Industry and Organization Analysis: Nike

Sabrina Yu
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Industry and Organization Analysis: Nike

I. Introduction to Nike

Nike, Inc. was founded under the name Blue Ribbon Sports by a track athlete in the early

1960's, with its business model oriented toward distributing athletic shoes manufactured by a

third party at sports events (Donaghue & Barff 1990; Nike 016). Today, the firm is a major

multinational corporation (MNC) and an industry leader in the footwear and apparel industry,

with operations in more than 120 countries around the world and a market cap in excess of $100

billion (ibid.; Forbes 2016). Despite a history featuring several high-profile controversies

involving unethical and potentially exploitative business and labor practices in its supply chain,

which often relies on contributions from developing countries, the firm has leveraged its world-

class marketing, advertising, and public relations (PR) expertise in order to reinforce its brand

value, and consistently numbers among the most valuable brands in the sports segment on the

planet (Locke, Qin, & Brause 2007; Ozanian 2014). The firm was an early pioneer in lifestyle

branding, a strategy it has maintained today (Haig 2006; Saviolo & Marazza 2012).

II. Organizational Structure and Design

This section draws upon two sources in order to explore relevant features and

characteristics of Nike's organizational structure and design. In the first article, Anand and Daft

(2007) offer a broad, evidence-based exploration of organizational design that is fairly general in

its orientation. Thus, it offers a useful means of bringing the reader up to speed on the topic by

providing a basic introduction to salient concepts and terminology. Notably, however, the article

also explicitly cites Nike as an illustrative example on more than one occasion. This creates a

nice opportunity to transition into a more focused exploration of the firm's organizational

structure in the second article. Having placed the object of analysis in its broader theoretical, and

terminological contexts, then, this section turns its attention to Brenner, Schlegelmilch, and
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Ambos (2010), which employs a case-study-based methodology emphasizing interviews with

senior managers and executives in order to explore Nike's organizational structure specifically.

Thus, the two articles presented below are organized in order to enable a progression beginning

with concepts, terms, and theory, and ending with the application of those ideas to the case

organization.

Anand, N. & Daft, RL. (2007) What is the right organizational design?

Organizational Dynamics, 36(4), pp. 329-344.

This article endeavors to compile, organize, and analyze key concepts in the field of

organizational structure and design, with a focus on ideas and scholarly discourses have emerged

since it matured into an area of serious scholarly study in the late 1970s and early 1980s. Thus,

the approach it adopts is not strictly conceptual, and the article is organized, if quite loosely, in a

rough chronological progression dividing the topical scholarly literature into two general eras.

The first (and longest) era represents the earliest forms of organizational design which arguably

began to emerge as an area of interest as a result of the Industrial Revolution; during this period,

"ideal organizations" were envisioned as being relatively self-contained systems which typically

emphasized vertical, hierarchical structures that were largely compartmentalized from a

horizontal standpoint, such as functional and divisional structures (pp. 320-30). Crucially, toward

the end of this era, accelerating globalization helped drive a need for greater coordination

between departments, leading to more innovative design approaches such as horizontal overlays

and matrix organizations. The rigorous empirical and theoretical treatments of organizational

structure and design of the early 1980s come into the picture during the second era. As a result,

this era was characterized by a move towards horizontal organizational schemes with "team- and

process-based" emphases, such as modular and hollow organizations (p. 331). For the purposes

of the present project, the most important and interesting take-aways from this article relate to
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the broad trends in the literature as well as in organizational design itself, such as the gradual

move away from rigidly segmented hierarchical structures to those placing a greater emphasis on

horizontal interconnections, as well as the way in which conceptualizations of organizations have

evolved in order to accommodate perspectives (and corresponding designs) that view

organizations as somewhat less than self-contained entities.

Applying these concepts and trends to the specific case of Nike is a task made somewhat

easier by the fact that the authors cite Nike as an example on two occasions, once in each era.

