GOVERNANCE

& SUSTAINABILITY | NIKE

GOVERNANCE & SUSTAINABILITY

The link between sustainability and Nike as a growth company has never
been clearer, said Hannah Jones, Vice President, SB&I. There are
serious potential impacts of social, environmental and economic shifts on
labor forces, youth sport, supply chains and products. This gives Nike the
opportunity to use our power of innovation and our commitment to
transparency and collaboration to tackle these complex issues.

Jason Santos | Troy Bretzman | Mike Renfro

February 8, 2015

GOVERNANCE & SUSTAINABILITY | NIKE

TABLE OF CONTENTS
Page 1

Cover Page

Page 2

Table of Contents

Page 3

Executive Summary

Page 4, 5

Statement of Problem

Page 6, 7, 8, 9

Statement of Problem

Page 10

Recommendations

Page 11

Recommendations | Action & Implementation Plan

Page 12

Action & Implementation Plan

GOVERNANCE & SUSTAINABILITY | NIKE

EXECUTIVE SUMMARY
Nike is an America multinational company that is involved in the development, design,
manufacturing, and worldwide marketing and selling of footwear, apparel, equipment,
accessories and services. Headquartered in Beaverton, Oregon, Nike was founded in
1964 as Blue Ribbon Sports. The company officially changed its name to Nike in 1971.
The company boasts revenue in excess of US$24 billion as of 2012. In its endeavor to
become the worlds leader in sports apparel, Nike has run into several problems, such
as how the production of products affect the environment through emission discharge
and toxic waste and other problems such as poor labor practices. Nikes response to
these challenges, have been a radical rethink of how, where and why they do business.
In 2012, a 12-person board planned sustainability goals for 2015-2020 which at the time
seemed reasonable, however after review it was determined that reaching the target of
zero discharge of hazardous chemicals would be too difficult. Nike found itself in a place
where they had to create new innovations, make changes throughout the supply chain
and work closer with the whole industry.
As of now, Nike has succeeded well above expectations. Through trial and error and
excellent management choices, they have overcome great hurdles. They put into
practice new labor practices that not only benefitted the company, but eliminated poor
labor conditions where need. They innovated new technologies that not only cut down
on water usage in production, but they eliminated it all together. By doing so Nike has
achieved one of many goals sooner than later.

GOVERNANCE & SUSTAINABILITY | NIKE

STATEMENT OF PROBLEM
Labor and Environmental practices:
Nikes brand was threatened when criticism over labor practices at contract
factories became a topic of concern by consumers, particularly college students. In the
1990s contracted factories in Asian countries presented unsafe working conditions and
practiced forced child labor. Its Malaysia factories were housing its workers in
deplorable facilities, garnished wages to pay for work permits and recruitment fees
and withholding their passports to prevent them from leaving. At first the company
insisted that those conditions were not its responsibility. A huge global public outrage
came about and the public demanded greater responsibility from Nike. Within days
following the report, change came for its workers. Following the change, Nike
investigated the incident including the review of all 34 of its contract factories. The
investigation concluded the root cause was partly due to weak law enforcement, poor
education and industry.
Nikes approach shifted after realizing that ignoring supply chain responsibilities
was not prudent in the companys global reputation. Nike was committed to improving
working conditions by expanding independent monitoring; raise minimum wage
requirements, strengthen environmental, health, and safety standards; expand worker
education programs; increase support of Nikes micro-enterprise loan program for
workers; and build understanding of corporate responsibility in the larger community.

