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Business Ethics

Group Assignment

EPGP 2009-10 - Term II- Group Submission
30-Nov-2009




Instructor:     Prof. Lalitha ...
Table of Contents

1 Evaluate critically Nike’s Memorandum of Understanding and Reebok’s Human rights Production
Standards...
1   Evaluate critically Nike’s Memorandum of Understanding and
    Reebok’s Human rights Production Standards. Do they dif...
been developed either individually or under the co-ordination of business sup-port groups,
such as the International Chamb...
and Reebok, both known for their significant marketing and advertisements budgets and
large-scale publicity campaigns with...
the code and forms a separate document. The Reebok Award can be considered as part of
the implementation of Reebok's socia...
- Overtime: Remuneration according to national legislation and
                            local practice

Wages/remunerat...
Nike's code of conduct is however subdivided into two sections: one, made up of ethical
guidelines, applies to the enterpr...
-minimum wages

                                                -overtime

                                               ...
Compliance mechanisms are a problem, with both Nike and Reebok codes. None of them
describe a complete monitoring system. ...
5. Child labour

       6. Right to assemble peacefully


Reebok’s code is more proactive and mentions surprise checks and...
It could also be the case that the entire industry is underperforming and resorting to wrong
practices to cut costs. In th...
3   Does shifting production among countries, such as from South Korea
    to Indonesia, raise any human rights concerns?
...
What South Korea and Taiwan contractors picked up during their hay days were the
   contracts, the confidence of their Wes...
human rights was the cost they had to pay working here. The shoes worth $80 for in the
   United States are assembled by I...
Companies like Nike and Reebok would often have manufacturers at same locations
   fighting for more contracts and competi...
and discrimination, and it sets standards for health and safety, freedom of collective
   bargaining, fair wages and benef...
4   What responsibilities does a multinational corporation have regarding
    labor standards and environmental standards ...
• Personal Freedom: Rights protecting a person's privacy in matters relating to
             family, home, correspondence,...
II.    Multinational enterprises outsource jobs to countries with lower labor standards
             to take advantage of ...
encourage the development and diffusion of environmentally friendly technologies.
   Multinationals need to take care of t...
and taxation. Adhering governments have committed to promote them among
   multinational enterprises operating in or from ...
5   References


    1. Multi-nationality and Corporate Ethics: Codes of Conduct in the Sporting Goods
       Industry by ...
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Epgp (one year) 2009-10_be_group assignment_group 4_30nov09

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Epgp (one year) 2009-10_be_group assignment_group 4_30nov09

  1. 1. Business Ethics Group Assignment EPGP 2009-10 - Term II- Group Submission 30-Nov-2009 Instructor: Prof. Lalitha Sreenath Prof. M.R. Sreenath Submitted by: Abhishek Pangaria - #1 Altaf Hussain Siddiqui - #4 Rajendra Inani - #27 Shikhar Mohan - #34 Tarandeep Singh - #37 Vaibhav Samant - #38
  2. 2. Table of Contents 1 Evaluate critically Nike’s Memorandum of Understanding and Reebok’s Human rights Production Standards. Do they differ in any important aspects? Which do you favour and why?..........................3 1.1 Introduction.................................................................................................................................3 1.2 A comparative analysis of Nike’s and Reeboks codes vis-à-vis a) The industry, b) Each other including points of similarities and dissimilarities..............................................................................5 2 What do you think of Phil Knight’s explanation that Nike isn’t “gouging” by pointing to operating profits that are in line with industry average? By what criterion would you determine “gouging” or exploitation?........................................................................................................................................11 3 Does shifting production among countries, such as from South Korea to Indonesia, raise any human rights concerns? ......................................................................................................................13 3.1 Trends and reasons – Koreans from Producing To Managing ...................................................13 3.2 Ramification and repercussion...................................................................................................14 3.3 Exploitation and human right violation......................................................................................15 3.4 Workers Revolt..........................................................................................................................16 3.5 Corrective actions......................................................................................................................16 4 What responsibilities does a multinational corporation have regarding labor standards and environmental standards in foreign countries? ..................................................................................18 4.1 Human Rights ............................................................................................................................18 4.2 Labour Standards.......................................................................................................................19 4.3 Environment .............................................................................................................................20 4.4 Global laws and bodies..............................................................................................................21 5 References........................................................................................................................................23 Business Ethics – Group Assignment Page |2
