How did Nike manage the post crisis communication after the

sweatshops scandal? Analysis of the image restoration strategy and the

actions undertaken

Introduction
There is a word nowadays that labels any corporation. A word that gathers all the images
projected in peoples minds during a time period and that should reflect a long time business result.
That word is called reputation.
Every company cares about its reputation and the image it projects externally. It is undoubtedly
a door to the long-term profit. After a companys image is threatened, it is hard to come back to the
initial stage. That is why many organizations have included in their strategy a plan for crisis management
which prevents any reputation issues that might arise along the way. There are even corporate
attorneys who suggest that due to the risks of lawsuit, some strategies should be avoided to implement.
However, because some companies are working in a turbulent environment, where the predictability is
low, there is a big chance that at some point a company might fail to deal with a crisis.
In this paper, I am not going to focus on the plan and series of actions an organization should
take in order to prevent a crisis, but rather on how a company can and should manage its reputation
after the damage has occurred. As we might have heard it many times before, it takes a long time to
build a reputation but it can be destroyed overnight in a single event. To better illustrate this topic, I
chose as a case study, the famous Nike sweatshops scandal that occurred during the 90s. I chose Nike
as a case study because it is the largest global company in the sports shoe and apparel industry with a
powerful corporate identity that gained prominence due to its positive communication strategies (what
has highly influenced the audience to associate its brand with positive social values).

While this paper will slightly refer to the implications the scandal had all around the media, the
main focus will fall on the actions Nike took in order to restore its image as well as the attempts of
keeping medias attention away from all the past wrongdoings.
Therefore, the next chapter will concentrate on a more theoretical approach, whereas the third
chapter draws attention to more specific aspects of the image restoration strategy Nike embraced after
facing the crisis.

Conceptual framework

On reputation
By reputation we understand an intangible asset that holds immense importance for an
organization supporting the product quality, the staff recruitment, attraction of investors, accessibility
to more financial resources and the relationship with the stakeholders. All of these contribute to a
companys ongoing success. In order to remain competitive and achieve business goals, a company must
constantly feed its reputation positively, especially in the present days when the market is so saturated
with so many brands (Tom Watson, 2007). A short definition says that a reputation is the collection of
images the publics hold about an organization over time.
One of the key factors for a companys reputation is the CEOs reputation, who is a chief
communicator along with the customers and the employees. Authors like Balmer and Greyser (2002)
also acknowledge the fact that the CEO together with the top managers should be the ones responsible
for the corporate identity and reputation in crisis situations. Of course there are aspects like
management, internal and external communication, feedback, quality of products/services,
organizational operation that also count significantly in defining a corporate reputation (Tom Watson,
2007).
One of the reasons why corporate reputation is becoming more prominent in the future is due
to the growth of markets, which brings along more consumers demand and a larger range of choices.
This implies also a larger range of product brands and services. It is considered that stakeholders have
increased their expectations considering the quality and reliability of their choices (Greyser, 2009).
Moreover, the stakeholders are different and they have different expectations, which makes it even
2

harder for a company to satisfy all the requests and expectations. That is why, it is imperiously necessary
that corporations watch their behavior by establishing the so-called corporate brand covenant which
equals with the long-term promise they engage in. If the promise is not respected, the organizations are
likely to meet a point of trouble. In the present times, it is far easier for a reputation failure to occur and
this is mainly because of the Internet. The speed of online communication and the possibility of activists
groups to form via Internet has become a serious reason to potential reputation attacks (Greyser, 2009).

On crisis
A simple but clear definition of a crisis says that it is a threat to the reputation and a disruption
in the overall image stakeholders hold about an organization, which effects are revealed in the
withdrawal of reputational capital (Coombs, 1999).
Thinking about a crisis in terms of failure brings along the argument that an organization can
learn from a failure as long as it is part of the learning process an organization is engaged in. This
increases the organizations awareness of a risk and the motivation for change (Sitkin, 1996, cited in
Ulmer, 2007). Furthermore, a failure is necessary for a companys success because it highlights the fact
that the company is anchored in the reality and it can turn mistakes into a positive approach. By not
being able to accept a failure, a company is actually unable to recognize and deal with a crisis. And this
eventually will lead to a longer term crisis. Of course, as the author Sitkin claims, not all failures are
equally effective in fostering good risk management. Correlating this argument with Nikes case study
chosen for this paper, I can argue that in the beginning the company wasnt able to recognize the high
risk it was suddenly exposed to once the media had informed the public about the sweatshops. That is
already obvious in the first reaction Nike had- unwillingness to admit their fault and recognize the risk
they were about to face. Therefore, the risk turned into a deeper full-blown crisis for which they are
still paying today.
There are several arguments stating why a break in the corporate reputation may occur. Greyser
(2009) succeeded in making a categorization:
1. Product failure
2. Social responsibility gap the case of Nike when it came to labor and poor conditions of
work
3. Corporate misbehavior

