Nike walks towards the light

Nike has tried hard to disassociate its brand from images of third world sweatshops, and is pinning high hopes on its latest product to create a decisive reputation of corporate responsibility.

The first thing I notice about the running shoe that Hannah Jones, Nike's head of sustainability and innovation, plops on the table is that it is full of holes. The second is how light it is.

Very impressive, I say of the yellow-green and black shoe’s weight but, with all the (deliberate) holes in its knitted upper, it probably doesn’t keep the rain out. It doesn’t keep the rain in either, she responds. More important, while running-shoe uppers usually have 20 to 30 stitched pieces, this one is made from a single thread. That reduces manufacturing costs and cuts waste. The shoe, the Nike Flyknit, is the latest phase in the US company’s effort to be seen as a responsible business.. Nike has experience of being seen as the opposite. It was one of the first companies to face accusations of exploiting sweatshop labour. The allegations started in the 1990s and they have not gone away. Last year, workers making Nike’s Converse footwear at contractors’ factories in Indonesia complained of
abusive behaviour by their supervisors.

Because Nike drew the first fire, it also has the longest experience of deflecting it – and its progress provides a timeline of how companies attempt to create a decent reputation for themselves.

The oldest form of corporate responsibility is philanthropy – often donations to local causes. Companies justified it to their shareholders by saying that stable communities made for healthier businesses and that the recipients of the generosity would stand by the company in tough times. It did not always work: Enron’s lavish funding of Houston projects counted for nothing when the company stood accused of fraud.

Corporate responsibility’s second incarnation was as reputation defence: companies scanned the horizon (and later the web) for potentially damaging criticism. Nike became expert at this when it was targeted by the anti-sweatshop campaigners. The problem, Jones says, is it doesn’t always work either. Nike’s sportswear is made by one million workers in 900 factories owned by other companies. You can inspect them but that does not eliminate what she calls the "yo-yo effect”. Factories make things look good during inspections and then revert to what they were doing before.

Realising that it could never eliminate all abuses on its own, in 2005 Nike published its factory locations online. The message was clear. To activists, the company was saying: go and find problems and we will deal with them. To other manufacturers, the message was: these factories are producing your goods as well as ours. We are all in this together.

Nike says that not all problems are the factories’ fault. It causes some itself. One of the most persistent abuses is factories forcing workers to put in 72-hour weeks or 14 days without a break. When Nike investigated, it found that 68 per cent of cases of excessive overtime resulted from increased output it had demanded. This frank admission is in Nike’s recent "Sustainable Business Performance Summary”.

Sustainability: that was responsible business’s third phase, as companies discovered that reducing packaging, squeezing more goods into each truck and cutting electricity costs all helped them look green and boosted margins. As Nike points out, however, it is not just about cost-cutting. With energy prices high and water scarce, the company needs to "decouple our profitable growth from constrained resources”, Mark Parker, Nike’s chief executive, says in the report. "The age of abundance is over.”

Jones argues that the one-thread shoe is a way of going beyond sustainability – to innovation. Nike is not alone in using energy and resource efficiency as a spur to devising new products. Unilever did the same with its concentrated detergent. But Nike is now trying to innovate in its labour relations too. Does clothing and footwear manufacturing have to be "an inherently low-tech, low-skill and low-wage job”? Could the principles of lean manufacturing pioneered in the motor industry – higher paid, higher skilled, more efficient in its use of materials – work in Nike’s business? It has been training its contractors in lean manufacturing and also asking them another question: if you had more efficient workers, could you pay them more and still maintain your profitability?

Nike still gets plenty wrong, but this sort of innovation, if it works, could be responsible business’s fourth, and most fruitful, incarnation.

Copyright The Financial Times 2012.

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