College Tells Nike ‘Just Pay It’
By Tom Ryan
On Friday, the University of Wisconsin canceled its licensing agreement
with Nike Inc. over the non-payment of more than $2 million in severance due
workers of two plants that closed in Honduras. Nike claims it has a limited
obligation to the workers since it only subcontracted apparel production from
the factories.
In December, UW Chancellor Biddy Martin gave Nike 120 days to rectify the
situation involving the layoff of 1,800 employees at the factories, Hugger
and Vision Tex, in January 2009. On Friday, she concluded that Nike hadn’t
done enough.
“[Nike] has not presented clear long-range plans to prevent or respond
to similar problems in the future. For this combination of reasons, we have
decided to end our relationship for now,” said Ms. Martin, in a statement.
Wisconsin’s code of conduct requires the 500 companies that make products
bearing its name or logos to take responsibility for its subcontractors’ actions.
Its contract with Nike generated $49,000 in royalty income for the university
last year. Martin’s decision came after student activists held several rallies
on UW’s campus over the situation.
She added, “We remain hopeful that Nike — which has had a positive
impact on working conditions in the industry overall over the past several
years — will
ultimately decide that it is in everyone’s best interest to ensure that the
workers receive severance or to establish a meaningful alternative plan.”
In response, Nike said that while it regretted UW’s decision, it sees the
factory’s owners, Anvil and New Holland, as responsible for the compensation.
“It remains Nike’s position that factories which directly employ
workers are responsible for ensuring that their employees receive their correct
entitlements and, as such, Nike will not be paying severance to workers that
were employed by Hugger and Vision Tex,” said Nike in a statement. “Hugger
and Vision Tex were subcontracted factories to two factories, Anvil and New
Holland, that took orders from Nike. Nike paid in full for all products ordered
from Anvil and New Holland and we understand that those factories, in turn,
paid in full to Vision Tex and Hugger.”
Nonetheless, Nike said it is working with Anvil and New Holland in developing
job training and placement for the displaced workers. It also touted its past
record around labor standards and said it is undertaking a “deeper review” to
further improve oversight of its subcontractor factories.
UW’s decision to cut Nike’s contract comes after anti-sweatshop groups scored
by a landmark victory last fall when Russell Athletic agreed to rehire 1,200
Honduran workers who had lost their jobs in a factory closing. Nearly 100 universities
had cancelled their Russell contracts over alleged anti-unionizing efforts
that Russell has refuted. The major difference is that Russell owned the factory
while Nike only subtracted production.
Under the ‘Just Pay It’ slogan, Cornell University, Purdue University and
the University of Maryland have also seen campus protests over the Nike/Honduras
situation.
Discussion Questions: Â Do you agree with Nike’s statement that the “factories
which directly employ workers are responsible for ensuring that their employees
receive their correct entitlements”? How should Nike respond to any
future student activism over the Honduran plants closings?
As someone who has experience with this matter in the apparel industry, I’d have to agree with Nike. You can be aware and control sub-contracting to a large extent (quality product, quality treatment of associates, conditions, etc.), but it is ultimately the contractor’s obligation to ensure best employer practices towards sub-contractors. And really, the sub-contractor’s responsibility to arrange the best possible deal for his associates with the contractor.
In layman’s terms; if you were to hire a lawn service company and they in turn hired a smaller company to help them–and you stopped the service, would you be obliged to pay benefits to the sub contractor? You wouldn’t even think about it for a second.
But I’m sure that Nike, given everything that’s happened to them over the years, DID do a pretty severe check on the sub-contractor in this case, especially when it comes to the issues mentioned above.
So, again, from the limited amount I’ve read, I’d have to take Nike’s side in this case.
I agree with Nike. Unfortunately, liberal extremist students like to follow the money to make their point. Instead of confronting the factory in Honduras, Nike is an easier target. Nike is a big company, well known, and they do business with their school. This is similar to Wal-Mart being unfairly attacked because a subcontractor hired illegal aliens. School administrators will just go along to get along.
Nike will do their best to make smart business decisions that benefit stockholders. Typically these petty little student uprisings will have no long-term effects. I think we can all remember when we were in college and took part in such things. And what was accomplished?
I also fall on Nike’s side on this but stop short of labeling this a “petty student uprising” Having grown up in the 60s I saw and took part in a number of these student activities; and yes I think they made a difference.
Why stop at severance pay. Why not make Nike responsible for ensuring that the sub-contracted workers get free lattes and have free broad-band internet service?
These kinds of demands may make perfect sense in the vacuum bubble of academia, where everything is paid for by mom and dad, but not in the real world. The fact that the university management would support this nonsense is shameful. One day, these students will have to become a part of the real world. University management should view this as an opportunity to teach about some less romantic things like contract law and what the living conditions and employment opportunities were like in these countries before there were factories.
Should the factories provide severance? I don’t know. What was the employment agreement the sub-contractor had with its employees? Should Nike be responsible for how their sub-contractors treat their employees? No way.