  3. 3. 1 Evaluate critically Nike’s Memorandum of Understanding and Reebok’s Human rights Production Standards. Do they differ in any important aspects? Which do you favour and why? 1.1 Introduction Nike, one of the world’s biggest footwear companies was established in 1968 by a Stanford University graduate, Phil Knight. In 1988, Nike with a turnover of more than $5 billion and net profits in excess of $450 million, overtook Reebok as the undisputable world’s No.1 footwear company. Both the companies adopted similar strategies consisting of a considerable use of international subcontracting and the promotion of their products by major names in sport. These strategies paid dividends and both the companies generated huge profits to the promoters. Perhaps due to jealousy on account of their swift success, Nike and Reebok were subjected to numerous attacks by the media on their rampant use of subcontracting. The companies were accused of amassing vast fortunes by paying paltry wages to people who manufactured their shoes in developing countries. Sports figures who promote these two brands are paid very high contracts. Comparison between manufacturing cost of a pair of sneakers (especially the labor component) and the retail price represents very high margin. However the most significant damage to the public image of both companies were surveys carried out by some journalists and trade unionists which revealed that subcontractors of both the companies do not respect even the basic rights of their workers. Disturbed by the negative publicity, both companies began emphasizing their ethical work practices and establishing model labor codes. Reebok set up model factories which respect very strict conditions, in particular as regards child labor. It also established a Reebok prize which is awarded each year to individuals or associations working for the promotion of human rights. In the 1990s, a wave of voluntary corporate codes appeared; triggered by attention for developments which posed great legitimacy problems to firms, such as tacit support for oppressive regimes, international environmental damage or outsourcing to countries with inferior labor conditions. Well-known examples are the problems associated with investing in Burma, human rights in Nigeria, oil spills in Alaska, the Brent Spar affair in the North Sea and sweatshops in Asia. As a response, an increasing number of companies started to draw up codes to voluntarily commit themselves to specific norms and values. These codes have Business Ethics – Group Assignment Page |3
  4. 4. been developed either individually or under the co-ordination of business sup-port groups, such as the International Chamber of Commerce. Industry initiatives and continued focus of international organizations, governments and social interest groups, resulted in a veritable cascade of codes. A well-known example of this particular collaboration has been the sporting goods industry. Throughout the 1990s, the industry initiated a wave of codes drawn up by different stakeholders. In addition to three Business Support Groups (BSGs), three Social Interest Groups (SIGs) and three International Organizations (IOs), four leading companies in the sector developed their own codes of conduct. In 1992, Nike adopted a Code of Conduct & Memorandum of Under-standing. It was one of the earliest adopters of a code of conduct on labor rights with its suppliers (CEP, 1998). Since then, the company there has been revisions to the code on two occasions. 1) To incorporate the 1997 standards developed by the Apparel Industry Partnership, 2) To take into account Nike’s new labor initiatives. Similarly in the same year, Reebok set out Human Rights Production Standards. Reebok had always supported human rights causes, witnessing the company's opposition to Apartheid in 1986, sponsorship of Amnesty International's concert tour and the creation of the Reebok Human Rights Award, both in 1988. The most important role in developing the codes for the sporting goods industry have been three international organizations viz. International Labor Organization (ILO), World Federation of the Sporting Goods Industry (WFSGI) and Federation Internationale de Football Associations (FIFA). ILO code was framed in 1970s and is still used as one of the most important reference codes. WFSGI, which represents the interests of the sports industry world-wide, formed a Committee on Ethics and Fair Trade in 1995, which monitors the Pakistan Soccer Ball/ Child Labor Initiative aimed at the elimination of child labor. WFSGI formulated a model code aimed to ensure that members satisfy the highest ethical standards in the manufacturing operations. FIFA exerts direct influence over its licensees/ companies by its ability to issue and withdraw licenses to produce its goods. FIFA adopted a Code of Labor Practice in 1996. The sporting goods industry has a clear consumer focus, in which company and brand image, including the issue of negative customer response play an important role. For Nike Business Ethics – Group Assignment Page |4
  5. 5. and Reebok, both known for their significant marketing and advertisements budgets and large-scale publicity campaigns with famous independent and free-spirited athletes, the contrast with the child labor employed in the production of their products can be severally damaging to their image. There were two additional aspects that reinforced Nike's and Reebok's commitment to implement the codes. Firstly, almost all Nike and Reebok footwear is produced outside the US by subcontractors in the Asia-Pacific region. Only specialized and technical components of a strategic nature are manufactured in the US. For both companies, approximately one third of footwear is produced in China and another one third in Indonesia. The code of conduct also functions as an additional set of control mechanisms on the sub-contractors. A second important aspect is importance of the issue in the mind of the consumers of the US, the biggest market for both companies. The US government has been the only home governments that has shown concern for labor practices in the sporting goods industry and as Nike and Reebok have been singled out as industry leaders they have become the targets of Special Interest Group campaigns, both internationally and in the US. As of now both Nike and Reebok have made public the information about the way in which the codes are put into practice. Nike gives details about its approach to enforcement, the penalty system in case of non-compliance, inspections, in-dependent monitoring programs and the development of a labor practices department. Reebok discloses information on audits, its quarterly monitoring project and the formation of task forces. In addition, several SIGs scrutinize both companies on implementation, monitoring and evaluation. 