GOVERNANCE & SUSTAINABILITY | NIKE

Jones and her team spent months surveying other companys work on

sustainability issues and eventually integrated sustainability and innovation processes

throughout the organization. Innovation was applied to all levels of the company: in its
products, processes, revenue generation, business model, and throughout its industry
road map. In addition to jones efforts, Nike wanted to be more transparent so the
industry decided to disclose a list of its worldwide factories manufacturing its products.
This allowed consumers to research and see for themselves how those factories were
being managed.
Project Rewire was initiated which added sustainability factors to the
metrics used to evaluate the performance of executives responsible for sourcing
decisions and restructuring the company. Nike reduced management layers, cut its
workforce by 5%, consolidated the supply chain, and restructured the matrix of goods
and geographic region. The Project team also established natural audit programs to
provide independent oversight of the system of contract factory audits against Nikes
health, safety, and environmental standards. When two of Nikes subcontractors in
Honduras closed their doors putting 1,800 workers out of a job without notice and
paying $2 million in severances, Nike response was inadequate for the universities and
student groups around the United States. In conclusion to the ordeal, an arrangement
was made where Honduran government paid out the severances and Nike funded a
$1.5 million Workers Relief program to provide vocational training and health coverage
to the workers who were laid-off.

GOVERNANCE & SUSTAINABILITY | NIKE

While Nike faced a future of constrained resources in its efforts to design new
products, Nike decided to learn how to push the envelope in product innovation and

manufacturing by starting with its employees on how they could view innovation through
a design lens. This step has transformed the companys culture and purpose. Nike also
decided to share its research and development work on sustainability with other
companies to help promote their efforts to changing the industry and the world. After
extensive analysis through various committees of the impacts and implications across
the value chain, Nike has determined their greatest factor affecting its workers,
communities and environment is from the materials used in manufacturing.
As Nike takes steps to improve material innovation, it has focused some of its
resources on implementing lean manufacturing. Nike worked with their supply chain to
demonstrate the value of lean as a driving force to sustain and improve business
performance where workers involvement was to drive business success through
continuous improvement. Nike also shared its vision of reaching a closed-loop business
model where their goal was to achieve zero waste in the supply chain and have
products and materials that can be continuously reused.
Models over water shortages revealed the potential for disruption and cost
increase at multiple points in Nikes value chain from production of cotton, to the
generation of laundering of Nike t-shirt by the end user. With two-thirds of the worlds

GOVERNANCE & SUSTAINABILITY | NIKE

population experiencing water stress, some of the greatest shortages were expected in
the Asia Pacific Region, where 36% percent of the global water supply would have to

meet the needs of 60% of the worlds population where much of Nikes factories were
located. Nikes water program provided suppliers with tools to track water usage. Today,
the two main areas with significant water use are in its material manufacturing and
finished goods manufacturing. Nike has set targeted goals and are on the road to
improvement.
The incorporation of waterless dyeing technology for textiles that use co2
instead of water has decreased processing costs, less energy and less chemicals in its
products. In contrast to conventional dyeing techniques, DyeCoos technology of
waterless dying
across the polyester
industry could save a
trillion gallons per
year- the annual
consumption of three
major cities combined.
Continuing efforts to
create and encourage
innovation on socially
sustainable material
is furthermore

GOVERNANCE & SUSTAINABILITY | NIKE

ongoing with the investment in DyeCoo.

In 2012, the first product made using the innovative new Nike Flyknit technology
and manufacturing process was launched. The Flyknit lunar 1+ running shoe reduces
footwear waste in the upper by 80% on average compared with traditional production
methods. From old and traditional to new innovation and creativity in their design factor,
Nike continued to explore alternatives and develop a better material, it has reduced
energy use, waste, water, greenhouse emissions and chemistry.
PRODUCT IMPACTS | FROM PEGASUS TO FLYKNIT

Nike implemented an advanced Manufacturing Index that covers all products

and brands the company uses to assess and improve performance in its contract
factories. The index ranks the factories as Gold, Silver, Bronze, Yellow or Red; all are
expected to achieve a Bronze status. Factories with higher ratings receive incentives

