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Ambassador Young
Evaluates Nike's Code

By Louis Corrigan (RgeSeymour@aol.com)

Atlanta, GA (June 30, 1997) On June 24th, former U.N. Ambassador Andrew Young presented results of a four-month long investigation of NIKE'S (NYSE: NKE) Asian shoe factories. The former civil rights leader found "no evidence of widespread and systematic abuse of workers," despite some well-publicized recent cases of mistreatment. Hired by Nike to conduct an "independent" assessment of whether the company's overseas manufacturers were living up to the company's expectations, Young concluded that Nike was "doing a good job" in the application of its Code of Conduct, but that the company "can and should do better."

The report is likely to bolster Nike's efforts to reassure consumers and shareholders alike that it is not operating sweatshops. Unfortunately, it will probably do little to assuage Nike's critics, who have assailed Young's report for failing to address the issue of low wages -- particularly since compensation is one key component of Nike's Code.

As a multinational corporation with half a million overseas laborers, Nike is one of the best-known companies that runs factories in developing nations. For several years now, the company has been under attack from labor and human rights groups for "exploiting" low-wage workers in those developing countries. Recent reports have focused on forced overtime and physical abuse of line workers by managers at one of the company's subcontractors in Vietnam. A growing public outcry against sweatshop work conditions and the use of child labor in the textile industry in general have helped put Nike even more in the spotlight

The company has consistently downplayed these negative reports, suggesting they are isolated incidents and that Nike has implemented policies to ensure that its subcontractors measure up to Nike's standards. To bring a new perspective to this growing public relations mess, Nike Chief Executive (CEO) Phil Knight hired Young's newly formed GoodWorks International consulting firm to "find the truth" last January. Knight promised Young "blanket authority" to go anywhere, see anything, and talk with anybody connected to Nike. He also agreed that Young's report would be made public.

Young's investigation entailed an initial briefing by Nike officials on the manufacturing process plus interviews with many of the labor and human rights activists that have been critical of Nike. He also spoke with labor leaders and others who were familiar with problems at the local factories. His study also included a review of confidential audit reports prepared for Nike since 1994 by Ernst & Young and Price Waterhouse based on unannounced spot audits at the company's manufacturing plants. These audits were particularly interesting as they were interviews with randomly selected employees of overseas contractors conducted without management being present. The questions asked about topics ranging from working conditions at each plant to general living conditions, since several of the factories also offer dorm housing to employees. Young concluded that "these audits were rigorous in their analysis and follow-up," detailing specific problems and recommendations.

The most important aspect of his inquiry involved visits to 12 factories: four in China, four in Vietnam, and four in Indonesia, including those factories considered both the "best" and the "worst" based on the independent audit reports. He spoke with randomly selected employees and often lunched with a factory's labor representatives, workers, or management. He also spoke with some of the 56 women at one Vietnamese plant who were forced by a manager to run laps around the factory as punishment for failing to meet a production goal.

Young found that the factories he visited were "clean, organized, adequately ventilated and well lit. They certainly did not appear to be what most Americans would call 'sweatshops.'" As for the optional housing provided at some factories, the rooms are small and sparse by Western standards but "better than their home," according to the workers. Indeed, at one point in the report, Young said that "these dorm rooms were like a summer-camp environment in the United States with clothes hung out to dry, pictures on the wall and radios blaring."

Nonetheless, the former U.N. Ambassador noted some problems and offered some recommendations. For instance, Young found that the Vietnamese plant where the running incident occurred is owned and managed by Taiwanese who "do not speak the local language fluently and are overseen by a relatively small number of Nike technical supervisors focused largely on quality control." Young suggested that Nike work with its contract manufacturers to recruit and train indigenous managers and to hold human relations and cultural sensitivity courses for the expatriate managers, since communications barriers seemed to be at the core of many problems at these factories

Young did not write off the incidents at this one Vietnamese factory entirely. As a multinational, Young stated that Nike and similar companies that chose to operate in countries without mature trade union movements or any tradition or understanding of the concept of "workers' rights" faced enormous challenges. Young suggested that in his view, "the responsibility for protecting the workers must fall increasingly on the[se] large companies ... [T]his means that Nike -- and its competitors -- must pro-actively take steps that contribute to the creation of systems and processes that protect its workers in these contract factories."

To this end, Young suggested that Nike take more aggressive steps to enforce its Code of Conduct, making clear to subcontractors that they may lose the company's business if they fail to live up to these standards. Nike should also make sure that the Code is visible on factory floors and that each employee has a pocket-sized copy of it. Since Young found that the factory workers have a poor understanding of their rights, he said Nike should hold regular training sessions with employees and managers explaining the Code. The company should also inform workers of how to file grievances and ensure that they can do so without fear of retribution by factory management. There must also be a process in place that ensures such complaints are acted upon. Nike should also promote the development of qualified worker representatives who actually have the time and ability to represent the workers' interests.