1.2 A comparative analysis of Nike’s and Reeboks codes vis-à-vis a) The industry, b) Each other including points of similarities and dissimilarities. The basic principles defining the ethical strategy of these two enterprises are set forth below. The Reebok code can be divided into three distinct parts. The first part (A) concerns the basic commitment of Reebok to the respect of human rights and its determination to work with business partners who share this commitment. The second part (B) is the central component of the Reebok human rights production standards, which include all Reebok's requirements of its trade partners. Reebok refers to four fundamental human rights at work which are covered by ILO core Conventions. The third part (C) concerns the implementation of the standards. Mention is made at the end of this table of the Reebok Human Rights Award, even though it is not directly mentioned in Business Ethics – Group Assignment Page |5
  6. 6. the code and forms a separate document. The Reebok Award can be considered as part of the implementation of Reebok's social commitment. Despite the criticisms made of the practices of some of Reebok's suppliers, it is interesting and paradoxical to note that the Reebok Award enjoys an undeniable prestige and has contributed to the attempts by the enterprise to improve its social image. Part A Keywords A commitment to human rights Basic principles Reebok attaches considerable importance to the standards of its business partners as regards human rights. The respect of these rights is one of Reebok's characteristics Desired result Improvement of the morale and performance of its employees and, by extension, increased productivity Moral/ethical goal Implementation of the principles concerning human rights which are just, adapted to different cultures and encourage employees to be proud of their work Part B Keywords Human Rights Production Standards Freedom of association Reebok will seek business partners that share its commitment to and bargaining the right of employees to establish and join organizations of their own choosing. Reebok will seek to ensure that no employee is penalized because of his or her non-violent exercise of this right. Reebok recognizes and respects the right of all employees to organize and bargain collectively Child labour Prohibited. Definition of the term "child": - less than 14 years of age; - younger than the age of compulsory education fixed at the national level; - in accordance with national legislation defining the term "child" for persons over the age of 14 Forced labour Prohibited. The term "forced labour" includes work which is required as a means of political coercion or as punishment for holding or for peacefully expressing political views Non-discrimination Reebok will seek business partners that do not discriminate in hiring and employment practices on grounds of race, colour, national origin, gender, religion or political or other opinion Working hours - Maximum: 60 hrs a week on a regular basis - Preference will be given to business partners who use 48-hour work weeks Business Ethics – Group Assignment Page |6
  7. 7. - Overtime: Remuneration according to national legislation and local practice Wages/remuneration - In accordance with local regulations - Local standards (if higher) Reebok will seek business partners who share its commitment to the betterment of wage and benefit levels that address the basic needs of workers and their families Occupational safety Reebok will seek business partners that strive to assure and health employees a safe and healthy workplace and that do not expose workers to hazardous conditions Part C Keywords Application of Standards Selection of trade Reebok will apply this code in the selection of its trade partners partners Pressure on trade Reebok will seek compliance with these standards by its trade partners partners Coercion Reebok opposes the use of force to suppress any of these standards and will take account of such action in evaluating subcontractors Information Reebok seeks business partners providing full information on the means of production used Control Reebok will take measures to monitor the correct application of the standards, for example through the use of on-site inspection of production facilities The Reebok Award The Reebok Human Rights Award for initiatives which have made a major contribution to the human rights cause Business Ethics – Group Assignment Page |7
  8. 8. Nike's code of conduct is however subdivided into two sections: one, made up of ethical guidelines, applies to the enterprise as a whole; the other regulates the obligations of its trade partners. This is produced as a table below : Keywords The Nike Code of Memorandum of Understanding. Conduct Obligations of subcontractors/suppliers Basic principles Principles governing Nike expects compliance with the same the conduct of principles by its trading partners business: - trust - teamwork - honesty - mutual respect Human rights Respect of human rights Forced labour Forced labour -- prison or otherwise -- must not be used at any stage of production Non- Nike is a company No discrimination in hiring, salary, discrimination made up of persons of benefits, advancement, termination or all origins, which retirement on the basis of gender, race, appreciates individual religion, age, sexual preference or ethnic diversity and is origin dedicated to equal opportunity for each individual Safety and In accordance with local regulations health Health In accordance with local regulations insurance, life insurance and workers' compensation Responsibility of To do what is expected a global of a leader by enterprise participating in the betterment of people's lives through sport and fitness Legal In accordance with local trade legislation requirements as regards: Business Ethics – Group Assignment Page |8