Given the global scale of Nike's operations, it would not be unreasonable to suggest that the firm

utilizes a divisional organizational structureone based on geography so that operational and

marketing strategies can be targeted to specific regions, for example, or perhaps one based on

branded products, in which each of Nike's multiple subsidiary companies would operate with a

degree of independence. However, characterizing Nike's structure as strictly divisional in

character would probably reductive, except perhaps in the context of a discussion focused on the

firm's origins and early history. The firm's growth, however, coincided with the period of

accelerating globalization, introducing dynamism as a major new competitive requirement. The

fact that geography and branded subsidiaries would appear to offer equally usable dimensions

along which to draw these lines, however, hints at the fact that the firm's needs are more complex

than such a simple divisional or functional design could accommodate. Indeed, according to

Anand and Daft (2007), when a regional marketing promotion went over-budget by a staggering

$10 million, Nike found itself at a turning point (p. 330). In response, strategic and operational

managers were tasked with re-envisioning the firm's organizational structure and design; the

authors' summary of this development is concise and illustrative, and well worth quoting at

length:
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[The] managers engineered a matrix structure that assigned dual

responsibility by product and region to manage the introduction of

new products each year. Headquarters establishes which product to

push. Then product managers determine how to do it, but regional

managers have authority to modify plans for their regions. Nike's

matrix provides a counterbalance between product manager and

regional manager ambitions (ibid.).

Briefly, matrix structures, which are often classified in the same category as horizontal

overlays, seek to create and leverage the "horizontal linkage mechanisms" characterizing

horizontal overlays comparable in strength and scope to the firm's more standard vertical

structure, such that the latter enables "traditional control within functional departments", while

the former provides a framework for interdepartmental coordination to achieve organizational

aims and objectives, using two-dimensional structures of formal authority in which a given

employee could conceivably have two bosses at a given time (e.g. "functional and product" or

"product and region") (ibid.). At the same time, matrix structures carry with them certain

liabilities, such as the potential for task conflict emerging from the reliance on interdisciplinary

teams composed of workers from a range of functional backgrounds, which might not make

them appropriate in every context. However, this model seems to have worked well for much of

Nike's expansion, and also likely paved the way for strategic managers to conceptualize the

firm's structure as more open and dynamic than rigid and self-contained, allowing it to adopt

characteristics of "hollow" organizational structures (in which important components of the

firm's production are outsourced) in order to produce cost savings by transferring manufacturing

responsibility to low-cost areas such as Southeast Asia (p. 334).

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Brenner, B., Schlegelmilch, B. B., & Ambos, B. (2010). Inside the NIKE matrix. Case

reference number 001/2013. in Ambos, B. & Schlegelmilch, BB (eds.). The New Role of

Regional Management. Hampshire: Palgrave Macmillian.

Drawing in part upon interviews with Nike managers and executives, Brenner et al.

(2010) endorse the matrix view of Nike's organizational structure and undertake a multimodal,

case-study-based exploration of how that structure functions in practice and how it relates to

Nike's ability to manage growth. It begins by setting the scene, introducing the firm's history,

key regions, and current performance results from various geographic and product segments,

before turning to an exploration of the matrix structure in earnest. It is this portion of the

discussion that relies most heavily upon primary data in the form of stakeholder interviews; it is

also arguably the most interesting and useful for the purposes of the present study, providing a

number of valuable opportunities to see concepts applied in practice.

In one interview, for instance, the then-Vice President of Operations for the Nike Head

Office, Hans van Alebeek, pointed out that even within the firm itself, discussion about its

organizational structure abounds, and new employees are often skeptical about how the matrix

structure actually works in practice. For outsiders and new employees, Alebeek notes that it can

seem initially as though no "clear line accountability" exists; watching the matrix structure in

action, however, can lead to the realization that leaders are, in fact, able to "get decisions made

very quickly" as well as to "get people aligned" behind them (p. 7). Thus, while on paper the

organizational design might look as though "it should be slow and bureaucratic" in reality it

"moves quite fast and is quite innovative" (ibid.). This is a useful firsthand account illustrating

the contrast between the sometimes-counterintuitive initial appearance of matrix architectures

and their actual functional advantages. For Brenner et al., this matrix structure is articulated

along several important dimensions. First, the firm is subdivided into a number of branded
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subsidiaries, including Cole, Bauer, Hurley, and Converse. Next, it is segmented by regions, with

each regional headquarters operating semi-autonomously in the sense of being free to make

policy-level decisions within certain constraints. The final major dimension is that of product and

product development.

