in another area; change course of actions, 3) to ‘wait’ does not mean ignoring, just waiting for the conditions of the dispute to shift, using time as an advantage, 4) and to ‘work it out’ is when firms need to stay actively involved in dialogue with stakeholders to arrive at the best possible solution.

The three factors that according to Lawrence, strongly influences the 4Ws are: 1) ‘resource dependence’ in cases where firms are dependent on others on whom they rely on for important resources, 2) ‘firm power’ is further divided into coercive powers, utilitarian powers and normative powers, and 3) ‘urgency’ refers to the demands of immediate action (Lawrence:p102).

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"4

Taking a cue from Lawrence’s framework and propositions, Nike’s managerial strategy was a combination of ‘wage a fight’ and ‘work it out’.

Firms like Nike are more likely to ‘wage a fight’ if their management strategy is one that has a low dependence on stakeholders, high management power but does not consider the dispute as urgent. Firms that are ready to ‘work it out’ are the ones that are dependent on stakeholders for critical resources, has a powerful management style, and faces high urgency issues.

To demonstrate the framework in identifying Nike managerial strategies in disputes with nonmarket stakeholders we began with Nike’s denial when first informed about its unethical practices in Indonesia and thereby selecting to ‘wage a fight’. Nike’s dependence on others is low early in the crisis and despite public pressure for them to find a solution they choose to stay silent. The publicity had yet to damage its brand reputation and Nike therefore used its coercive power to deferred all responsibility to the suppliers and government policies in Indonesia. Furthermore because they were consider job creators that offered support for the community, they also had some utilitarian power.

However as the urgency of the problems became greater, their strategy became more unpredictable. It is assumed that Nike was waiting for the public to lose interest in the situation because the responsibility of ‘distant others’ seemed to them, distant. Their strategy only resulted in giving the advantage to non-market stakeholders, which used Nike’s nonurgent behavior to step up attacks, force boycotts and effectively change Nike’s brand perception and thus legitimacy in the public and media arena. At every turn activists were able to repel Nike’s moves, from denouncing a report by Andrew Young because it did little in addressing the wage issues to organising the boycott of Nike products on US college campuses.

It was only after several years and effective campaign attacks using consumers, interviews with employees from suppliers by American TV channels - getting their own story out - and partnering with stakeholders with clout; coupled with a dismal financial outlook for Nike products, that they began to actively engage in talks with NGOs thereby adopting a ‘work it out’ strategy. This strategy denotes a high dependency on stakeholders, a powerful management and accepting the urgency of the situation. The CEO, was now ready to invite change into their management strategy, thereby moving away from a position of resistance to

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"5

one of cooperation and engagement. This strategy resulted in a Code of conduct for all of its business units, joining the Apparel Industry Partnership (AIP), forming the Fair Labor Association (FLA) where they agreed to pay minimum wage, hire workers that were at least 15 years old, and implement working hours of no more than 60 hours per week. Nike’s CEO stated that ‘The performance of Nike and every global company in the 21st century”, he predicted “ will be measured as much by our impact on quality of life as it is by revenue growth and profit margins.”2 The purpose of using this framework is to map out whether or not firms are able to meet their managerial objectives when pursuing a strategy that is well aligned with resource dependence, firm power and urgency (Lawrence). It is clear that with this method, Nike would be more successful using a response strategy of ‘work it out’ instead of ‘wage a fight’.

! !!

Nike, Social Risks and waging successful NGO Campaigns Activists using the process of normative delegitimation to pressure firms into adopting new policies is what makes NGOs campaigns against corporations successful. NGOs campaigns are typically based on the model of social risks that illustrates a cyclical process by which multilevel antecedents, inter-organizational dynamics and consequences defines the steps of a NGO campaign. The first step is to capture the attention of NGOs, which leads them to indirectly challenge the inter-organizational dynamics using the consumers, demonstrations, stakeholders and boycotting to elicit a response from an offending firm in the hopes that they will change their policy and be more socially responsible.

Noncompliance can lead to a campaign of delegitimation by way of a watch dog or a proxy war campaign or any method that can severely damage its brand identity and thus its legitimacy.

Nike is just one of many corporations that have come under attack by NGOs using this method because of their unethical practices, that placed them on the radar of NGOs to take responsibility for the treatment of workers within their supply chain. “… by the early 1990s,

2

Nike, Corporate Responsibility Report, 2001, www.nikebiz.com

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"6

however, a vulnerability in Nike’s low cost, high profile strategy was becoming evident. Nike, it appeared, was a nearly ideal target for activist attack – a perfect symbol of low-wage labor, and a symbol so prominent that attack was easy. And once the activists targeted the firm, they showed no sign of letting go” (Spar). Furthermore, Nike’s resisted the demands from NGOs to take some social responsibility for workers, in an environment that eventually led to them facing a lawsuit over worker exploitation. This happened because of NGOs

Figure 1. Social Risks

!

challenges and influences on ‘critical players’, such as consumers, employees, and other shareholders to apply economic pressure on Nike.