4. Executive misbehavior
5. Poor business results
6. Spokesperson misbehavior and controversy
7. Death of symbol of company
8. Loss of public support
9. Controversial ownership
All these points take into consideration the issues that generate the crisis, as well as all the
stakeholders/publics involved.

The liaison between reputation and crisis

By using the word liaison in this particular case, I try to highlight the fact that a crisis is a
phenomenon that impacts a company as a whole. Even if we would talk about a crisis in a particular
department or concerning a particular person inside the company, once the media gets in, we are
talking about image threat and eventually about reputation, as a perception of the company in peoples
minds along a time period. Therefore, I consider that reputation should be an implicit subject when
dealing with a crisis because of the extreme importance the crisis effects evaluation holds together with
the implementation of image restoration strategies.
Most experts agree on the idea that a crisis affects an organizations reputation. They also argue
that having a powerful prior reputation is highly important when the crisis occurs. Moreover, there are
managers who believe that a positive prior reputation acts as an insurance policy when a company faces
for the first time a crisis. In other words, a company like Apple for example, would afford to lose
reputation capital and still manage a favorable post-crisis reputation. As the authors Coombs and
Holladay (2006) claim, a favorable reputation acts as a halo effect which has the power to overprotect a
company during a crisis. According to their experiments, there is a higher chance of an organization to
be less affected by a crisis if it has a favorable prior reputation. This means that the halo effect is seen as
a benefit of doubt because the stakeholders who have an overall positive opinion about an organization
will also be influenced by the way that organization is responsible for a crisis. This results in a less
reputational damage (Coombs and Holladay, 2006). In this situation, Nike can also be set among the
powerful corporations with a high positive reputation on the market before the crisis occurred.

Although people still remember the sweatshops and child labor even today, it didnt stop them to buy
Nikes products around the world and to associate their image with Nike.

On image restoration
Benoit is the author that managed to develop a typology of image restoration strategies that
companies appeal to when in crisis. The two most important ones that should be the right way of
dealing with a crisis are the Corrective Action and the Mortification. By corrective action we understand
that the accused accepts the blame and takes responsibility for its misbehavior by promising to correct
the problem. In this situation, the company clearly tries to restore the image it had before and promises
to prevent the recurrence of any such behavior again. This is an attitude which normally increases
credibility in publics eyes only if the promises are kept. It is the type of strategy that usually goes handin-hand with the mortification approach, which is a way of confessing and apologizing for misbehavior. If
the audience finds the apology sincere and authentic then the company might buy their credibility.
Usually it is the top managers, i.e. the CEO, that accepts responsibility for the offensive act and asks
directly for forgiveness to all those involved and affected by the crisis. It is also advisable that a company
admits its malpractice because it is not only morally correct, but denying accusations can lead to
backfire. Moreover, lying about the responsibility for that act will double the side effect on its
reputation (Benoit, 2004).
By analyzing Nikes case, one can drag the simple conclusion that Nikes first reaction was one of
denial, or to be more specific, one of victimage, which is a related option. This means that the accused
Nike- tried to shift the blame on someone else the suppliers from Southeast Asia (Benoit, 2004).
However, this topic will more debated in chapter III- where I go more in deep with analyzing how Nikes
first reaction ended up attracting negative reply from the media.
As a corrective perspective, Greyser (2009) advocates the idea that when a company deals with
a huge visible issue, the organization should recognize its fault and deal with the truth. Moreover,
immediate actions through credible communications together with change of the corporate behavior
should be taken. By saying credible communications, the author refers to the message delivered to the
media and wide publics with the purpose to rehabilitate the brand. However, this is assumedly hard to
achieve especially when the critics in the media are everywhere (i.e. the seriousness of legal implications
of sweatshops and child labor). Sometimes, undertaking actions (by using for example a series of CSR