In terms of vertical, hierarchical divisions, the global leadership, located at Nike

headquarters in Beaverton, represents the top tier of the vertical hierarchy. This tier includes the

executive office, Nike brand management, global marketing and human resources, and finance

operations, for example; worldwide marketing campaigns originate here (ibid.). Additionally,

however, the global headquarters also administers the majority of the firm's largest markets,

managing "regional operations in the US, the Americas, and the Asia Pacific regions", while the

remaining major market, the EMEA (Europe, the Middle East, and Africa) region is administered

by its own regional headquarters (Brenner 2010, pp. 7-8).1 Located in the Netherlands, he EMEA

headquarters oversees operations in 27 regional countries, which are grouped into seven sub-

regions in order to "reduce complexity and enhance transparency throughout the group" while

streamlining operations (pp. 8-11). The firm's matrix structure is reproduced at each regional

level (Fig. 1).

Figure 1: Nike's Regional Matrix Structure2

1 To be clear, the Americas, the US, and the Asia Pacific geographic segments all have their own regional
headquarters as well from a process perspective; it is just that these headquarters are located at Nike HQ.
2
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Source: Lorenz & Hennrich (2007), reproduced in Brenner et al. (2010, p. 12).

These divisions are largely operational and process-oriented; product development follows a

somewhat different framework. Broadly speaking, Nike products are conceptualized and

developed in "global product engines" at one of three centralized research and development

centers, which draw upon insights, intelligence, and research into consumer behaviors, markets,

and trends funneled back via regional headquarters; this is one of the major reasons that Nike, as

a dynamic and innovative firm, requires a flat, two-dimensional organizational structure capable

of accommodating interdisciplinarity, communication, and collaboration (pp. 12-13).

III. Leadership

Leadership is a famously diffuse (and variously understood) concept, but there is little

debate that it can be expressed at multiple levels and in multiple contexts. This is particularly

true in the case of a major multinational corporation like Nikeeven in a discussion geared

explicitly toward organizational culture and structure. Thus, the two articles below seek to

examine leadership from two very different perspectives. Spreitzer (2007) offers a discursive

exploration of leadership as expressed at the organizational level; this perspective enables us to

think about how Nike as a firm acts as an industry leader capable of influencing the actions of

consumers, competitors, and even governments in order to alter competitive landscapes and

engender social change. Neiderhauser (2013), in turn, considers how leaders interact with
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leadership structures within Nike in order to shape organizational outcomes. It should be noted

that this conceptual progression is not directly comparable to the theory-practice pairing of the

articles presented in the previous section; the difference here is not in applicability, but rather in

the level of focus.

Spreitzer, G. (2007). Giving peace a chance: Organizational leadership,

empowerment, and peace. Journal of Organizational Behavior, 28(8), 1077-1095.

As indicated above, this article is less oriented toward leadership of organizations than it

is toward leadership by organizationstwo perspectives which, while undeniably closely related

in the sense that the former invariably shapes the latter, are nonetheless distinct, and between

which Spreitzer goes to great lengths to negotiate. Notably, the argument it advances is not

strictly descriptive, but is normative as well: Spreitzer is interested in the possibility that

corporations, whose actions can have far-reaching impacts on communities and public discourses

in the context of an increasingly liberalized and interconnected global economic system, might

through their actions contribute to positively to peace, which Spreitzer defines as "the reduction

of violence, unrest, and war" (pp. 1078-79). Theoretically, the article is informed by stakeholder