The type of campaign that was used against Nike was a ‘proxy war’ campaign. A proxy war campaign is one that is used to change the way institutions work. The goal is to do two things, delegitimise the firm and to use the campaign as an example of a dominant institution (Rasche, lecture five slides).

By using the media, grassroots organizations on college campuses, placing the spotlight on high profile American athletes who promoted the Nike brand and the constant association of Nike with child labour, exploitation and low wages resulted in Nike making across the board organizational changes. Thus this campaign use the tactic of political consumerism that

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"7

allowed NGOs to leverage their resources that resulted in two different responses from Nike, as mentioned above, first they fought back (‘wage a fight’ ) but in the end they only wanted to ‘work it out’, i.e. capitulation.

!

Whose responsibility is it to care about ‘distant others’?

Corporate social responsibility is based on the assumption of how companies can contribute to a good society through good business practices. It is also about how companies can make profits and not necessarily how they spend them, however this doesn’t exempt companies from becoming moral actors. Being ‘responsible’ has not always been a corporate priority. It is mostly when corporations find themselves in trouble with their CSR agenda that they begin to transform their business practices to deal with the issues.

Iris Marion Young published a number of essays, including‘Responsibility and Structural Justice’ accounting how ‘individuals should apprehend and understand their responsibilities in addressing injustice. She contends that the ‘liability model’ should be replaced because, according to Young, it does not have an understanding of responsibility to address injustice.

Her model, an alternative to the liability model, is the ‘social connection model’ of political responsibility.

According to Iris Young, “Political responsibility,” she explains, “doesn’t reckon debts, but aims at results, and thus depends on the actions of everyone who is in a position to contribute to those results. Taking political responsibility in respect to social structures emphasizes the future more than the past” (Young).

With this model, everyone would be empowered to tackle issues like homelessness, unfairness and the exploitation of workers through out the global supply chains (Young).

Young’s stance is that, how can people in affluent countries ‘make sense’ of being held responsible for improving working conditions of those in far away countries, who produce products for the affluent countries. By supplementing the social connection model of political responsibility, no one can be absolve of their responsibilities.

The role of structural injustices exists when “social processes put large groups of persons under systematic threat of domination or deprivation of the means to develop and exercise

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"8

their capacities”(Young). Therefore her assumptions is that those who contribute to structural injustices are linked to political responsibilities. Yet Young fails to define to what degree this can happen or provide the processes of contributing to structural injustices.

NGO campaigns against Nike was successful because it attracted an enormous amount of attention by connecting with consumers. Applying the liability model instead of Young’s social connection model’ of political responsibility will provide a sense that responsibility has been properly assigned.

CONCLUSION Normative delegitimation campaigns is a method by which NGOs use to influence companies in adopting certain policies. It is a process of unrelenting external pressures that is designed to threaten a firms legitimacy and thus its brand name. Once Nike’s brand name became attached to negative images and publicity, capitulation became a dominant strategic move for Nike, in order to stop the assault on its brand name and diminished profit margins.

The essay illustrates just one of the many interactions and collaborations between corporations, NGOs and activists groups that will continue to happen in the future, because these groups are defining themselves as major players in helping corporations meet and exceed their social responsibility. Moreover, their input has ‘forced’ companies to make calculated decisions by consider the implications of compliance and capitulation.

The purpose of this essay thus was to analyze Nike managerial strategies responses in the wake of NGO normative delegitimation campaign launch against them. And to discuss the ‘ownership’ of responsibility to ‘distant others’ by briefly laying out some of the views expressed by Iris Young’s in connection to liability and political responsibility.

! ! ! !

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"9

!

References: • de Bakker, F.G.A. & de Hond, F. (2008): “Activists’ Influence, Tactics and Corporate Policies”. Business Communication Quarterly, 71(1):107-111 • Lawrence, A. T. (2010): “Managing Disputes with Nonmarket Stakeholders: Wage a fight, Withdraw, Wait, or Work it out?”. California Management Review, 53(1):90-113 • Young, I.M. (2004): “Responsibility for Global Labor Justice”, Journal of Political Philosophy 12(4):365-388.

• Zadek, S. (2004): “The Path to Corporate Responsibility”. Harvard Business Review, 81:125-132.

!

External References: The Nike Summary was taken from the following list of sources • Ballinger Jeff (1992): “The New Free-Trade Heel,” Harper’s Magazine, August 1992.

• Campbell, D., N.p., Web. 2 Apr 2014. Case profile: Nike lawsuit (Kasky v Nike, re-denial of labour abuses) <http://www.business-humanrights.org/Categories/Lawlawsuits/ Lawsuitsregulatoryaction/LawsuitsSelectedcases/ NikelawsuitKaskyvNikeredenialoflabourabuses>.

• Spar, D.L. & Burns, J. (2002): “Hitting the Wall: Nike and International Labor Practices”.

Harvard Business Review, January 2002; Rev: September 2002:1-23.

SONDRA L. DUCKERT

CSR: MANAGING THE SOCIAL IMPACT OF BUSINESS

SPRING 2014

"10