campaigns like Nike did) to restore an image could create the opposite effect, and that is to feed publics
awareness about the current problem the company is dealing with. However, the communication
delivered though CEO statements should be supported by visible evidence and should provide
credibility to all the stakeholders involved (Greyser, 2009).
Since I talked about the importance of the CEO and the top management in responding to a
crisis, I am going to summarize one of the leadership strategies proposed by Shaun OCallaghan (2011)
in his article Leading after a crisis, which addresses five major actions to be taken after a crisis:
1. Make the right promises in a balanced way by taking into consideration all the stakeholders.
2. Have in mind different perspectives on the problem in order to make the right decisions for
a valuable change.
3. Appeal to people with different expertise as you might need to focus on specific areas of a
crisis recovery.
4. Deliver results by relying on the relationships with people within and outside the
organization.
5. Authenticity during the crisis communication to increase trust and credibility.

Research design

Research question
After going through the previous chapters, one can get an idea of what is to have a reputation,
the importance of a reputation before and after a crisis and how a company can deal with a crisis after it
occurred. The purpose was not to analyze the prior plan each company should have in order to be ready
to face a crisis, but to get an overview of a more generic post plan that a company should immediately
incorporate and which can vary according to the specificity of the crisis and its magnitude.
One of the questions that make the topic of this paper is the strategy used for image restoration
within Nikes. So far, the attempt was to make a parallel between some authors expertise in the field
and where Nike fits into their approach of the strategies companies adopt after a crisis. However, in this
chapter I will go more in deep with analyzing Nikes response to the crisis and try to answer the most
important question of this research: What actions did Nike take in order to restore its image? In order
6

to be more precise, I will make a sum-up of all the most important events since the crisis in the 90s took
place, with a transcription of online media releases embedding corrective actions.

Data collection
In search for solving the main problem statement, I collected data from some of the most
relevant and meaningful online sources about Nike - websites exposing and analyzing the companys
strategy of image restoration. That is why the case study is approached through the use of documents
including different articles about Nike, news releases, press releases, and other sources of information
exposing the companys actions of managing the post crisis reputation. Furthermore, I made use of
Nikes official web-site to analyze the CSR practices underlining the companys attempts to reconstruct
its image and position itself as a socially responsible brand in medias eyes. In this sense, the virtual
identity plays a key role in collecting data for the case study. Daymon and Holloway (2002) are some of
the authors who argued that these data are more comprehensive than the evidence you might acquire
from interviews and questionnaires conducted for a short time period, especially if you are focusing on a
case study organization or industry. Nevertheless, this information proves to be valuable due to the
fact it has been already verified, which substantiates both the analysis and its results, whereas the
questionnaires for instance, may gather either misunderstandings or errors, which can bring the case
study on a wrong path. With the main purpose of studying Nikes image after the crisis, I consider that
the use of these documents together with press releases and websites will provide this paper with
relevant information and resources for enhancing the problem statement.
By adopting a document analysis approach, I managed to gather information that reveals Nikes
actions along the years until the current days. Apart from this, the selection was made with reference to
the criteria of CSR strategies and actions undertaken by the company in order to restore its image. So
that to get a balanced overview of Nikes crisis, I also referred to sources that have a less positive
perspective on the companys practices. As already mentioned the official website was also important in
the analysis of how Nike discloses itself virtually and constructs its identity of a socially responsible
company in the online world.