  9. 9. -minimum wages -overtime -child labour - leave, public holidays - mandatory retirement benefits Compliance with: - local regulations - practices established by Nike Nike may request an independent monitoring of plants at any time. In the event of non-compliance with the Memorandum, Nike may require that the situation be corrected or it may terminate its trade relations. All subcontractors must keep any documentation which may be necessary to prove the correct application of the recommendations contained in the Memorandum and agree to provide these documents to Nike for any inspections required by the company Environment To minimize impact on the environment. Implementation of the three "Rs" of environmental action: Reduce, re-use and re- cycle Nike and Reebok both have more or less similar externally oriented code, intended to monitor the conduct of its business partners. However unlike that of Puma’s code which is very specific, the code of Nike and Reebok are vague, although one can say that Reebok’s codes are in slightly more detail than Nike’s. Puma also uses more quantitative standards and this precise attention to detail gives Puma more authority in effective monitoring. Also, neither of Nike or Reebok code specifies a time horizon. Business Ethics – Group Assignment Page |9
  10. 10. Compliance mechanisms are a problem, with both Nike and Reebok codes. None of them describe a complete monitoring system. They only state that the supplier must retain relevant documentation and information in case of inspections. Neither of Reebok and Nike codes refer to sanctions (for the adopting companies or their business partners) or to financial commitments. The lack of sanctions is rather common for company codes in general. Nike’s latest version deals with an additional social and an environmental issue. The number of quantitative standards increased slightly, the reference to standards from host country only to home and host both, and a minimum working age has been added. Nike has repeatedly increased the minimum age. While it was 14 in 1998, it’s most recent code mentions 18 years for footwear and 16 for apparel, accessories or equipment. With regard to monitoring, a third party check has been added. The study of compliance mechanisms in both Nike’s and Reebok’s codes shows that the way in which the code will be put in practice is not clear. Thus the probability of compliance by companies and their business partners decreases, thus also lowering codes' credibility. Neither of the codes details any fixed financial commitment to the cause of monitoring or enforcing the code. Comparing the sporting goods codes with other firms shows up an interesting fact. Reebok and Nike stand out for their degree of quantification, as 61% of the 84 reference codes that were taken as a sample in a study do not include any quantitative standard (Source ILO). Also, of the whole set of other reference companies at the time these codes came into being, one quarter clearly stipulates monitoring systems and processes. The sporting goods sector is slightly more involved in monitoring than the average company from the reference group. Only Nike's latest codes mention the possibility of third-party monitoring (by a designated auditor). To conclude, Reebok seems to have a larger perspective in its code. Its aims and means are broader and seems more comprehensive. Vis-à-vis Reebok, Nike completely ignores areas such as 1. Commitment to human rights 2. Non-discrimination 3. Specific work hours 4. Fair wages Business Ethics – Group Assignment P a g e | 10
  11. 11. 5. Child labour 6. Right to assemble peacefully Reebok’s code is more proactive and mentions surprise checks and future selection on the basis of rights. For the many reasons listed above we would thus prefer Reeboks code of conduct over Nike’s. 2 What do you think of Phil Knight’s explanation that Nike isn’t “gouging” by pointing to operating profits that are in line with industry average? By what criterion would you determine “gouging” or exploitation? gouge (gouj) n. 1. A chisel with a rounded, troughlike blade. 2. A scooping or digging action, as with such a chisel. 3. A groove or hole scooped with or as if with such a chisel. 4. Informal A large amount, as of money, exacted or extorted. tr.v. gouged, goug·ing, goug·es 5. To force out the eye of (a person) with one's thumb. Gouging in the context of this case study is about exploitation, of taking more than what is rightfully yours, from someone who can ill afford to give it to you. Phil Knight’s explanation as a senior executive comes as a surprise. Very clearly gouging is not a function of the quantum of profits. A firm could be making losses and still be “gouging”, infact gouging more. It could similarly also be making huge profits and still be gouging. Similarly, gouging isn’t a function of whether everyone else in the industry is making similar profits or losses. If firms decide to function in the same ruthless manner, like a pack of robbers instead of a single robber it doesn’t reduce the crime – that of exploiting. So comparing Nike’s profits to that of its competitors assumes the others are the paragons of ethical behavior. Nothing in the reading suggests that this is the case. Business Ethics – Group Assignment P a g e | 11
  12. 12. It could also be the case that the entire industry is underperforming and resorting to wrong practices to cut costs. In this case too gouging will still happen, even though profits may not exist at all and the industry might be heading into a tailspin. The facts of the cases suggest clearly that Reebok and Nike are ‘gouging’ the workers. That is infact the entire rationale for the creation of a code that will ensure this does not happen. Nike’s supernormal profits (Exhibit 2) of 39%, coupled with findings of independent investigators also corroborates the appeal of social groups that Nike is making profit and the expense of others. Further corroborating this view is the fact that Adidas and Puma and Fila, the industry cited as a reference point by Phil, also infact came out with a similar code of conduct following Nike’s and Reeboks adoption of these codes. Clearly they were not on the right path either. For us gouging has nothing to with profits and is simply a function of how a firm makes its profits. It extends beyond how an employee treats its employees. It extends to how a company treats society and the environment - infact any resource that a company utilizes in the act of production. Gouging is when a company takes more than it should. In the case of workers that translates to not respecting the rights of employees and making sure they are made to work