theory and the emergence of increasingly robust and comprehensive modern corporate social

responsibility (CSR) frameworks. Methodologically, the author seeks to explore correlations

between widely-used measures of peace, participative leadership, and employee empowerment

using data drawn from several dozen countries over the course of a decade. Particularly

interesting is her attempt to systematize and operationalize the relationship between specific

organizational cultures and the broader national and subnational cultural milieu in which they are

embedded, seeking to control for the influence of the latter by implementing measures of

commonly-identified variables such as future orientation and power distance using Likert scales

in combination with regression analyses (1087-89). The dialectic between organizational culture
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and the broader cultural frameworks within which organizations operate is a vital one,

particularly when seeking to evaluate global MNCs, and it is one that the organizational

management literature continues to wrestle with.

Perhaps the first question that needs to be addressed when seeking to apply Spreitzer's

argument to the case of Nike (and position it in relation to course concepts) relates to what,

precisely, is meant by leadership in this context. Unsurprisingly, Spreitzer relies on a rather

broad (and fairly standard) construction, defining leadership in general as "the ability to

influence, motivate, and enable others to do what they would not do otherwise", but placing

particular emphasis on a variety thereof termed participative leadership, which involves

"employees across levels of the hierarchy in decision-making" and which is described as a

"hallmark... of organizational democracy" (p. 1083). These two definitions form the foundation

from which Spreitzer seeks to negotiate between leadership structures and processes utilized

within organizations on the one hand, and leadership behaviors expressed by organizations as

entities on the other. With respect to the latter, Spreitzer specifically cites Nike's decision to

develop increasingly robust codes of conduct for supply chain participants aimed at reducing

"child labor, sweatshop conditions, and environmental damage", among other thingsan

initiative which, given Nike's size, placed substantive pressure on its competitors and upon the

industry more broadly to conform to these new norms, changing the competitive landscape in

which it operates (p. 1079). But organizational actions such as this have their roots in cultural

and decision-making apparatuses within the organization as well.

Spreitzer argues that these, too, can constitute a form of organizational leadership that can

support peace around the world. By empowering employees to "have voice and make decisions

relevant to their work", for instance, corporations can give them firsthand experience in

"egalitarian and open work practices" which, in turn, may "spill over" into the civic domain and
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"nourish democratic tendencies" (p. 1080). Once again, it is not difficult to see how this might

play out at Nike: because of its matrix organizational structure, employees often function within

interdisciplinary and cross-functional teams, and as a result are encouraged to engage in critical

thinking and act with a significant degree of autonomy. Another managerial mechanism Spreitzer

suggests might contribute to this effect is simply the use of robust feedback frameworks, which

allow employees to engage in problem-solving as well as to "point out defects in quality or

service", both of which require adopting the perspectives of others. Such opportunities common

for firms like Nike which utilize total quality management and continuous quality improvement

frameworks and protocols.

Neiderhauser, J. E. (2013). How Nikes leadership affects brand image internally and

externally. UW-L J. Undergrad. Res., XVI 16.

This article represents a rare analysis focused specifically on the organizational

leadership of Nike itself conducted within the last five years, whose level of detail goes so far as

to examine the leadership styles of individual executives. Although the article is interested

primarily in the relationship between Nike's executive leadership and brand image, like Spreitzer

(2007) above, Neiderhauser (2013) seeks to explore these effects from related but distinct

perspectives by evaluating brand image effects from internal as well as external vantage points.