Data Analysis
As a natural order in the research design, the further step was to undertake the data analysis,
which according to Daymon and Holloway (2002), is a process of bringing order, structure and meaning
to this mass of unstructured data. In other words, it is in this section that I puzzle out all the
information collected.
For analyzing the data I appealed to the qualitative method as a general approach () that is
initially inductive but which becomes deductive at a later stage, organizing the data prior to analyzing
them, coding and categorizing the evidence, finding patterns and working propositions, interpreting the
data, evaluating the interpretation and demonstrating that it is reliable and valid and some specific
analytical issues, including analyzing multiple sources and documents (Daymon and Holloway, 2002).
The analytical procedures acted as a guide for organizing and interpreting the data. The advantages
these techniques hold is to usually help the researcher to dissect, reduce, sort and reconstitute data
and also to manipulate data in order to gain understanding, clarify problems and test hypotheses
(Ghauri and Gronhaug, 2010).
The qualitative method contributed to the gain of valuable information and conclusions that
other methods wouldnt have been that suitable for this research. Moreover, the qualitative method is
in a way considered to be superior to the quantitative data because it offers density of information,
vividness, and clarity of meaning (Jick, 1979), which helps the research better evaluate the case study.
As one can suspect, the qualitative data analysis is a complex and dynamic method which helps identify
information and details that cannot be found by using the quantitative method. In consequence, by
going through a deep analysis of the post crisis corrective actions, the qualitative inductive approach
contributed to gaining a clearer overview about Nikes image restoration strategy from 1996 until today.

Case study Nike Inc.

One of the main aforementioned reasons why I chose Nike as a case study resides in the idea
that it is as one of the most controversial cases on crisis management from which many companies and
interested publics have a lot to learn. That is why I believe it should be considered an all-time studied
topic due to its past and current problems that deserve ongoing attention.

Needless to say Nike is a preferred case because it was the first company for which Internet
played a big role in bringing the truth to light and producing chain reactions all over the world. It was
also the first company who set new rules and regulations about the labor practices all over the world
(McHale, Zompetti & Moffitt, 2007). That is why I truly believe it is an outstanding case of crisis
management and despite having academic research and media publications that approached this topic a
repeatedly, it is still worthwhile to bring it to the publics attention and consider it a guideline on how to
deal with a crisis and what a company should not do when a crisis occurs (a guideline of what a
dominant ideology should be for all the companies).
Moreover, the literature hasnt offered us so far a tracking of annual events and CSR practices
since the Nikes crisis occurred. Consequently, I will shed light on the major events that stood for
correcting the mistakes Nike made with regard to its labor practices in Southeast Asia.
One of the topics that caused many debates around the world is the Nike Sweatshop case study
which raised one of the most controversial questions: can Nike be held accountable for the working
conditions in foreign factories they subcontracted in Southeast Asia? Among the pro reasons stands the
argument that as long as Nike doesnt own these factories, they are not responsible for all the wrong
going on, despite having their subcontractors making products for Nike. On the other side, there are
many voices claiming that Nike should have taken actions to improve the working conditions, impose a
minimum age limit and assure the minimum wage for all the employees around the world. That is why,
back in the 90s when the scandal took place, the U.S. Supreme Court decided that Nike has broken the
law by having its public relation personnel denying the fact about its employees in developing countries
like Vietnam or China. This seems to be the start for building a new model for business communication
crisis management, called the hegemonic model which attempts to reflect on the use of corporate
power through public relations in this case, to shape the reality and reinforce a companys position on
the market (Ibid.).
It is claimed that among the main problems that led to Nikes crisis reputation was the fact that
mainly its whole strategy was built on image as its competitive advantage. As to put it differently, the
business was not only about know-how, but about being cool no matter what. Having outsourcing
manufacturing and a high marketing focus, were in fact signs of a storm coming. The labor conditions in
Vietnam and Southeast Asia were soon spread by the media and everyone got to be familiar about
Nikes workers. However, Nikes immediate response was one of denial, blaming it on their vendors. In
reverse, the employees reaction was one of embarrassment as they had no idea about these

