Towards a More Responsible Private Sector

 

–  Introduction –

 

Multinational corporations are one of the main forces on the global stage driving the globalization phenomena.  Corporations became multinational because they realized that they could maximize their profits by seeking out the countries with the cheapest labor supply and establishing factories in that area.  This became a parasitic relationship in which the multinational corporation benefits financially and the hosting country gains very little in comparison.  There is no doubt that companies have a social and a civic responsibility to these countries.  The question is how much of a responsibility, how do they carry out this responsibility and most importantly who regulates?  Is it the local government of the country, or do we need an overarching set of rules to address this problem?  If a set of regulations were to be adopted, how would that work to further compromise the sovereignty of the state in this era of globalization?

Section 1 of this paper will address the ways in which Nike, one of the market leaders in the globalization process spurred on by multinational corporations (MNCs), has not been (and continues to be) socially irresponsible to the countries abroad where most of its equipment assembly takes place.  Section 2 will detail ways in which Nike’s irresponsibility must be regulated and eventually stopped, and how this can successfully happen.

 

–  Thesis  –

 

There are countless organizations- governmental, faith based, international, privately funded, publicly funded- that focus on corporate responsibility and accountability.  As the United States deals with the aftermath of the Enron scandal, we realize that even corporations that have regulatory federal agencies and many forms of checks and balances, can be as corrupt as corporations that have a set of rules that are voluntary (as many multinational corporate responsibility laws are).  We as a global society need to work towards the establishment of an international organization that can monitor world wide corporations and ensure that they are acting in the most responsible way towards the countries that host them.  The only organization that can exercise this type of authority and breadth of scope is the United Nations.  Therefore, the second section of this paper will discuss ways in which the UN’s Global Compact can serve as more of a regulatory force to safeguard the rights of countries that house multinational corporations.  The Global Compact must go beyond the level of public relations and ensure that open financial markets benefit not just multinational corporation’s profit margins but also the hosting country’s people. The UN’s Global Compact must become the first organization to set down the rules of the global playing field- and make them mandatory.

 

Section1: Nike as an Example of Why Corporations Need Regulation

 

The most publicly visible campaign against poor working conditions in developing countries has involved the sportswear manufacturer Nike, Inc.  Reports of inhumane working conditions in Nike factories in Indonesia, Vietnam and China began reaching the U.S. around 1997 through a report by the Vietnam Labor Watch. Through the Internet, these reports spread, detailing unjustly long hours, physical, verbal and sexual abuse of factory workers, low wages, unhealthy physical conditions in the factories and more.  Nike, an extremely image conscious company, was faced with the worst public relations disaster they had ever seen.  Organizations such as Nikewatch were formed and their protests and correspondence with the company were publicized through the Internet.  Sports teams demanded that they use another equipment manufacturer, and politicians began slamming Nike as an irresponsible and immoral company.  These events effected employee morale within the corporation and most likely damaged earnings by 69% in 1998.[1]

Nike responded by setting up a Corporate Responsibility Department and published its first “Corporate Responsibility Report” in October of 2001.  The findings focused on the fact that as with many sports manufacturing companies, Nike has products being made in more than 700 factories in 50 countries.  Nike does not own any of these factories, its goods are manufactured by subcontractors.  The report claimed that monitoring the managers and the conditions of the factories was difficult.  Furthermore, the report stated that the cause of the unprofessional working conditions in factories was due to an uneducated and unqualified pool of prospective employees for managers.  In addition to this corporate responsibility report, in 1999, Nike enlisted the help of the International Youth Foundation to set up an organization called the Global Alliance for workers.  This organization was established with a $7.7 million grant from Nike and also includes the clothing company GAP and the World Bank.[2]  The purpose of the Global Alliance is to investigate and publish reports on the conditions of the factories where Nike products are made in order to edify Nike.

Despite some improvements and changes made, human rights and international aid organizations still claim that Nike workers abroad are overworked, underpaid and working in conditions that are unsuitable.  Oxfam Community Aid Abroad has stated that Nike is not doing enough especially in the area of alleviating the effects and stress of poverty (from a study conducted in Indonesia in 35 factories between July 2001 and January 2002).[3]

 

Section 2: The Global Compact Can Make a Difference Through More a Definitive Stance

 

            When Secretary-General Kofi Annan proposed the UN Global Compact in 1999, he stated that the purpose of it was to “make globalization work for all the world’s people.”[4]  The Global Compact is specifically described as a non-regulatory, value-based organization that is meant to promote institutional learning on the subject of MNCs’ responsibility.   In order for corporations to be members of the UN Global Compact, they have to provide a statement of support for the Global Compact and its principles from the CEO of the company.  In addition, the company has to submit a progress report once a year with a “concrete example of progress made or a lesson learned in implementing the principles, for posting on the Global Compact website.”[5] One example of how stringent the Global Compact membership requirements are is that Nike is a member.  What good is an organization meant to exchange ideas about how corporations should be conducting business internationally?  There are a plethora of “think tank” organizations dedicated to the exchange of ideas- the UN should be using its status and its name for regulation in the form of establishing a precedent. 