To make sure the Code is being enforced, Young recommended stepped-up external monitoring that would include the spot audits but also go further. He suggested the company should try the ombudsman model whereby the employees that thought their grievances had not be addressed within the factory would have an established, practical means of going up the chain of command. Young also suggested that Nike develop an outside panel composed of "distinguished international citizens" to monitor the factories on a regular basis.

While Young said the company should expand its dialogue with human rights and labor groups, he disagreed with those who have said Nike's critics should be the ones monitoring the company's progress. He said such an arrangement would be "neither a practical nor a fair solution" and that he was not aware of a single Western institution that "permits its critics to be the final arbiter in evaluating its performance." Moreover, he charged that the harsh criticism offered by some of these activists "have no basis in fact" and that it was asking too much of Nike to trust groups that had used "exaggerated rhetoric" and made "irresponsible statements" about the firm.

In response to Young's report, Nike CEO Knight and Chief Operating Officer (COO) Thomas E. Clarke indicated that the company would "take action to improve in areas where he suggests we need to improve. For although his overall assessment is that we are doing a 'good job,' good is not the standard Nike seeks in anything we do." The company's formal response pointed to its leadership within the newly formed Apparel Industry Partnership, which brings together industry leaders and rights advocates. Then, on a point-by-point basis, it addressed Young's numerous suggestions, indicating what action the company has already taken or will take by next January 31, when it will reassess whether further steps are needed.

All of this is no doubt a healthy process for Nike and may indeed lead to improved conditions for its overseas workers and for a gradual raising of the bar in the apparel industry more generally. On the other hand, Young's report has been poorly received by Nike's critics who contend that his twelve-factories-in-ten-days excursion through Asia amounts to something like those Tuesday-this-must-be-Paris high school tours of Europe. They find it preposterous he could attempt to draw any serious conclusions from such a brief trip. As Medea Benjamin, director of the San Francisco human rights group Global Exchange told The New York Times, "I think it was an extremely shallow report. I was just amazed that he even admitted that he spent three hours in factories using Nike interpreters and then could come out and say he did not find any systematic abuse."

Furthermore, many of these critics contend that one simply cannot separate wages from human rights. As Timothy Smith, executive director of the Interfaith Center on Corporate Responsibility told Dow Jones, "We think the issue of wages is central to the whole sweatshop question." As Young was handing in his report, several human rights groups asked that he use his "moral authority to recommend and help implement a program that will increase wages," citing evidence that Nike's workers do not make "subsistence" wages. For example, in Indonesia, Nike's workers make $2.46 a day versus the "subsistence level" of $4 a day. In Vietnam and China, where the "basic living wage" is $3 a day, workers get just $1.60 and $1.75 a day, respectively. Given the company's profits, these groups say Nike "could easily afford these increases."

There are some questions as to how the human rights groups calculated their "subsistence wages." Nike spokesperson Vada Manager told Reuters the company believes it is "a real leader in the way our workers are treated," particularly in Vietnam. In Vietnam's Dong Nai province, where five of Nike's factories operate, the average per capita income is $170, whereas the average Nike worker makes $480 a year. This would put the average daily salary for Dong Nai at $0.57 (based on the region's typical 6 day work week), substantially below the $3 a day subsistence wage the human rights agencies cited.

For his part, Young said he was not asked by Nike to evaluate wage levels at the company's factories and, indeed, noted that such a complex exercise was beyond the technical capacity of his small firm. Still, as a lifelong supporter of trade unions, his "heart and sympathies were with the workers" and he believes that "minimal global wages and standards are desperately needed." On the other hand, he doesn't think it's particularly constructive to single out a few highly visible and successful companies as the culprits. "[M]eaningful reform can only be achieved through national law or international standards that enforce a 'level playing field' for all companies, not just a few." He said that work on minimum wage standards was better left to organizations like the International Labor Organization.

Should Young have ignored the wage issue? In Nike's actual Code of Conduct, the company states its commitment to "do not only what is required, but what is expected of a leader... [S]pecifically, Nike seeks partners that share our commitment to the promotion of best practices and continuous improvement in... compensation..." Part of Young's task was to evaluate whether or not the company's Code of Conduct was being implemented at the factory level. Ignoring the most problematic part of that Code -- the part that many of Nike's critics say is of central concern -- does not necessarily bring the issue to closure. A more comprehensive and unbiased report on the average wages for workers in given regions and at Nike factories would seem warranted.

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