happenings. They only knew about how to make the coolest shoes in the world and build a cool
corporate culture.
Eventually, the CEO, Philip Knight, went to the National Press Club in Washington to hold a
discourse in order to assume responsibility and promise to act in that sense. He admitted that Nikes
corporate identity became synonymous with slave wages, forced overtime and arbitrary abuse
(Dionne, 1998, p. A7 cited in Knight & Greenberg, 2002). The speech was hold also due to activists and
labor groups like Oxfam's NikeWatch and the Clean Clothes Campaign, which started campaigns around
United States and elsewhere against poor labor conditions, forced overtime and below average wages
(http://www.commondreams.org/headlines01/1020-01.htm).
One of the first actions undertaken by Nike was to bring the famous politician of that time,
Andrew Young, to see their plants and their struggle to get things better (Peter Schwartz, 1999).
Furthermore, Philip Knight made six promises to improve the working conditions. These
promises were announced on May 12 1998, during CEOs speech at the National Press Club, in
Washington DC:
1st Promise: All Nike shoe factories will meet the U.S. Occupational Safety and Health
Administrations (OSHA) standards in indoor air quality.
2nd Promise: The minimum age for Nike factory workers will be raised to 18 for footwear
factories and 16 for apparel factories.
3rd Promise: Nike will include non-government organizations in its factory monitoring, with
summaries of that monitoring released to the public.
4th Promise: Nike will expand its worker education program, making free high school
equivalency courses available to all workers in Nike footwear factories.
5th Promise: Nike will expand its micro-enterprise loan program to benefit four thousand
families in Vietnam, Indonesia, Pakistan, and Thailand.
6th Promise: Funding university research and open forums on responsible business practices,
including

programs

at

four

universities

in

the

199899

academic

year.

(http://www.globalexchange.org/campaigns/sweatshops/nike/NikeReport.pdf )
However, different sources claim that Nike has done some change, but not enough from all the
promises that were made. One specific source that approaches subjects on CSR in China, talks about the
fact that more than 20% of Nikes original equipment manufacturers have asked their employees to
work

excessive

overtime

hours

and

this

number

is

still

on

the

increase

(http://www.chinacsr.com/en/2010/01/28/7060-nike-admits-poor-labor-practice-by-oem/). For a better

10

understanding, this source is also self-explanatory: http://www.commondreams.org/headlines01/102001.htm.This report shows that Nike hasnt learned from its mistake, on the contrary, it doesnt keep its
promises and still practices excessive overtime hours (40-72 hours per week). By stating the six promises
and launching CSR campaigns worldwide, it is claimed that, on the principle of wag the dog, the
companys first intention was to distract medias attention from the sweatshops and child labor in
Southeast Asia, (http://www.amalficoreblog.com/2010/04/nike-and-crisis-management/).
Moreover, different labor activists that have been keeping a close eye on Nike ever since the
first crisis occurred, have been mainly preoccupied with shedding light on any kind of misbehavior and
wrongdoing.
Another valuable source that addresses different case studies on issues regarding human rights,
labor rights or environment, has given useful insight into Nikes crisis by offering a less supportive
perspective on Nikes practices back in the 90s (http://www1.american.edu/ted/nike.htm).
On a positive side, Nike has been struggling to regain its credibility and correct its misbehavior
by adopting a socially responsible attitude concerning its global practices. Therefore, one of its most
important actions was the incorporation of the CERES principles1 in November 2000. This implied a
launch of a program called Transparency 101 which aimed to monitor the factories in every country
where Nike operates, with an increased attention on its practices to be in accordance with the code of
conduct. This program also involved investigation of the work conditions worldwide. Regarding the
safety of its products, Nike has been trying to eliminate PVC or any other harmful chemicals. All these
actions were recognized this time by other groups that ranked Nike as number one in the apparel
industry on its annual list of America's Most Admired Companies. Nike was also ranked among its topten best multinational corporations in Asia for corporate leadership and issue-specific leadership, by
another group called Far Eastern Economic Review (FEER), noting that Nike had improved in almost
every category in the previous year. Apart from this, Nike was also on the list of the 226 companies
recognized

for

sustainability

efforts

on

the

Dow

Jones

Sustainability

Index

(http://www.iisd.org/business/viewcasestudy.aspx?id=81).
By navigating on its official website, the reader can get a broader idea of the social and
environmental policies Nike has been engaged in (http://www.nikebiz.com/responsibility/).

Ceres is a non-profit, American network of investors, environmental organizations and other public interest groups

working with companies and investors to addresssustainability challenges, such as global climate change.
www.wikipedia.com

11

A final point on the list of restorative actions to which Nike has been widely devoted ever since
the crisis, is their online strategy, http://www.nikebetterworld.com/ that speaks for itself. Besides being
an online tool that encompasses smart audio-visuals, it presents a sum of CSR actions that are well
explained and designed in such way as to highlight their strivings to make this world a better world.

