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Nike is a producer of shoes, sport clothes and equipment and enjoys success of its products all over the world. Nike gives importance to its brand image for its high acceptability among customers and the community. Despite of the fame, it still has to make sure that the quality meets the expectations and that the brand image sustains. This is met with challenges by the company at every corner. As much as the success deems high gains for the company it is continually in the face of pressure from social groups and its many stakeholders who present it with various objections and restrictions. Nike has to constantly work towards improving its corporate social responsibility and strategic philanthropy to cater to the best interests of the company and those of its stakeholders, while never overlooking its financial objectives and performance. How do the objectives conflict and how can the ethics and social responsibilities of the company like Nike be put under healthy terms to allow for a successful performance of a company? It is important to understand the concept of corporate philanthropy before we dig deep to understand the conflicts faced by the mangers and how to deal with them under ethical boundaries. The paper first explains the concepts and then presents the options available for managers.
The Concept of Corporate Philanthropy and Social Responsibility
As Nike thinks strategically about every aspect of its operations, “strategic philanthropy” has entered its corporate lexicon. Its smart managers realize that philanthropy can help fulfill the company’s economic and social goals at the same it helps those in need. James A. Joseph, president of the Council of Foundation, refers to this as “enlightened self-interest,” which he defines as being what is good for the society as well as good for the company (Daft, 2005, p.141). For this reason the managers have to take into account the interest of all the stakeholders involved to work towards their betterment as they in turn benefit the company and earn for it a good image and Nike craves for keeping its image good and right always. Sometimes, philanthropy involves an outright grant of funds, but the greatest growth is in employee volunteer programs, which make the employees at all levels available on company time for work in relevant charities (Schermerhon, 2007, p.201). This results in better public relations as well as efficient meeting of company’s motives. This just one example of how the managers can fulfill the objectives of the stakeholders. But this is not as simple as it seems, as the objectives can be conflicting mostly and fulfilling them takes immense consideration of ethical boundaries and financial issues of the company. Such considerations tend to put managers under ethical dilemmas compromising the stakeholders’ objectives adversely affects the company’s performance. For this reason, corporate philanthropy calls for social responsibility which is the obligation of the organisation management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation.
Stakeholders and their Conflicting Objectives
Nike is bound under the objectives of many stakeholders which have to be addressed by the mangers to make it an enlightened organisation. What is the stakeholder? A stakeholder is any group within or outside the organisation that has a stake in the organisation’s performance. Each stakeholder has a different criterion of responsiveness, because it has a different interest in the organisation. For Nike the important stakeholders are: investors and shareholders, employees, customers and suppliers. These are its primary stakeholders without whole the organisation cannot survive. Other important stakeholders relating to the external environment are government and the community.
Investors, shareholders and suppliers’ interests are served by managerial efficiency – that is, use of resources to achieve profits. Employees expect work satisfaction, pay and good supervision. Customers are concerned with decisions about the quality, safety and availability of goods and services. When any of these primary stakeholders becomes seriously dissatisfied, the organisation’s viability is threatened. So it all comes down to the manager to treat each of their objectives well. Here is where the conflict comes in. Customers expect quality in return for the monetary exchange they do with the company. If they get dissatisfied with the performance of the good bought, the company not only loses them but also other potential customers who through word of mouth get to develop a negative image of the company in terms of quality and perform ace. Maintaining healthy brand image in the market is of utmost importance for the overall success of a company and it calls for taking quality measures. But quality demands expenditure. Company can only rise through efficient quality attained through better production facilities. This is expensive and increases company’s total production costs. Also, employees expect higher pay, which too increases the production cost of the company. Suppliers demand prompt payments which is yet another cost element. On the other hand, the shareholders and investors expect high returns and want managers to go or profit maximization and keep a short term approach. The managers keep a longer term approach and believe in investing in quality of the workforce and production would lead to profit maximization in future. But this creates a divorce of ownership and control, as the short term objectives of the shareholders could not be met with the considerations for customers, employees and suppliers who only increase the total costs borne by the company. For Nike keeping the customers happy with high quality products and suppliers happy to provide for the good quality raw material to cater to the customers’ needs is of utmost importance (Frisch, 2009, p.80) But investors and shareholders, who are the owners of the company, are just as importance whose interest can not be overlooked but in the short term there a massive pool of conflicting objectives that the managers have to face.
But these are not the only influencing forces that shape business decisions; there are also other groups such as the government, the community and special interest groups. The government interventions include in the form of safety laws, trade laws, business restrictions and other laws and regulations. The community’s influence revolves around the environmental protection and the protection of the local citizens. Special interest groups include trade associations, political action committers and professional associations, consumerists and pressure groups. The companies are bound by the government and legal laws and successful business is not likely without their consideration (Schermerhon, 2007, p.210). Many strategic plans of the board of directors may go against the laws and be restricted because of them and Nike has to be considerate of all the laws. The bigger the company the more bound it is under powerful laws that regulate almost all of the aspects of the business. Laws such as for consumer protection and employee rights protection are beneficial for the consumers and the employees in terms of safety and financial returns to them. They allow the company to not exploit them for the sake of profit maximization. But they only increase their costs which decreases the financial returns to the investors and shareholders. On the other hand, the pressure groups and other social organisations greatly influence the overall image of the company. In the modern age where resources are increasingly becoming scare, much attention is given to sustainability of the natural resources rather than exploiting them. The environmental active groups provide sufficient information and awareness to create a clean and sustainable environment. Consumes thus are well aware of the need to protect the environment and contribute their share in keeping it protected. This means buying environmentally friendly products. For that reason, they favor those companies whose products do not harm the environment. This is yet another part of the corporate social responsibility of the company to protect the environment for the sake of creating a good image, which only means increased investment in production techniques that create less pollution and provide better quality, which yet again conflicts with the objectives of the other primary stakeholder group (Kreitner, 2008, p.230).
