FDA216 Legal and Ethical Aspects of Financial Management

Assignment:

Individual Research Project

Course title:

Foundation degree in Accounting & Financial Management.

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Content
1. Terms of reference 2. Introduction 3. Methodology 4. Findings 5. Conclusion 6. Table of Contents 7. Bibliography

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1. Terms of reference
1.1 The purpose of this report is to examine the legal and ethical aspects of the goods produced
on a daily basis for Nike in the light of ethical business practice and social responsibility of the business organisation with a view to providing answers to the following questions:

1) 2) 3) 4)

Is creating employment in developing countries Exploitation or Opportunity? Is paying below the national minimum wage slave labour? Are organisations being unethical and breaching human rights? Are there too many or too few sweatshops?

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2. Introduction
2.1 This report will focus on the biggest shoe company in the world Nike. The company was
founded on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman and Philip Knight, and officially became Nike, Inc. in 1978.

2.2 During the 1970's, some Nike shoes were made in the U.S but most were produced in South
Korea and Taiwan. When workers there gained new freedom to organise and wages began to rise, Nike looked for cheaper labour opportunities. It found it Indonesia, China and most recently Vietnam - countries with no protective labour laws, endless supplies of cheap labour, and authoritarian leaders who outlaw independent labour unions.

2.3 By 1992, Nike had eliminated all of their U.S. work force in favour of low-wage Asian
producers.

2.4 In both the United Kingdom (UK) and United States (U.S) the Government has laws in place
that all organisations must follow. Every employee has statutory rights that are legal rights based on laws passed by Parliament. Please refer to Appendix A for a list of workers basic rights in the UK.

2.5 How do you get around these laws? The answer open up factories, more commonly
known sweatshops due to the poor conditions within the factories, in developing countries that do not have such laws. You can pay staff a pittance and do as you like to maximise your profits. This is commonly known as Economic Exploitation.

2.6 As well as being covered with the laws stated above out of work UK nationals are entitled to
Social Security benefits which ensure they have enough money to meet their basic needs. UK nationals are also eligible to free National Health Service (NHS) treatment and compulsory education up the age of 16 years old.

2.7 Unfortunately such laws, and I guess privileges, are not in place in Asian countries and for
this reason human beings are being exploited.. or are they?

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3. Methodology
3.1 The data detailed in this report was obtained from research using the following sources:
Internet sites Magazines and journals YouTube Textbooks

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4. Findings
4.1 In 1996 award winning film maker Michael Moore produced a book with a list of individuals he felt
were corporate crooks. Number 3 in Michaels list was Phil Knight, the founder, owner, chairman and CEO of Nike. Michael interviewed Phil in 1997 on his concerns about the conditions, pay, age and general well being of the workers in the factories. As of 2010 Mr. Knight's stake in Nike gives him an estimated net worth of $10.2 billion, making him the 62nd richest person in the world.

4.2 Michael asked Mr. Knight How much is enough? If you are a billionaire, would it be ok to be half
a billionaire? Would it be ok to earn a little less money if that meant providing jobs in this country?

4.3 Mr. Knight answered Ive thought about it a lot but what drives me is not money, Im not in it for
the money anymore, Ive got money basically all I want to do is make this as good a company as I can make it. I simply have basic beliefs that Americans do not want to make shoes (nicknickjl23, 2007)

4.4 Transcripts of a second interview (Moore, 1998) show some interested points were made by Mr.
Knight. Michael spoke on the subject of reported workers in Indonesian factories being just 12 year old; Mr. Knight corrected Michael and advised No, they are 14 years old - which is the minimum age a person can work in Indonesia.

4.5 Mr. Knight goes on to state that it is not for him sitting 10,000 miles away to make that decision on
what the minimum age of a worker should be and that there is United Nation (UN) standards in place and the standard in these countries state that it is ok for someone of the age of 14 to work. Nike had previously enforced UN standards in Pakistan after Nikes employment of 8 years old to make soccer balls was exposed in the press.

4.6 At the time of these interviews Mr. Knight had never stepped foot inside his Indonesian factories,
which should be a concern of the organisations shareholders. 4.7 Those interviews are going back 12-13 years so are Nike now a law and ethic abiding company? The simple answer is NO. 4.8 Nike has continuously been making the headlines with the same issues re-occurring recently:

It is estimated that there are 70,000 workers producing Nike products in Thailand
alone

Workers are actively stopped from forming a union. In fact production is being put

through a series of subcontractors that do not allow unions Employees working 12 hours+ a day and being paid an amount each day which is barely enough for them to pay for the food for their family. Thai workers are said to earn around $4 per day It is reported 12 year olds in Thailand and Vietnam work 14 hour days in a locked windowless room with no ventilation, sitting on a block and churning out endless numbers of trainers and if they talk they get fired If a woman becomes pregnant she can be fired, something that is resolved in the Honduras plants by giving them contraceptive jabs Factories are being closed and moved to more rural locations with even lower pay that results in earnings being more like $7 a week and have no legal protection

4.9 There you are, working away with no breaks and no social contact hoping your practically
powerless union can help, then one day that's it. Factory closed, moved a few hundred miles away and your job given to a person that will do it for even less money and even worse

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conditions with zero union representation. You now have nothing and the person who now has your job is utterly powerless. (Boatang, 2010)

4.1.1. For workers to be working under such conditions in the 21st Century is frightening. The majority of
these sweatshops are run by factory bosses working in conjunction with local mafias to keep workers in-line. Improvements have been made to the factories but the standard is still not to an acceptable level and the conditions employees work in appear to be breaching the human rights act. The only time something appears to get done about the conditions of factories and treatment of staff is when it is brought into the public eye.