Results
So far, one could have observed how Nike engaged itself in a rich and ample plan of image
restoration which has been both positively and negatively regarded by the media. The different online
resources I chose offer relevant and valuable information concerning Nikes practices and CSR actions,
but in the same time they reveal information concerning the less visible practices that groups of activists
have been displaying.
In a nutshell, the above data analysis is a selection of some relevant sources of information
concerning Nikes image after the crisis in the 90s and what actions the reputation management
strategy has revealed until the present days. The data I appealed to in order to attest the problem
statement, gives insight into the Nikes way of dealing with the crisis. There is evidence of the promises
made back in 1996 by the CEO, Philip Knight, but there is also evidence about the promises that werent
kept along these years with reports trying to prove this aspect (although there are publics who may
value other media resources that keep them in doubt about these reports). Just by going through all the
possible existent media press release on how Nikes actions impacted the audience, I can infer the fact
that there is still a huge deal of a debate going on around this topic and it probably wont stop too soon
since we are talking about a big reputation damage with high and wide media coverage.
In retrospect of the first chapters where the attempt was to offer the reader an understanding
of what reputation is, what impact a crisis has on a companys reputation and what would be the ideal
strategy to restore the reputation, this last part of the paper comes to complete and pinpoint the idea of
this research by trying to respond to two major questions: first, what was the strategy Nike used for
image restoration?, and second, what actions did Nike undertake to correct its misbehavior and
position itself again as a socially responsible company? By appealing to Benoit (2004) list of possible
strategies, as previously stated, Nikes strategy fits in a combination of denial (victimage) with corrective
action (the first reaction of the CEO when accusations came and the afterwards response to the
expansion of the crisis).

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Discussion
From my point of view, the results I arrived to are hardly revealing results because this paper
was conveyed more as a literature review and press release revision that seeks to answer to the
researchs main questions.
As probably most of the analysis made on crisis reputation, it is really hard to obtain inside
information from the affected company and also, it is very hard in this case particularly, to get in contact
with former executives that would provide me real information about the crisis. Therefore, this paper is
based mostly on the media coverage, discussions addressed and analysis of the CEO discourse, which is
why I consider it a limitation of the research.
Another limitation can be also the time as a determinant factor for resuming this research to the
content/website analysis. This also stays for the argument why this research lacks a more rooted
approach like the comparison with other big international brands and their reputation management
strategies. Another possible approach could have been the tracking of different press releases or
scientific articles to see the evolution of Nike with its changes and ups and downs. This would have
helped to measure the audience awareness and perception about the brand and how it affects the
companys whole image and sales strategy. These are just some examples of the path this paper might
have taken so as to detail and elaborate more around the problem statement.
Nevertheless, I believe this topic makes room for further research in the area of image
restoration strategies and the actions companies should take to solve the damaged reputation.

Conclusion
A crucial starting point for this paper was the introduction to concepts such as reputation, crisis,
image restoration, which helped in getting an inceptive understanding of the research selected case
study. These concepts underlined the importance of having a prior positive reputation before a crisis
occurs. Other ideas spoke about potential reasons why a break may occur in an organization or why the
ability of recognizing and dealing with a crisis equals with a companys ability to accept a failure.
As one could have noticed, Nike is a powerful example of a company that managed to stand up
even after the famous Sweatshop Crisis, by engaging in a program of intense reputation management

13

which took the shape of various CSR actions. The reason for choosing Nike as a case study has been
already mentioned several times during this paper, but as a final assertion, I consider it a high relevant
case of crisis management with many dynamic and controversial aspects from which companies and
people can learn without cease.
According to various and multiple sources (press releases, media reports), the results that I
arrived to after analyzing all the collected data, show that Nike did try hard to restore its image, but
despite all the effort, there are still voices in the media that claim its misbehavior and possible current
malpractices in Southeast Asia. That is why, although knowing that Nike has a powerful corporate
identity and despite having a prior good reputation, this hasnt stopped the media from criticizing the
company with the very first opportunity.
In the article written by Peter Schwartz, at some point he states one proposition that is highly
relevant for any company that is concerned about its long term success and reputation. He says that a
business is not about know-how or integrity, it is about know-how and integrity. I believe this should
stand at the core of any organization that wants to survive on the market: to engage in good
relationships with all the stakeholders and to consistently get involved in the world community.

14