Please help me answer the questions below from this case study, thank you.

Jonah Peretti decided to customize his Nike shoes and visited the NikeiD Web site. The company allowed customers to personalize their Nikes with the colors of their choice and their own personal 16-character message. Peretti chose the word sweatshop for his Nikes. After receiving his order, Nike informed Peretti via e-mail that the term sweatshop represents inappropriate slang and is not considered viable for printing on a Nike shoe. Thus, his order was summarily rejected. Peretti e-mailed Nike, arguing that the term sweatshop is found in Websters dictionary and could not possibly be considered inappropriate slang. Nike responded by quoting the companys rules, which state that the company can refuse to print anything on its shoes that it does not deem appropriate. Peretti replied that he was changing his previous order and would instead like to order a pair of shoes with a color snapshot of the ten-year-old Vietnamese girl who makes my shoes. He never received a response.

Before Nike could blink an eye, the situation turned into a public relations nightmare. Peretti forwarded the e-mail exchange to a few friends, who forwarded it to a few friends, and so on. Within six weeks of his initial order, the story appeared in The Wall Street Journal, USA Today, and The Village Voice. Peretti himself appeared on The Today Show, and he estimates that 2 million people have seen the e-mail. At the height of the incident, Peretti was receiving 500 e-mails a day from people who had read the e-mail from as far away as Asia, Australia, Europe, and South America. Nike refused to admit any wrongdoing in the incident and stated that they reserved the right to refuse any order for whatever reason. Beth Gourney, a spokesperson for Nike, claimed that Peretti was just trying to create trouble. She said he is not an activist and he doesnt understand the companys labor policy. If he understood the policy he would know that 18 is the minimum age for hiring. She went on to say that Nike does not need to apologize for not using sweatshop because company policy clearly says the company can cancel any order within 24 hours of its submission. Nike, Inc. is no stranger to sweatshop allegations. Since the mid-1990s, the company has been imperiled by negative press, lawsuits, and demonstrations on college campuses alleging that the firms overseas contractors subject employees to work in inhumane conditions for low wages. As Philip Knight, the CEO and cofounder of Nike, once lamented, The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse.

When the company began operations, Knight contracted the manufacture of Nikes shoes to two firms in Japan. Shortly thereafter, Nike began to contract with firms in Taiwan and Korea. In 1977, Nike purchased two shoe-manufacturing facilities in the United Statesone in Maine, the other in New Hampshire. Eventually, the two plants became so unprofitable that the firm was forced to close them. The loss due to the write-off of the plants was approximately $10 million in a year in which the firms total profit was $15 million. The firm had a successful IPO in 1980, eight years after the company was founded. Nike became the largest athletic shoe company in the world. Nike does not own a single shoe or apparel factory. Instead, the firm contracts the production of its products to independently owned manufacturers. Today, practically all Nike subcontracted factories are in countries such as Indonesia, Vietnam, China, and Thailand, where the labor costs are significantly less than those in the United States. Worldwide, over 530,000 people are employed in factories that manufacture Nike products. In an earlier calculation of labor costs for a pair of shoes, the labor costs amounted to less than 4 percent of the consumers price for the shoes. Even in todays hi-tech environment, the production of athletic shoes is still a labor-intensive process. Although most leaders in the industry are confident that practically the entire production process will someday be automated, it may still be years before the industry will not have to rely on inexpensive human labor. After some bad press in the early 1990s, Nike sought to improve the working conditions of its plants by establishing a code of conduct for its suppliers. This was not seen as enough by outside critics, however.

Nikes use of overseas contractors is not unique in the athletic shoe and apparel industry. All other major athletic shoe manufacturers also contract with overseas manufacturers, albeit to various degrees. Athletic shoe firm New Balance Inc. is somewhat of an anomaly as it continues to operate five factories in the United States and is the only company to continue U.S. production. New Balance makes about 25 percent of its shoes in the United States. Nike spends heavily on endorsements and advertising and pays several top athletes well over a million dollars a year in endorsement contracts. In contrast, New Balance has developed a different strategy. They do not use professional athletes to market their products. According to their Endorsed by No One policy, New Balance instead has chosen to invest in product research and development and foregoes expensive endorsement contracts.