Of Nike's executive leadership, Neiderhauser is especially drawn to the influence of Phil Knight,

who helped co-found Nike's predecessor, Blue Ribbon Sports, served as its chairman and CEO,

and is now playing the role of chairman emeritus. The exploration is largely conducted through

secondary sources drawn primarily from the scholarly literature. In part due to its lack of primary

data, the discussion is perhaps not as comprehensive as one would hope, but given the dearth of

recent case studies focusing on Nike's executive leadership, it presents a number of intriguing

findings nonetheless.
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With respect to its relationship to course concepts, Neiderhauser draws a direct

connection between the effects (and efficacy) of Nike's leadership approach, its culture, and

structures for internal and external communication. While leadership alone cannot necessarily

determine or dictate organizational culture, it can influence certain key components:

Neiderhauser highlights, for instance, Knight's emphasis on encouraging risk-taking and

experimentation even if such efforts result in early failures. Overall, the exploration of Knight

suggests his leadership style might be characterized as transformational; he is often described as

visionary and goal-oriented, with a particular affinity for seeking to develop human resources in

order to cultivate internal leadership.

In addition to internal communication structures, Neiderhauser argues that leadership

style can also shape branding and brand perceptionnot terribly surprising when considered in

relation to the model articulated by Spreitzer (2007) above. When organizational culture and

brand image are in alignmentas appears to be the case, given that the firm's leadership is

known for encouraging experimentation even if mistakes are made, a philosophy in line with the

firm's famous tagline "Just do it."then the marketing department can operate more freely and

intuitively. Furthermore, employees are more likely to be loyal and engaged when they can

identify consistencies and congruencies between leadership approach and brand image.

III. Organizational Culture

Organizational culture is a notoriously nebulous and variously-operationalized concept;

thus, this section of the present report considers two articles which focus on the application of

this concept in support of specific objectives, in order to provide a view of culture in action. In

the first article, Lockwood (2004) seeks to examine a specific but infrequently-discussed element

of organizational culturedesign orientationin order to explore how it can be developed, as

well as why firms should seek to do so. Nike features briefly in the discussion as an illustrative
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example. The second article, by Epstein, Buhovac, and Yuthas (2010), in turn, discusses how

organizational culture interacts with leadership in order to influence the success of CSR and

sustainability initiatives. In addition to offering two distinct approaches to the topic of

organizational culture as an applied concept rather than a strictly theoretical one, these articles

(a) offer several opportunities to draw connections with concepts and organizational features

already discussed above, and (b) set the stage for the final section of this report, which focuses

on Nike's ethical and CSR frameworks as the final element of this organizational analysis.

Lockwood, T. (2004). Integrating design into organizational culture. Design

Management Review, 15(2), 32-39.

This article offers a fairly conversational discussion of the relationship between

organizational design, organizational culture, and organizational success, utilizing a number of

mini-case studies as both illustrative examples and substrate for analysis. The discussion is

strongly informed by the author's background in design management, but the importance of

corporate culture as a catalyst for design-oriented organizational discourses is strongly

emphasized throughout. This is particularly true for the author's treatment of Nike in one of the

mini-case studies; thus, this section of the discussion stands out as being particularly interesting.

According to Lockwood, Nike represents a rare example of a firm for whom design performance

is a bedrock value that permeates the organizational culture, which is notoriously competitive,

for instance.

For Lockwood, to maximize design potential as a corporate resource, it is necessary to

follow Nike's example by making design a priority within the organizational culture;

accomplishing this requires more than just a simple project management approach, and will

likely require active participation on the part of the organizational leadership (p. 38). "A

corporate culture that embraces good design is a necessity," he writesand one that is typically
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achieved through active participation on the part of executive managers, as with Phil King and

Nike. Features of the existing organizational culture, such as openness to change (which can be

related to structural variables as well), are also likely to influence the extent to which a given

firm is likely to succeed in seeking to incorporate this emphasis into its cultural outlooks and

attitudes.

Overall, Lockwood's discussion highlights the importance of taking an active approach to

cultivating an organizational culture that is aligned with corporate strategy, aims, and objectives.

Nike has clearly succeeded in treating its organizational culture (as well as the value that culture

places on design excellence) as a vital organizational resource, and it appears to have done so

with the full support of the firm's executive leadership. Nike has cultivated an internal culture

that views design as more than a task or a component of the product development process, but

rather as "an identity [...] a form of communication", enabling it to make design excellence an

organizational commitment upheld at all levels and giving teams a collective purpose as they

seek to develop innovative and beautiful new products (p. 38). Achieving this requires more than

just talk; it also requires investments aimed at preserving the cultural salience of design

excellence, such as the firm's decision to sponsor Design Days several times each year, maintain

a "dedicated design library", and even utilize an "executive corporate design council" (p. 34).