4.1.2 Workers are proud of what they do (making shoes and apparels for Nike) but just want to make
enough money to meet their basic needs: housing, food, clothes, healthcare, education, being able to take care of their kids and make modest savings. This is not a big ask, but currently they do not receive enough money to do so.

4.1.3 Nikes revenue over the past 5 years has steadily increased, as shown in the chart below:
Nik rev e's enue over the pa t 5 fina ia y rs s nc l ea

20 19 18 17 16 15 14 13

1 27 8.6 1 26 6.3 14 5 .95 1 3.73 9

19 8 .17

R evenue ($bn)

20 04-0 5

20 0 5-06

20 -07 06

20 -08 07

2 8-0 00 9

Nik net profit over the pa t 5 fina ia y rs e's s nc l ea

2.0 0
Net Profit ($bn)

1.8 8 1 .21 1 .39 1 .49 1.4 8

1.5 0 1.0 0 0.5 0 0.0 0

2 4-0 00 5

20 -0 05 6

2 6-0 00 7

20 -08 07

20 -09 08

Appendix B provides full details of Nikes 10 year financial history.

4.1.4 Less than 10 percent of Nike's $978 million marketing budget could raise the salary of all their
factory workers in Asia.

4.1.5 Golf star Tiger Woods, who is a quarter Thai, earns $55,000 a day alone from his endorsement
deal with Nike. That $55,000 a day is estimated to be worth the daily wage of 14,000 Thai Nike workers.

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5. Conclusion
5.1 Organisations have a social and moral responsibility to ensure that their workforce is working in a
healthy and safe environment, as well as receiving a wage that is of a livable amount without having to work an excessive amount of overtime to make it a livable amount. 5.2 Is it morally correct for organisations to follow laws stated by their home Government in their home country, but then not follow the same laws in countries that do not have the laws/ where the laws are more relaxed? No.

5.3 Nike has long been accused by labour and humanitarian organisations of exploiting the workers
of Third World countries; they decide to plead ignorance to what is going on until it is brought to light via the press and then they act. Instead of taking responsibility they blame their subcontractors for the shameful policies i.e. poverty wages, child labour, quasi-slave labour, sweatshop conditions, physical and sexual abuse of workers. They are then likely to close the factory, pay staff no severance pay and start up again in a rural village out of the limelight and employ people who are willing to work the same hours and more for less money.

5.4 It is when conditions like this are considered that the value of unions becomes clear. When you
remove the rights of people to come together and broker better pay and conditions, the results can be disgraceful. This is why unions were formed here in the United Kingdom.

5.5 At what age does a person cease to be a child? In the UK it is 16 years old as that is the age
when they leave full-time education; which is compulsory in the UK. Unfortunately a lot of children in Indonesia have never attended school and never will as there are no opportunities of education, so instead they work to help support their families. I agree that it is not for us 10,000 miles away to say exactly what age a person should commence work. In the UK we have compulsory education and social security benefits which ensure that a livable amount is paid to families others are not so fortunate. In the early years in the UK 14 year olds were working, but due to economic development the minimum age was risen to 16. Hopefully one day these third world countries will also develop but will they be able to do so if organisations like Nike take their business out of the country? We can only hope.

5.6 Nike, as well as a host of other organisations has been able to exploit Third World countries due
to the lack of laws in these countries. Had the laws been in place, as they are in the U.S and UK then organisations would not be able to take advantage of cheap labour and have workers working in sweatshops under the conditions they are. This raises the question of why the governments of these countries have not applied similar laws when this has been a longstanding issue? Are they worried that the countries will not be able to develop without the work provided by these organisations? Rather than thinking there is too many sweatshops do they feel that there is too little with unemployment levels being so high and the countries economy struggling? It appears so.

5.7 Disturbingly Nike actually pays factory workers the minimum wage in Indonesia. However the
Indonesian government admits minimum wage is only 90% of subsistence needs for one person. U.S companies like Coca-cola and Goodyear recognise that the minimum wage in these countries is not enough. They are also in Indonesia paying above minimum wage and have remained competitive in the global market.

5.8 That leads to the question why cant Nike? - the biggest shoe manufacturer in the world, who
have a net turnover of over $1 billion a year and who pay Tiger Woods $55,000 a day just to wear the clothes that these human beings make?