There is one pivotal event largely responsible for introducing the term sweatshop to the American public. In 1996, Kathie Lee Gifford, cohost of the formerly syndicated talk show Live with Regis and Kathie Lee, endorsed her own line of clothing for Walmart. During that same year, labor rights activists disclosed that her Kathie Lee Collection was made in Honduras by seamstresses who earned 31 cents an hour and were sometimes required to work 20-hour days. Traditionally known for her pleasant, jovial demeanor and her love for children, Kathie Lee was outraged. She tearfully informed the public that she was unaware that her clothes were being made in so-called sweatshops and vowed to do whatever she could to promote the anti-sweatshop cause.

In a national press conference, Gifford named Michael Jordan as another celebrity who, like herself, endorsed products without knowing under what conditions the products were made. At the time, Michael Jordan was Nikes premier endorser and was reportedly under a $20 million per year contract with the firm. Nike, the number-one athletic shoe brand in the world, soon found itself under attack by the rapidly growing anti-sweatshop movement. Shortly after the Gifford story broke, Joel Joseph, chairperson of the Made in the USA Foundation, accused Nike of paying underage Indonesian workers 14 cents an hour to make the companys line of Air Jordan shoes. He also claimed that the total payroll of Nikes six Indonesian subcontracted factories was less than the reported $20 million per year that Jordan was receiving from his endorsement contract with Nike. The Made in the USA Foundation is one of the organizations that ignited the Gifford controversy and is largely financed by labor unions and U.S. apparel manufacturers that are against free trade with low-wage countries. Nike quickly pointed out that Air Jordan shoes were made in Taiwan, not Indonesia. Additionally, the company maintained that employee wages were fair and higher than the government-mandated minimum wage in all of the countries where the firm has contracted factories. Nike avowed that the entry-level income of an Indonesian factory worker was five times that of a farmer. The firm also claimed that an assistant line supervisor in a Chinese subcontracted factory earned more than a surgeon with 20 years of experience. In response to the allegations regarding Michael Jordans endorsement contract, Nike stated that the total wages in Indonesia were $50 million a year, which is well over what the firm pays Jordan. Nike soon faced more negative publicity. Michael Moore, the movie director whose documentary Roger and Me shed light on the plight of laid-off autoworkers in Flint, Michigan, and damaged the reputation of General Motors chairperson Roger Smith, interviewed Nike CEO Philip Knight for his movie The Big One. On camera, Knight referred to some employees at subcontracted factories as poor little Indonesian workers. Knight, the only CEO interviewed in the movie, received harsh criticism for his comments. Nike alleged that the comments were taken out of context and were deceitful because Moore failed to include Knights pledge to make a transition from a 14- to a 16-year-old minimum age labor force. Nike prepared its own video that included the entire interview. Thomas Nguyen, founder of Vietnam Labor Watch, inspected several of Nikes plants in Vietnam in 1998 and reported cases of worker abuse. At one factory that manufactured Nike products, a supervisor punished 56 women for wearing inappropriate work shoes by forcing them to run around the factory in the hot sun. Twelve workers fainted and were taken to the hospital. Nguyen also reported that workers were allowed only one bathroom break and two drinks of water during each eight-hour shift. Nike responded that the supervisor who was involved in the fainting incident had been suspended and that the firm had hired an independent accounting firm to look into the matters further.

In 1997, Nike hired former Atlanta Mayor Andrew Young, a vocal opponent of sweatshops and child labor, to review the firms overseas labor practices. Neither party disclosed the fee that Young received for his services. Young toured 12 factories in Vietnam, Indonesia, and China, and was reportedly given unlimited access. However, he was constantly accompanied by Nike representatives during all factory tours. Furthermore, Young relied on Nike translators when communicating with factory workers. In his 75-page report, Young concluded, Nike is doing a good job, but it can do better. He provided Nike with six recommendations for improving the working conditions at subcontracted factories. Nike immediately responded to the report and agreed to implement all six recommendations. Young did not address the issue of wages and standards of living because he felt he lacks the academic credentials for such a judgment. Public reaction to Youngs report was mixed. Some praised Nike. However, many of Nikes opponents disregarded Youngs report as biased and incomplete. One went so far as to state the report could not have been better if Nike had written it themselves and questioned Youngs independence.