We had a client that used our vendors for a job and then did not pay them. We fired the client. Then we pushed the client very hard to pay all the vendors. When things got tough we explained to the client that our next step was going to be that we would pay the vendors ourselves and then you would owe us. He paid the vendors. In life and in business, we need more leaders and people with integrity.
Go Badgers!
Nike is neither 100% right nor 100% wrong in this case. Legally, they are perfectly justified in stating that compensation of the workers is the responsibility of the workers’ direct employer. That having been said, Nike is a leading global company and their actions, or inactions in this case, are held to a higher standard. Consequently, when Nike fails, or appears to fail, to act ethically, there will be a level of fallout for the company.
To continue with Lee’s analogy: you or I would not be responsible, as private citizens, if we contracted with a lawn care firm that failed to compensate its employees. However, if your senator or governor did the same, he or she could be held accountable in the press and the public sphere even if there was no legal culpability. Nike has as high a profile as any public figure so it should be expected that their actions received a similar amount of scrutiny.
Nike made an informed decision in this case. They could have pushed their suppliers to resolve this dispute or compensate the former workers directly and thereby prevent this issue with Wisconsin. They instead chose to act with their bottom line in mind while being aware of the consequences of this choice. That choice seems to be good news for shareholders, but with other schools jumping on the “Just Pay It” bandwagon, Nike may yet regret their (perfectly legal and understandable) decision to not act on behalf of the Hondurans.
I think it’s important to note that simply branding someone an “extremist” does not make it so. It is a simplistic and transparent way of trying to marginalize someone and their beliefs and has no place in civil discourse.
As someone who has sourced products in over 35 different countries around the world, I have had a wide range of choices in those I did business with, and those I did not. That choice underlies where the accountability resides, but not the responsibility.
It is unreasonable to hold a customer responsible for the actions and business practices of a vendor, even if that vendor is acting as a sub-contractor. It is NOT unreasonable to hold a business accountable for the other entities it chooses to do business with. Nike chooses the factories to work with. We have already made Nike responsible for monitoring the compliance of these companies with both local and US levels of human resource management (length of work day, hourly pay, work conditions, etc). Nike and others have accepted this responsibility because the cost of doing otherwise, in bad public relations, is greater potentially than the cost of compliance monitoring.
However, it really should end there. It’s completely reasonable for Wisconsin to disassociate their brand from Nike if they feel Nike is engaged in business with suppliers or vendors who engage in unacceptable practices. After all, brand equity is fleeting and must be guarded. But to hold Nike responsible, financially, for the obligations of their suppliers? No. That goes too far. Sever the ties with Nike. Makes sense to me (well, if I was part of the culture at the U of W).
The real question is what the fallout will be. My guess is that it will push vendor management to the next level for multinationals like Nike. This next level will required prompt and public disassociation from vendors/suppliers who engage in questionable business practices of any kind, but primarily human resource management.
Corporations, like individual business leaders, have a responsibility to demonstrate integrity and “do the right thing.” The trick is that not everyone will consider any given action to be “the right thing” in every situation.
The clear consumer sentiment favorite here, at least from the vocal minority, is “pay the workers.” And Nike is the most visible face of the incident. But does that automatically make it the right thing to do?
What about upholding the integrity of contracts and the business obligations of the subcontractors? Doesn’t Nike have an obligation to the shareholders to not pay out potential profits that are not contractually owed?
When we allow the satisfaction of the vocal minority–or sometimes even the popular majority–to override our duties to uphold obligations in pursuit of popularity and approval, we do not uphold integrity but insult it.
After my comments earlier this week on Nike and Tiger, I can’t easily defend Nike. However, as in any case with limited information, there is always one side, the other side, and then the truth. In this case, I surmise we have neither, especially the truth.
With a ranking of 415 out of 600 top universities on Forbes top 600 colleges and unemployment over 10% in WI, maybe a social activism focus is misdirected at UW. Just a thought.
“…follow the money to make their point…Nike is a big company, well known, and they do business with their school”
Precisely. I think David should be proud of his fellow Badgers–no pun intended–in that the UW students have shown they have indeed learned something in school…at least about Poly Sci; but they flunked Contracts 1A–since like everyone else here, I agree with Nike on the legal aspect of this issue–and the Marketing 100 implications are more complicated: if this were some touchy-feely company, the negative publicity would need to be considered; but it fits right in with Nike’s image (see Friday’s discussion).
There is a fine line between good business and good citizenship. Nike’s comment, “factories which directly employ workers are responsible for ensuring that their employees receive their correct entitlements,” is probably literally true and correct. The real question becomes, “should Nike care enough to make a real difference?” They definitely have the capability to do so.
I know I am real late to this party, but I can’t help myself. I think it is outrageous to think that Nike has any legal or ethical obligation to pay. I get the point that some brand damage may be done so it may make business sense to do so. But I hope Nike has enough integrity to stand up to this obvious, egregious badgering (I know, I know).
I honestly believe the UW contingent are trying to shame Nike because they feel Nike CAN pay; not because they SHOULD pay. Well, UW – why don’t you really stand up for what you believe and pay the workers yourself? You have as much culpability as Nike (none).