the correct number of hours and are adequately compensated for it. Gouging is when a company does not care for the health of the workers, safety and working environment and is simply focused on making money. Similarly, gouging an also be the case of Union Carbide in India – which made huge profits at the cost of the lives and health of thousand so of people in Bhopal. We don’t have a problem with a firm making profits, not 40% as in Nike’s case or even 500% for the sake of argument. What is important is how the firm is making these profits. If the profit comes by exploiting the poor and helpless workers then its gouging. Mostly avoiding gouging doesn’t cost a lot. The steps required are extremely small in terms of financial outlay and do not add much to bottom lines, however even if they do, these steps must be taken for the sake of making profits in an ethical manner. A firms profits cant be justified of they come through the exploitation of workers the society and the planet. Business Ethics – Group Assignment P a g e | 12
  13. 13. 3 Does shifting production among countries, such as from South Korea to Indonesia, raise any human rights concerns? 3.1 Trends and reasons – Koreans from Producing To Managing The most prevalent trend in shoe manufacturing since the early 1980s has been the shift of footwear production from Taiwan and South Korea to Indonesia and Thailand, and above all to China. This has been carried out, primarily on the grounds of cost reduction alone. Looking more deeply into the reasons, it can be concluded that this change was predictable. Taiwan and South Korea themselves were chosen because of their, low costs, at the time, and they expanded through their (Original Equipment Manufacture) basis. Nike was among the first companies that started outsourcing manufacturing in Asia, based on a business plan that Phil Knight (Founder of Nike) chartered, on the premise that all athletic shoes would be manufactured in the economies of East Asia. Korean and Taiwan labour once considered cheap was no longer attractive thanks to the exceptional economic growth both these economies had witnessed. The U.S. Generalized System of Preferences (GSP) is a program designed to promote economic growth in the developing world by providing preferential duty-free entry for about 4,800 products from 131 designated beneficiary countries and territories. GSP was instituted on January 1, 1976, by the Trade Act of 1974. South Korea and Taiwan were no longer under this once these economies started flourishing in late 1980’s. So the other import incentive for US shoe companies was no longer valid for business in Korea and Taiwan. Next destination for these companies was south east Asia. The South East Asian countries were not chosen for their inherent skills, quality levels, brands or country reputation but solely because of their low cost labour. Nike started moving out of Korea and Taiwan in 1980’s, when their advantage – low cost – disappeared; they were vulnerable and lost that large part of their industry that had nothing competitive to offer. Nike's operations moved to Indonesia (as well as China, Thailand and Vietnam) from South Korea in the late '80s after rising worker militancy forced Seoul to permit workers to organize. The Indonesian dictatorship promised low wages and an environment where strikes are not allowed and trade unions independent of the regime are forbidden. Business Ethics – Group Assignment P a g e | 13
  14. 14. What South Korea and Taiwan contractors picked up during their hay days were the contracts, the confidence of their Western partners, material and machinery, support industry and so on. So the strategy of South Korea and Taiwan emerged as a two-part operation. This looked to retain part of the industry that was able, with support from the Government, to upgrade its product and ‘attack’ the higher quality shoe sector. It also looked to retain a foothold in the low cost sector by assisting the newly developed shoe industries in countries such as China, Indonesia, Thailand and more recently Vietnam. Joint ventures with manufacturers in these countries became widespread as the need for technical knowledge, design skills, material supplies and contact/liaison with Western buyers brought about these new alliances. 3.2 Ramification and repercussion Korean and Taiwanese manufactures started setting up shops in Indonesia and china. In the Korean owned plants (and in several of the Indonesian owned ones as well) the top management was Korean. Middle level managers and supervisors were either Korean or Indonesian. But the production workers are all Indonesian, predominantly young women in the 16 to 22 age group, usually from other parts of rural Java. These workers were often inept, unskilled, and malnourished and seldom had problems to understand the work and carry out operations. Inability to meet deadlines or to meet quality requirements became a problem and the use of ‘strong arm’ methods by supervisors from Korea or Taiwan to impose more rigid discipline on a slack workforce, were often ineffective but common. Exhaustible production targets and stringent quality standards levied on completely inexperienced workforce in factories led to desperate measures on the Asian supply side – just to keep the western contracts. Indonesian government was not mute but also not aggressive as it was getting the coveted foreign investment and rising exports. It barely increased the minimum wages slightly, that too was indicative and not mandatory. Overtime for workers was rampant as those who were not able to finish their quota had to work extra hours to finish it. The cost of living in Indonesia's rural areas is far below that in urban areas, where Nike's factories are located. In the cities, Nike's wages are woefully inadequate. And it is the workers who experience outright malnutrition because of those wages. This practice continued because of widespread poverty and unemployment in Indonesia at those times. It is true that Indonesian workers make more by working in the shoe factories than they would have, had they remained on their farms. But sacrifice of Business Ethics – Group Assignment P a g e | 14