Management of Ethics and Social Responsibility
Managing the above mentioned objectives appropriately calls for sufficient consideration for the ethical and social issues so that overall corporate social responsibility towards all the stakeholders can very well be achieved.
So actually confronted with a specific social demand, how might a corporation respond? The actions that managers take are categorized under four broad approaches to deal with the demands: obstructive, defensive, accommodative and proactive.
An obstructive response is a response to a social demand in which the organisation denies responsibility claims that evidence of misconduct is misleading or distorted and attempts obstruct investigation.
A defensive response means that the company admits to some errors of omission or commission. The company cuts its losses by defending itself but is not obstructive. Defensive managers generally believe that “these things happen and they are nobody’s fault” (Daft, 2005, p.157).
An Accommodative response means that the company accepts social responsibility for its actions, although it may do so in response to external pressure. Firms that adopt this action try to meet economic, legal, and ethical responsibilities.
Finally, proactive response means that firms take the lead in social issues. They seek to learn what is in the public interest and respond without coaxing or pressure from stakeholders.
For Nike’s managers, concern for improving the ethical climate and social responsiveness is important (Frisch, 2009, p.80). They do not want to be surprised or be forced into an obstructionist or defensive position. As one expert on the topic of ethics said, “Management is responsible for creating and sustaining conditions in which people are likely to behave themselves” (Daft, 2005, p.159). The managers have to take active steps to ensure that the company stays on an ethical footing. Management methods for helping organisations to more ethically and responsibly meet stakeholder objectives include leadership by example, codes of ethics and ethical structures.
Top management plays a vital role in company wide practice of ethical behavior. They have to give constant leadership in renewing the ethical values of the organisation. They have to be active in communicating that commitment in speeches, directives, company publications and especially in actions. The company grapevine quickly communicates situations in which managers chose an expedient action over an ethical one, and subsequent pronouncements of top executives’ committment to ethics count for very little. Top managers set the tone for the organisation most clearly by their behavior (Kreitner, 2008, p.215).
A code of ethics is a formal statement of the company’s values concerning ethics and social issues; it communicates to employees what the company stands for. Code of ethics tends to exist in two types: principle based statements and policy based statements. Principle based statements are designed to affect corporate culture; they define fundamental values and contain general language and out company responsibilities, quality of products, and treatment of employees. Thus allowing the employees to know how well the company cares about their objectives and meets them in the most ethically sound way. Policy based statements generally outline the procedures to be used in specific ethical situations. These situations include marketing practice, conflicts of interests, observance of laws, proprietary information, political gifts, and equal opportunities.
Ethical structures represent the various systems, positions, and programs a company can undertake to implement ethical behavior. An ethics committee is a group of executives appointed to oversee company ethics. The committee provides ruling on questionable ethical issues. The ethics committee assumes responsibility for disciplining wrongdoers, which is essential if the organisation is to directly influence employee behavior (Robbins, 2008).
Social Responsibility and Financial Performance
Nike realizes that success can be measured in many ways, not all of which show up on the financial statement. However, the relationship of a corporation’s ethics and social responsibility to its financial performance concerns managers. One concern of manager is whether good citizenship will hurt performance – after all, ethics programs cost money. A number of studies have been undertaken to determine whether heightened ethical and social responsiveness increases or decreases financial performance. Studies have provided varying results but generally have found that there is a small positive relationship between social responsibility and financial performance. Other than Nike, Johnson & Johnson, Hewlett Packar, Kodak etc are known for their social responsiveness whilst enjoying financial success. They have proven that financial success and social responsibility go hand in hand. How is that? Enlightened companies realise the integrity and trust are essential elements in sustaining successful and profitable business relationships with all the stakeholders. Although doing the right thing many not always be profitable in the short run, it develops a level of trust that money can’t buy and that will ultimately benefit the company (Bateman, 2008, p.180). Nike firmly believes this and has a made a commitment to business ethics for many years (Frisch, 2009, p.89)
For Nike corporate social responsibility is of immense importance and it gives due time and effort to improve its stakeholder relationships which only work back for its benefit. Its primary stakeholders, such as the investors and shareholders, customers, employees and suppliers directly influences its operations and the secondary and more external stakeholders such as the governments and social groups influence its operations in terms of restricting its operations and affecting its brand image. To cater to their interest and keep them all happy, the managers have to understand their objectives which are to a greater or lesser extent conflicting in nature and present ethical dilemmas to the mangers. Ethical and social responsibility presents a way of dealing with the many objectives of the stakeholders and there are many ethically centered approaches to deal with the stakeholders. Through ethical conduct and social responsibility, Nike presents itself as a corporate social responsible company, which is essential for sustaining a high value image in the market that is increasingly paving way for social and environmental concerns. Although satisfying the stakeholder objectives ethically calls for heavy investments and in the short run increases costs for the company, Nike believes in the long term affects of the social responsible behavior which bring in high financial gains as well crafting a better company image, as environmentally friendly, ethically strong and socially responsible company.