Case Study Analysis of Nike Sustainability Goals

SUS 500 Principles of Sustainability Liana Harriot October 15, 2011

ABSTRACT Nike, a company that is over 40 years old, is the largest seller of athletic footwear and apparel in the world and the leader in its field. After negative reactions from stakeholders pertaining to its position regarding their contractors unfair and unsafe labor and environmental practices in the late 1980s and early 1990s, Nike began to undertake a total overhaul towards their business practices. Nike, in the last 20 years, has been on a strong pursuit to becoming sustainable. By continually developing and implementing new methods to achieve sustainability, Nike has been the forerunner within the industry regarding sustainability issues and values. Nikes branding power is so large that it will lead the way for all other companies in the industry to follow suit and may serve as an example for companies in other industries. Nike corporate strategy continues to evolve as well and by opening its doors to external stakeholders and third parties like The Natural Step, Nike shows they are open for suggestions to better the company, increase their profitability and reputation and become a world leader in sustainability. Nike will also need to continue to be consistent to maintain the social, economic and environmental balance that makes up their triple bottom line.

GOALS THE COMPANY HOPED TO ATTAIN WITH THEIR SUSTAINABILITY EFFORTS Nike had been pursuing a strategy of global sourcing opportunities to produce products at a lower cost in the 60s, 70s and 80s. This strategy had been fiscally rewarding, but as it became known about the mistreatment of its contracted workers, the chemical used to build their products and environmental degradation committed, Nikes image began to suffer. In the late 1980s, Nike came under attack as the companys overseas labor practices were exposed. Activists alleged that Nikes contractors workers were subjected to sweatshop conditions. These accusations began to create significant negative public relations problems for the company. Nikes management first denied responsibility for contract factory workers and resisted any attempt at change, but gradually came to see that their company was part of the problem and wanted to change their outlook on their business processes and practices. Eventually Nike began addressing its labor and sustainability issues in a more strategic way. By the mid-1990s, Nike realized that corporate social responsibility needed to be a core part of Nikes business in order to maintain long-term profitability. Nike began a serious commitment to overhauling the labor practices in its suppliers' overseas factories after it was targeted by activists campaigning against sweatshop conditions. Nike formulated a Code of Conduct for its suppliers that required them to observe basic labor and environmental/health standards. Nike also began making a business case for sustainability strategy for the entire company by acknowledging that a competitive advantage could be gained by being proactive on environmental and social issues. Nike created an external structure, the Nike Environmental Action Team (NEAT), and partnered with a third party, the Natural Step to implement sustainability principles throughout its organization. With input from the Natural Step, the NEAT team has been able to identify sustainability process that has identifiable costs that have affected longterm environmental and financial performance. They have been able to articulate how Nikes financial performance would be impacted by stakeholders reactions to sustainability performance by linking the impacts of this strategy on both corporate strategy and performance. Under then CEO Parkers guidance and influence, the Neat team began exploring how to tackle Nikes environmental footprint using this new strategy, and homed in on product design as a key intervention point. CEOs Parkers insights along with Hannah Jones, Nikes head of corporate responsibility, became a driving force behind the new approach. The NEAT and design teams decided that there was a great opportunity to phase in environmental issues at the beginning of the supply chain process. Joness team decided it needed to help Nike design the futureas opposed to retrofit the past1. After Natural Step and the NEAT team identified the stakeholders to be impacted, they began formulating a framework of sustainability principles. In recent years, Nike has made sustainability a core corporate value by fully integrating sustainability into their all aspects of their business operations. The Nike Environmental Action Team (NEAT) has made great strides for Nike since being implemented in 1993. NEAT has lead the way