  15. 15. human rights was the cost they had to pay working here. The shoes worth $80 for in the United States are assembled by Indonesian women, working in squalid factories, who receive approximately twelve cents per pair. Many of the workers in the Indonesian factories come from the surrounding countryside where they live in poverty. The conditions they move to are better, but not much. Some of the problems they face are: • Low wages and long hours • Industrial accidents • No workers’ rights – trade unions were illegal in Indonesia. 3.3 Exploitation and human right violation Indonesian workers knew that if they do complain or protest but they can lose their jobs. The Korean contractors say they cannot afford to pay the workers more and Nike says that it is difficult to control what is happening in individual factories. This means that in a nation where unemployment is high and employees can be easily replaced, workers will continue to be open to exploitation. Common abuses include low wages that fail to meet basic costs of living, substandard and unsafe working and living conditions, long hours of overtime for which employees are not compensated, and sexual harassment. In addition to these, women are often forced into indentured servitude. Lured by recruiters who promise wonderful opportunities in distant lands, young women often pay money in recruitment and contract "fees", tying themselves to contractual obligations that can last for years. Because their wages are often paltry sums, the women may receive no wages for years as they attempt to pay off these debts. If the women try to return home without fulfilling their contractual obligations, they are often blacklisted, fined, or arrested. Many women are not paid even without such debt. Sweatshops often fail to pay their employees on time, if at all. The workers, who are often unaware of their rights, have no choice but to continue to work because sweatshop managers threaten and punish them for insubordination. Many of these factories, as well as the women's living quarters, are crowded, filthy, and rat-infested. They are located behind barbed wire fences that are monitored by armed guards. Not only are the women not allowed to come and go freely, but they are forbidden to have visitors. Thus, they are not given the opportunity to air their grievances to anyone who may be in a position to help them. Additionally, the women are always under the threat of corporal punishment. The women are verbally abused, spat on, and beaten. Business Ethics – Group Assignment P a g e | 15
  16. 16. Companies like Nike and Reebok would often have manufacturers at same locations fighting for more contracts and competing in terms of cost reduction. The worker in these factories would invariably suffer due to this. A quarter of factories were found to present more serious problems which ranged from a lack of basic terms of employment and excessive hours of work to unauthorized sub-contracting, confirmed physical or sexual abuse and the existence of conditions which could lead to death or serious injury. Workers have been found to suffer from sexual and verbal abuse, lack of medical attention and compulsory overtime. N cases female workers have been found to have gained jobs through sexual favors. Supervisors would often beat and yell at workers to make them work faster and refuse to let them go to the toilet. Women and children were paid below the government minimum wage and forced to do unpaid overtime. 3.4 Workers Revolt Along with the campaigns of human right's groups, companies like Reebok and Nike began to see protests from the factory workers themselves. While Indonesia, China, and Vietnam all have minimum wage laws on the books, Nike contractors had successfully appealed these wages with the governments of these countries year after year, allowing them to pay wages well below the minimum rate. Nike contractors further circumvented wage laws by paying new employees an apprentice rate for several months into an employee's tenure. In April 1997, more than 10,000 workers from Nike's Indonesian factories went on strike to protest low and unpaid wages, while 1,300 workers in Vietnam went on strike hoping for a raise of one cent per hour. The next year, 3,000 Nike workers in China protested dangerous working conditions and low wages. All of these protests took place in spite of the fact that these sorts of worker strikes are illegal in these countries. 3.5 Corrective actions Human rights and aid groups have for years criticized Nike and Reebok for not doing enough to tackle poor working conditions in its manufacturing and supply chain, particularly in developing countries. Nike’s Chairman Phil Knight admitted that the company had been slow to respond to evidence of poor conditions in the past but said that the company was actively looking into this. In 1997, leaders in the apparel and footwear industry, nongovernmental organizations, and consumer groups met with President Clinton to announce a Workplace Code of Conduct. It includes prohibitions against child labor, forced labor, harassment and abuse, Business Ethics – Group Assignment P a g e | 16
  17. 17. and discrimination, and it sets standards for health and safety, freedom of collective bargaining, fair wages and benefits, and overtime compensation. As pressure from the public and human rights groups began to mount, Nike made efforts to improve working conditions for its contracted workers. In 1998, dangerous petroleum- based chemicals used in most factories were replaced by less harmful alternatives. In 1999, wages in the Indonesian factories were increased to rates higher than minimum wage. The company also agreed to allow random factory inspections from the Fair Labor Association, and to set up independent monitoring with both US and international organizations. Finally, Nike added its own on-staff team of nearly one hundred workers who are responsible for performing inspections of the company's partner factories. Inspectors must score the factory on factors ranging from employee safety to humane working conditions. They then meet with factory managers to address problems that were found. In 2002, Nike issued a company Code of Conduct to all its factories, regulating the conditions and safety requirements that work should be conducted by. The company's 2004 Responsibility Report established further health and labor standards, and described increased monitoring plans. This 2004 report was considered a major victory for workers and many human right's groups, because Nike included a full list of its factories and their addresses throughout the world. This has allowed for independent monitoring and investigations. While these were perceived as positive efforts on Nike's part, the human rights campaign against the company have not ended. According to the Educating for Justice group, between 50 and 100 percent of Nike factories require more working hours than those permitted by the Code of Conduct. In 25 to 50 percent of factories, workers are required to work 7 days a week, and in the same percentage of factories, workers are still paid less than the local minimum wage. Recently, more companies are beginning to deal more directly with China, India, Indonesia and Vietnam; training indigenous managers and receiving compliance from the governments and authorities. Business Ethics – Group Assignment P a g e | 17