The Global Compact should be setting down restrictions and criteria that absolutely must be followed to in order for a company to receive the endorsement of such a renowned and authoritative body as the UN.  Eventually, these criteria as set out by the UN must become mandatory in order to be seen as a corporation that is globally responsible.  Too many NGOs have standards that are voluntary (i.e. the ILO mandate expressly states that the ILO “formulates international labor standards in the form of Conventions and Recommendations setting minimum standards of basic labor rights”)[6] The only way that the UN can forcefully make a difference on the increasingly important issue of how globalization is making the gap between rich and poor wider is to raise the bar for MNCs.  The current Global Compact asks too little of corporations; the UN must be responsible for insisting that MNCs not only uphold human rights, labor laws and environmental standards but also enable the hosting country to share the financial rewards that globalization has proffered the multinational corporation community and, in turn the wealthiest countries in this world.

            In the case of Nike and many other large manufacturers, the corporation does not own the factories where assembly of the products takes place.  Furthermore, as stated earlier, many corporations are manufacturing overseas in order to take advantage of the cheap sources of labor.  Countries that have cheap sources of labor have a low minimum wage and are plagued by poverty.   Therefore, not only does Nike (or any other multinational corporation) have a responsibility to uphold the basic principles of Global Compact they also have a responsibility to (financially and socially) give back to the country that they are using to make a large profit.  In the situation of Nike, where one of their main complaints is that they lack a pool of qualified managers for the factories they could establish some type of educational training program for prospective employees.  That way the corporation will have an input into the practices and policies that the manager of the factory will enforce.

The language of the Global Compact alludes to poverty eradication as an additional partnership opportunity that companies may choose to enter into with the UN and its agencies.  The Global Compact instead should set a precedent and require that MNCs make poverty eradication a priority.  Any MNC that does not show evidence of dollar amounts invested will not gain membership into the Compact.  They should require that MNCs with a certain amount of revenue per year (i.e. all Fortune 500s) or corporations like Nike that are market leaders, must give back a certain percentage of their profits to their work force.  This can be done through raising minimum wages to a more competitive rate in developing countries or investing in government programs such as healthcare and education.  Nike invested $7.7 million in a non-profit organization to research the atrocities that they knew were occurring in their factories abroad.  Instead, perhaps they should have invested that money in fixing the physical conditions of at least one factory or establishing a pension plan for a team of managers.

 

–  Conclusion –

 

Nike should not be and should never have been a member of the Global Compact.  They are working to take control and assess the conditions of their factories; however they need to take steps that will bring about more institutionalized changes in the countries from which they have gained so much.   As a market leader, and a company that epitomizes a pillar of American culture [sports], they must share the spoils that globalization has brought them. 

The UN Global Compact’s 9 principles are just a beginning.  They scratch the surface of an issue that must goes much deeper.   The United Nations seeks to uphold peace and security.  Neither of these two things will be possible if the UN does not take serious steps towards leveling the global playing field- that is the only way to ensure a peaceful and secure future.  In Monterrey Mexico yesterday, world leaders convened to discuss globalization and that is not working to alleviate poverty in underdeveloped countries.  President Jacques Chirac of France made the statement that industrial countries should spend more on “aiding trade” programs in the developing world.  Mr. Chirac made this statement in reference to the philosophy of the early 1990s of “trade not aid” in developing countries.[7]  The UN Global Compact should take the lead with enforcing this philosophy and detail ways in which MNCs must help bolster economic development in these countries-if they ever want to truly be responsible.

 

Phil Knight, founder, chairman and CEO of Nike, Inc owns 71% of the $9.5 billion company and pays athletes multi-millions to wear his $100 sneakers that Vietnamese workers earned $1.84 a day to make.[8] There is no justice in those numbers.  The UN knows that, now they need to expose that fact and voice their disapproval to set the groundwork for a more standardized system of multinational corporation investment in the developing world.