Nikes problems with fair labor issues continued on a related front. Labor activist Mark Kasky had sued Nike in 1998, arguing that Nike had engaged in false advertising when it denied that there was mistreatment of workers in Southeastern Asian factories. At issue was the question of whether Nikes defense of its practices was commercial speech or not, for which free speech protections apply. The California Supreme Court ruled that Nikes statements about labor conditions could be construed as false advertising. Nike appealed this ruling to the U.S. Supreme Court, which sent it back to the California court, without making a judgment on the free speech issue. In September 2003, Kasky and Nike settled the case for a $1.5 million donation to the FLA. The settlement, however, left many questions unanswered. Many feared that the risk of lawsuit would have a chilling effect, causing firms to no longer release social responsibility reports, which, unlike the SEC financial reports, are all voluntary. Though Nike issued a corporate social responsibility report in 2001, the company announced that, due to the California decision, they would not release a corporate social responsibility report in 20022003. Nike released a Community Investment report detailing its philanthropic efforts instead. The company later released a corporate responsibility report in 20052006 and again in 20082009. In 2016, Nike released its most recent Corporate Responsibility Report, now called a Sustainability Report. Nikes critics never go away, but they have quieted down as the company has taken steps to address many of the criticisms made over the years. Typical of the ongoing opposition is the organization Educating for Justice (EFJ) that runs a continuing Stop Nike Sweatshops campaign. In 2006, EFJ planned a film titled Sweat. The film, as described on EFJs Web site, describes the journey of two young Americans uncovering the story behind the statistics about Nike factory workers. Through the lens of their experiences, they claim viewers will discover the injustices of Nikes labor practices in the developing world, specifically in Indonesia, and how Nikes cutthroat, bottom-line economic decisions have a profound effect on human lives. EFJ announced that the film was going to production in 2009, but in 2016, it appeared that EFJ was still trying to raise money to complete the film and to release it for public viewing.

One organization that remains somewhat active in taking Nike to task is Team Sweat. Team Sweat identifies itself as an international coalition of consumers, investors, and workers committed to ending the injustices in Nikes sweatshops around the world. It goes on to say Team Sweat is striving to ensure that all workers who produce Nike products are paid a living wage. As of Fall, 2015, James Keady, organizer of the group, was still appearing at various university campuses and calling for a boycott of Nike. Its initiative is called Behind the swoosh: Sweatshops and social justice. One other organization that conducts an ongoing campaign against Nikes and other companies sweatshops is Oxfam Australia. Among other charges, Oxfam complained about Nike paying Tiger Woods $25 million a year, while the workers who make its products receive poverty wages and endure harsh working conditions. In addition to Nike, Oxfam pursues its initiatives against Puma, Adidas, and Fila, and the companies that sell their products. In spite of its controversial record on the issue of sweatshops and monitoring labor practices abroad, in 1998, then-CEO Phil Knight announced that changes would be coming in how the company dealt with the sweatshop situation. By 2005, Nike was the first company in its industry to adopt a policy of transparency and to publish a complete list of its contract companies. Once the company publically proclaimed it would change, it seemed to take this mandate seriously and eventually became a company that would be regarded as one of the leaders in CSR. Also in 2005, Nike published a detailed report revealing conditions and pay in its factories and acknowledging widespread issues, especially in its south Asian factories. Since that time, the company has continued to post its commitments, standards, and audit data as part of its CSR reports. In 2016, Nike was ranked 28th in Corporate Responsibilitys 100 Best Corporate Citizens Awards.

QUESTIONS

1. What are the ethical and social issues involved in this case?

2. Why should Nike be held responsible for what happens in factories that it does not own? Does Nike have a responsibility to ensure that factory workers receive a "living wage"? Do the wage guidelines of FLA or WRC seem most appropriate to you? Why?

3. Is it ethical for Nike to pay endorsers millions while its factory employees receive a few dollars a day?

4. Regarding the Kasky v. Nike, Inc. case, is Nike's defense of its practices commercial speech or political speech? What are the long-term implications of your decision, not only for Nike but for business in general?