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5.9 People who argue that if better pay and conditions were allowed in these countries the prices in
the West would become higher are deluding themselves. This isn't just Nike and other sportswear companies; it is the entire clothing industry, from Wal-Mart to LVMH. 5.1.1 The high street price is set at the profit they want to make, not the production cost. That pair of 100 trainers has probably cost no more that 1 to make, with research and development and publicity costs added on top. If the production cost were to be 3, the price of the trainers would still come out at 100. (Boatang, 2010)

5.1.2 Equality laws are not being followed globally. All workers whether they work behind a desk at
Nikes multimillion headquarters in Oregon, United States or a factory worker in a Nike subcontracted factory in Bangkok, Thailand they should be entitled to the same rights, protections, and benefits as other workers.

5.1.3 If the Asian governments do bring in the laws required meaning Nikes labour costs increase I
would not be surprised if the sweatshops were moved out of Asia to another Third World continent Africa. Please refer to appendices C and D for details of the ethical dilemmas Nike has faced.

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6. Table of Contents
Appendices:
Appendix A: Appendix B: Appendix C: Appendix D: Employment - In England (Basic rights at work) Nikes 10 year financial history Presentation Presentation written notes

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7. Bibliography
Websites consulted

Boatang, K. (2010) Tiger Woods, Nike and Slave Labour In Thailand. Your Actions, Their Freedom. [Online] Available at: http://www.boatangdemetriou.com/2010/02/tiger-woods-nikeand-slave-labour-in.html (Accessed: 02 May 2010) Citizens Advice Bureau (2010) Employment - In England, Basics rights at work. [Online] Available at: http://www.adviceguide.org.uk/index/life/employment/basic_rights_at_work.htm (Accessed: 15 May 2010) Human Rights Watch (2010) Indonesia: Guarantee Domestic Workers Rights in 2010. [Online] Available at: http://www.hrw.org/en/news/2010/02/12/indonesia-guarantee-domesticworkers-rights-2010 (Accessed: 16 May 2010)

IHS Child Slave Labor News. (2010) Why Buy Nike? [Online] Available at: http://ihscslnews.org/view_article.php?id=265 (Accessed: 02 May 2010) IHS Child Slave Labor News. (2010) Nike Sweats? [Online] Available at: http://ihscslnews.org/view_article.php?id=285 (Accessed: 02 May 2010) Moore, M. (1998) Mike & Nike. [Online] Available at: http://www.dogeatdogfilms.com/mikenike.html (Accessed: 02 May 2010) Politicalleft. (2010) Nike, Sweat Shops & Child Labor. [Online] Available at: http://politicalleft.blog-city.com/nike_sweat_shops__child_labor.htm (Accessed: 02 May 2010)

Wiki Article consulted

Corporate social responsibility, (2010) Wikipedia. [Online] Available at: http://en.wikipedia.org/wiki/Corporate_social_responsibility (Accessed: 16 May 2010) Human Rights, Asia, (2010) Wikipedia. [Online] Available at: http://en.wikipedia.org/wiki/Human_rights#Asia (Accessed: 16 May 2010) Nike, Inc., (2010) Wikipedia. [Online] Available at: http://en.wikipedia.org/wiki/Nike,_Inc. (Accessed: 02 May 2010) Phil Knight, (2010) Wikipedia. [Online] Available at: http://en.wikipedia.org/wiki/Phil_Knight (Accessed: 02 May 2010)

YouTube videos consulted

4tops. (2010) Behind the swoosh part 1.mp4. [Online] Available at: http://www.youtube.com/watch?v=W-yxoJkgzJA (Accessed: 02 May 2010)

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4tops. (2010) Behind the swoosh part 2. [Online] Available at: http://www.youtube.com/watch?v=3bJbRSwiHZE&feature=watch_response (Accessed: 02 May 2010) doanviettrung. (2009) Human trafficking in Nikes sweatshop factory in Malaysia. [Online] Available at: http://www.youtube.com/watch?v=e9ZktmrGGMU&feature=related (Accessed: 15 May 2010) erikmyxter. (2007) Sweatshops EXPOSED. [Online] Available at: http://www.youtube.com/watch?v=kn8LnEkKfIU&feature=related (Accessed: 02 May 2010) MotorboatenMcL. (2009) Nike Sweat Shop Remix. [Online] Available at: http://www.youtube.com/watch?v=X4KheJ0oKog&feature=related (Accessed: 02 May 2010) nicknickjl23. (2007) Nike Chairman Phil Knight with Michael Moore. [Online] Available at: http://www.youtube.com/watch?v=cOI0V4kRCIQ&feature=related (Accessed: 02 May 2010) PovertyIsPolitical. (2007) Meet the people who make the clothes. [Online] Available at: http://www.youtube.com/watch?v=voVgTkTUKFc&feature=related (Accessed: 02 May 2010) schoolkid009. (2009) Nike Sweatshop Project. [Online] Available at: http://www.youtube.com/watch?v=MRtMPA7mYak&feature=related (Accessed: 02 May 2010)

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