to rewriting Nikes environmental policy and begin the process of integrating sustainability principles in its business operations and throughout the company. The major sustainability goals for Nike were: 1. Develop answers for the social and environmental problems that Nike contractors production posed to the environment 2. Integrate the solutions into the companys business practices by making sustainability a core tenant of the companys mission 3. Apply the principles of sustainability to its business operations by developing an organizational realignment to set the stage for a re-visioning of the companys environmental policy 4. Taking the initiatives to address the environmental life cycle of its products by implementing closed loop product life cycle 5. Develop its approach to product innovation by defining a long-term vision for production of sustainable products 6. Build internal skills & knowledge about sustainable business by educating employees in the principles of sustainability 7. Have an industry wide list of sustainability targets 8. More positive public perception of Nikes social responsibility 9. Create new financial models to include sustainability principles to reflect the full cost of doing business, ultimately providing transparency and potential additional benefits to both Nike and consumers. Nike has been very successful in its innovative efforts towards sustainability thus far. Nike has been able to fully integrate sustainability into their operations and have been able to show tangible results. The NEAT team and The Natural Step set Nikes future goals including designing products within a fully closed loop, using only sustainable materials, water stewardship, and climate stability. Through these accomplishments Nike has developed new methods to create the same products with less of an environmental impact. They have eliminated almost all PVC use, use organic cotton, and significantly reduced the use of petrochemical solvents to water based solvents. The results of these various activities have begun to produce some significant changes among Nike suppliers. For example, as a result of its various inspections, audits and internal research, Nike has been able to virtually eliminate the use of petroleum based chemicals in its footwear production. However management and the NEAT team recognized that focusing efforts inside Nike would not be enough to implement sustainability values; they had to collaborate extensively with external stakeholders partners like factories and materials vendors to create more sustainable products. There was an acknowledgement that the company needed to look at the entire manufacturing life cycle, including product design, manufacture, and end of life to incorporate sustainability principles into all facets of production. The result was Nike's Considered Design initiative, a company-wide program that incorporates green principles into Nike's design guidelines to help the company create

products with more environmentally friendly materials and fewer toxics and waste. It follows the closed loop business model. CORPORATE PARADIGMS SHIFTS THAT HAD TO TAKE PLACE FOR THOSE EFFORTS TO BE SUCCESSFUL. The International Institute for Sustainable development, Deloitte & Touche and the World Business Council for Sustainable Development (1992) defines sustainable development as For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be 2 needed in the future . It took a major overhaul for this definition to be relevant for Nike. The previously held intractable view that Nike was not responsible for their suppliers treatment of their workers failed to acknowledge that their stakeholders werent limited to just their customers and shareholders. Nike Management had previously failed to account for reputational or social risk to their organization and was now paying the price for their shortsightedness with negative press and reputation. Once Nike management recognized that there was a broader set of external stakeholders that could impact corporate profitability, , that they were accountable for, the process of thinking differently in the context of sustainability began to take hold. A complete 180 degree turnaround from prior business decisions had to be made in the business processes and corporate planning had to be revamped throughout the company. Visible leadership from then CEO Phil Knight helped usher in the development of sustainability strategies. The Nike management developed a new external structure for corporate responsibility. The company did in-depth analysis into responses or lack of, to the unsafe, unfair and unhealthy practices of its suppliers. After much soul searching, research and analysis, the company came to the realization that corporate responsibility had to be a core part of Nikes business. Although initially there was much resistance within the company to the concept of sustainability values and practices. However, strong strategic support from the top echelons of Nike was valuable in formulating an environmental culture in all aspects of the business, a view that persists to this day. In order to facilitate understanding and implementation of its standards, Nike introduced factory-wide training and education programs to its facilities Corporate responsibility is no longer a staff function at Nike. Its a design function, a sourcing function, a consumer experience function, part of how we operate. Nike CEO Mark Parker 3

CAN THE BUSINESS CASE FOR SUSTAINABILITY BE MADE PURELY ON THE PROFIT POTENTIAL OR MUST ALTRUISM PLAY A PART? The stakeholder analysis begins by identifying the various groups affected by the businesss activities. These include shareholders, creditors, regulators, employees, customers, suppliers, and the community in which the enterprise operates. It must also include people who are affected, or who consider themselves affected, by the enterprises effect on the biosphere and on social capital. This is not a case of altruism on a companys part, but rather good business. Companies that understand what their stakeholders want will be able to capitalize on the opportunities presented. They will benefit from a better informed and more active workforce, and better information in the capital markets. From a broader perspective, however, it is clearly in the interest of business to operate within a healthy environment and economy. If companies arent good corporate citizens as reflected in a triple bottom line accounting that takes into account social and environmental responsibilities along with their financial ones, eventually their stock price, profits and entire businesses could suffer. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business 4 If sustainable development at Nike is to achieve its potential, it must continue to be integrated into the planning and measurement systems of all facets of its business enterprises. Nike seems to be setting a good example, after all, their motto is JUST DO IT and they seem to be doing just that.

References

Nicholas Casey, New Nike Sneaker Targets Jocks, Greens, Wall Street, The Wall Street Journal, February 15, 2008.
2

International Institute for Sustainable Development (1992). Business strategies for sustainable development (1992) Retrieved from http://www.iisd.org/business/pdf/business_strategy.pdf
3

Innovate for a Better World: Nike FY05-06 Corporate Responsibility Report, Nike Inc., May 2007, pp 4 Triple Bottom Line (2008). In The Economist (2008) Retrieved from http://www.economist.com/node/14301663