  18. 18. 4 What responsibilities does a multinational corporation have regarding labor standards and environmental standards in foreign countries? The international corporate social responsibility (CSR) movement has developed in response to these perceived gaps in the regulatory system of different economies. While the concerns at the core of the CSR movement are not new, the proposition that multinationals have responsibilities as ‘good corporate citizens’, independent of the regulatory framework or economy within which they operate, has been hailed as one of the great ideas of current times. CSR covers a wide range of concerns, but issues that are currently at the forefront of most CSR-related campaigns are: workplace, environmental and consumer safety standards. Workplace covers responsibility towards foreign workers at developing countries. One solution to the plight of foreign workers would be for multinationals to regulate themselves, taking action to protect such workers or to boycott contractors in countries where human rights violations occur. Multinationals should adopt some sort of self- regulatory measures. The drive to generate profits and remain competitive with other companies by utilizing cheap foreign labor should not be too strong to affect the rights of workers. Multinational companies should respect workers' labor and human rights to the same extent abroad as they do at home. These companies owe some measure of moral responsibility towards foreign workers whose rights are being violated. 4.1 Human Rights Businesses should support and respect the protection of internationally proclaimed human rights within their sphere of influence; and make sure they are not complicit in human rights abuses. Human rights are universal and belong to everyone equally. • Equality: Prohibit any distinction in the enjoyment of human rights on such grounds as race, color, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. • Life and Security: The rights to life, liberty and security, and the right to be free from slavery servitude, torture or cruel, inhuman or degrading treatment or punishment further develop the notion of personal dignity and security. The rights of the individual to a just national legal system should also be taken care. Business Ethics – Group Assignment P a g e | 18
  19. 19. • Personal Freedom: Rights protecting a person's privacy in matters relating to family, home, correspondence, reputation and honor and freedom of movement. Freedom of thought, conscience and religion and freedom of opinion and expression are set out along with the right of peaceful assembly and association and the right to take part in unions should be granted. • Economic, Social and Cultural Freedoms: Touching other aspects of the daily lives of people, the right to social security and to the economic, social and cultural right indispensable to human dignity and the free development of each individual's personality. The right to work, and to equal pay for equal work and to just and favorable remuneration ensuring for the worker and the worker's family existence worthy of human dignity (which can be supplemented if necessary by other means of social protection). Right to form and join trade unions, the right to rest and leisure, reasonable limitations on working hours and periodic holidays with pay. The right to a standard of living adequate for health and well being, including food, clothing, housing, medical care, and to social services and security, if necessary, are also proclaimed as are the rights to education, and to participate in the cultural life of the community. 4.2 Labour Standards Businesses should follow the accepted labor laws in the country they operate. Multinational companies should ensure that its labor policies are aligned to the country they operate. • to promote and realize in good faith the right of workers and employers to freedom of association and the effective recognition of the right to collective bargaining; • to work towards the elimination of all forms of forced or compulsory labour; • the effective abolition of child labour • The elimination of discrimination in respect of employment and occupation. In order to establish the need for “leveling the playing field,” it must first be demonstrated that low labor standards in poor countries negatively impact workers in rich countries. Proponents of attaching labor standards to trade agreements argue that low labor standards act through two channels: I. Goods from low labor standard countries displace products made by workers in high labor standard countries and hence reduce employment in the latter; Business Ethics – Group Assignment P a g e | 19
  20. 20. II. Multinational enterprises outsource jobs to countries with lower labor standards to take advantage of lower labor costs. If raising labor standards of workers in poor countries will not help protect jobs in the industrialized countries, we can at least expect that mandated standards will improve wages and working conditions of workers in poor countries. Many multinational companies have developed international codes of conduct that can assist in improving labor standards and working conditions in their affiliates and subcontractors in host developing countries. While these codes of conduct are essentially voluntary in nature, and there is no guarantee that they will be effective in all circumstances in developing countries, they serve an important role insofar as they help to focus attention on the importance of the root causes of underdevelopment and the types of business practices that may help developing countries to raise per capita incomes and improve conditions