GOVERNANCE & SUSTAINABILITY | NIKE

such as Nike leadership and educational resources and technical assistance, and
opportunity to boost factory orders as being top priority.
In July of
2013, Greenpeace
launched a high
profile campaign
charging Nike,
Adidas, Puma and
other well-known
apparel companies
with not doing
enough to prevent
their textile and dye
houses from
releasing
hazardous
substances into the
water ways via
wastewater

discharge. The
report
acknowledged that

GOVERNANCE & SUSTAINABILITY | NIKE

neither of the facilities were a Dye house for Nike but still called on them due to their

connections with other younger facilities in china and its role as a leading brand. Nike
released a public response in less than a week following the report on the issue and its
partnership with Greenpeace to promote water management in China and improve
chemical inputs and processes in the footwear and apparel industry. Nike affirmed its
commitment to the goal of Zero discharge of hazardous chemicals for all products
across all pathways in our supply chain by 2020. The Greenpeace campaign had
condensed the time table sharply in an effort to rid hazardous material from the
environment. Nikes actions was underway.
Nike is a company that considers the impact of giving back, having a positive
Corporate Social Responsibility and being environmentally conscious. At the same time
Nike experienced setbacks due to their dependence on third party manufacturers and
having limited control. Nike Better World CSR Campaign targets smaller waste output
(carbon footprint) and paying closer attention to the way their products are being
manufactured (labor force) helping Nike to get back in good standing with consumers.
When considering the responsibility that companies have today, Nike as a major
brand has an even higher level of accountability. The areas that we chose to focus on
were how Nike conducts its labor practice and its role in sustainability. In our report,
these two subjects were highlighted repeatedly. As a group, we believe that Nike has
made great progress in addressing the issues that have confronted it. Any company will
face accusations of wrong doing, but it depends on how the company will respond to the
complaint and implements a new strategy which not only satisfies the company, but all

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GOVERNANCE & SUSTAINABILITY | NIKE

that are involved. We believe that Nikes current effort to eliminate poor labor conditions,
going so far as to cutback in, or close production sites to control abuse of such practices
is to be praised. In response to their goal of meeting zero discharge of hazardous
chemicals for all products across all pathways in our supply chain by 2020, we feel
great progress has been made but the goal of FY2020 may not be a realistic one. We
propose extending their goal to 2035 will allow further room for innovation in newer
product design as they have done with waterless dying and Flyknit. It will also give more
time to achieving such goal. In recent news, Nike has set incremental goals. In FY15 its
looking to achieve a 20% reduction in co2 emissions. In FY13 only 41% of participating
footwear factories met the minimum requirements of the Nike Energy and Carbon
program.
Now that Nike has remedied so many of its past problems, it should by no means
fall asleep at the wheel. Many companies have fallen victim to reaching a certain goal
and then as time went by, forget the importance of why they had chosen those goals in
the first place. Nike needs to continue on the path that its currently on. They should
constantly be rebranding themselves, making the company even further superior. Nikes
trump card so far has been their wise choices in upper management and their
willingness to embrace technology. The logical choice for Nike is to continue down this
path. Because they are the most recognized brands in the world, there is no doubt that
they will fall victim to scrutiny again in the future. Nike will not only need to pay attention
to current business trends, but they will need to rewrite them; taking every step through
orchestrated planning, evaluation and execution, while retaining creativity.

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GOVERNANCE & SUSTAINABILITY | NIKE

Nike has invested heavily in new sustainability technology. They should continue
to invest in their business partnership with DyeCoo. The technology behind DyeCoos
waterless dye machine is an incredible advantage for Nike. Not only does it show Nike
to be actively involved in sustainability, but by investing in the technology itself, invokes
a sense of can do spirit, which in the long run will help them to stay at their current
position as the number one sports apparel retailer.
As far as labor practices go, Nike should continue to be transparent in their labor

practices. To ensure that labor practices are carried out sufficiently, Nike should place a
higher level manager to be responsible for the condition of the workers and their work
environment at overseas factories. The manager would receive ethical and cultural
training before departure to ensure a comfortable transition and upon return, receive repatriot counseling.
To our closing point, the company has made great strides. In each instance it
was confronted, Nike found it a responsibility to better themselves as a company and
employ new ways to initiate new sustainability trends. We believe that Nike has not only
met its own goal and that of outside watch groups such as Greenpeace, but has gone
as far as to surpass those goals. If the company continues its sustainability efforts, there
is no doubt that it will continue to be one of the best companies in the world for some
time to come.

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