of work. 4.3 Environment Environmentalists are much concerned of the weak governmental and legal oversight of multinational corporations. They observe that as local governments seek to attract foreign investment, their affiliated environmental protection bureaus dare not take strict measures to address pollution by multinational corporations. They also believe that since multinational corporations typically perform better than domestic enterprises environmentally, the sub-par activities of foreign companies won’t attract the attention of the country’s top environmental authority. This leaves a void in supervision. Led by MNCs, the affluent societies of the developed world account for more than 75% of the world’s energy and resource consumption and create the bulk of the industrial, toxic, and consumer waste. Environmentalists contend that these multinationals are now engaging in flight to "pollution havens" by moving dirty operations to countries where regulatory standards are less stringent. Through flight to pollution havens, companies can avoid expensive pollution controls, cut costs by recapitalizing old equipment, and continue to make products that are no longer considered environmentally acceptable in the more highly regulated markets of the developed world. Over time, it is claimed that these practices lead to a environmental hazard as poor nations and localities vie for plants and facilities that seek only to minimize cost and externalize environmental responsibility. Multinational companies should support a precautionary approach to environmental challenges; undertake initiatives to promote greater environmental responsibility; and Business Ethics – Group Assignment P a g e | 20
  21. 21. encourage the development and diffusion of environmentally friendly technologies. Multinationals need to take care of the key challenges related to environment. Key Environmental Challenges • Loss of biodiversity and long-term damage to ecosystems • Pollution of the atmosphere and the consequences of climate change • Damage to aquatic ecosystems • Land degradation • The impacts of chemicals use and disposal • Waste production • Depletion of non-renewable resource While adequate environmental standards may not yet exist in many developing countries, it can be argued that in the not-too-distant future, standards will rise as income increases and people become more sensitive toward and concerned about environmental deterioration. This pattern of environmental regulation following GDP growth has already been observed among newly industrialized nations such as Taiwan, Korea, and Singapore. In other words, there may be an important future benefit to adopting a single global standard if the productive life of capital extends beyond the period of lax or poorly enforced regulation. Finally, there may be fringe benefits associated with adhering to higher environmental standards. By committing to standards that exceed those of the host country, the company might benefit from heightened employee morale and thus productivity. Adopting an internal corporate environmental standard ahead of legal requirements avoids special interest group pressures and may result in positive reputation effects for the firm, improving its public image relative to competitors. 4.4 Global laws and bodies OECD (Organization for Economic Co-operation and Development) has come out with guideline for multinational companies. The Guidelines constitute a set of voluntary recommendations to multinational enterprises in all the major areas of business ethics, including employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, Business Ethics – Group Assignment P a g e | 21
  22. 22. and taxation. Adhering governments have committed to promote them among multinational enterprises operating in or from their territories. The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with universally accepted principles in the areas of human rights, labour, environment and anti-corruption. By doing so, business, as a primary agent driving globalization, can help ensure that markets, commerce, technology and finance advance in ways that benefit economies and societies everywhere. Never before were the objectives of the international community and the business world so aligned. Common goals, such as building markets, combating corruption, safeguarding the environment and ensuring social inclusion, have resulted in unprecedented partnerships and openness among business, government, civil society, labour and the United Nations. Many businesses recognize the need to collaborate with international actors in the current global context where social, political and economic challenges (and opportunities) – whether occurring at home or in other regions – affect companies as never before. This ever-increasing understanding is reflected in the growth of the Global Compact, which today stands as the largest corporate citizenship and sustainability initiative in the world -- with over 7700 corporate participants and stakeholders from over 130 countries. The Global Compact is a leadership platform, endorsed by Chief Executive Officers, and offering a unique strategic platform for participants to advance their commitments to sustainability and corporate citizenship. Structured as a public-private initiative, the Global Compact is policy framework for the development, implementation, and disclosure of sustainability principles and practices and offering participants a wide spectrum of specialized work streams, management tools and resources, and topical programs and projects -- all designed to help advance sustainable business models and markets in order to contribute to the initiative's overarching mission of helping to build a more sustainable and inclusive global economy. Business Ethics – Group Assignment P a g e | 22
  23. 23. 5 References 1. Multi-nationality and Corporate Ethics: Codes of Conduct in the Sporting Goods Industry by Rob van Tulder and Ans Kolk 2. Journal of International Business Studies, Vol. 32 3. Ethics in international business: multinational approaches to child labor by Ans Kolka, Rob Van Tulderb 4. www.ILO.org 5. www.Questia.com 6. Emerald Text 7. Google Scholar 8. Wikipedia 9. Nytimes.com 10. Reebok.com 11. Nike.com 12. Puma.com 13. www.oecd.org 14. www.unglobalcompact.org Business Ethics – Group Assignment P a g e | 23

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