This illustrates why leadership investment represents a key component of introducing and

maintaining areas of emphasis or valued perspectives within an given organizational culture:

discourses and value statements are important, but words must be followed up with actions and

matched with resourcesall of which require strategic investments and genuine commitment.
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Epstein, M. J., Buhovac, A. R., & Yuthas, K. (2010). Implementing sustainability:

The role of leadership and organizational culture. Strategic Finance, 91(10), 41.

This article offers a somewhat more rigorous and in-depth exploration of the relationship

between leadership and organizational culture; rather than focusing on how this relationship

shapes design capacity as Lockwood (2004) did, however, Epstein et al. are primarily interested

in its implications for implementing corporate social responsibility and corporate sustainability

policies. In broad strokes, the argument advanced in the article holds that informal systems such

as organizational culture, leadership, and human resources function as "critical drivers" of the

success of CSR and sustainability initiatives, which require stakeholders to seek to manage

"social, environmental, and financial performance simultaneously" (p. 43). Attempting to do so

can, in many cases, require making and managing very real and sometimes difficult trade-offs,

but when social and environmental concerns are well-integrated in the corporate culture, these

trade-offs can be made more manageable, less painful, and more intuitive. The relevance to the

present project is fairly clear: Nike has, after all, faced serious criticism in the past on ethical

grounds, due largely to its strategic reliance on outsourcing production to low-cost nations.

Generally speaking, it is worth emphasizing once again that while leadership investment

is crucial, organizational culture cannot be created prescriptively or through simple mandates

or even via value statements. Instead, it emerges from a multitude of personal and professional

interactions, organizational structure, decision-making, strategy, and so forth. In many cases,

these interactions are reciprocal and mutually-informative. At Nike, for instance, the authors

argue that many employees "intuitively believe" that ethical and sustainable business practices

are just "the right thing" to do, and that this shared perspective helps to "build the brand"; as

corresponding behaviors are integrated into "the rhythm of the business", this value can be

gradually adopted by the culture more broadly (p. 45).

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In fact, attempting to instill cultural values through mandate is arguably antithetical to

Nike's core philosophy and culture of independence, experimentation, and competition: Epstein

et al. note, for example, that Nike has developed an approach to leadership in which rather than

telling subordinates what to do, leaders instead invoke the corporate tagline: "just do it" (p. 46).

This cultural emphasis on autonomy, problem solving, and independent thought not only

influences the firm's operations, but also raises somewhat novel challenges for human resource

management: "Where many companies struggle to get employees involved" in volunteer

initiatives, the authors note, Nike finds itself in the position of having to actively search for

programs and opportunities as it strives to "keep pace with employee activism" (ibid.). Once

again, this illustrates the importance of connecting values to actual systems and resources in

order to effectively foster a positive and productive organizational culture. Although using

culture as a resource might be a "soft" mechanism for implementing policy, it is nonetheless that

requires careful attention and substantive (if not necessarily substantial) resource investments. In

order to make social consciousness and volunteerism a way of life at Nike, the firm did more

than merely promote these values using internal communications; it actively sought to connect

employees to opportunities, both within the firm and outside of it, to express this value. As

discussed in the following section, by allowing employees to feel empowered and internalize the

notion that their work should produce positive outcomes, Nike has used culture as an additional

mechanism to support ethical and sustainable behaviors at the organizational level.

IV. Ethics and Corporate Social Responsibility

The discussion presented above suggests that there is a very real way in which Nike

should be conceptualized, first and foremost, as a brand. If required, it can outsource almost any

component of its operations, from manufacturing to advertisingbut the Nike swoosh, the "Just

do it." tagline, and the brand identity associated with them, number among the most iconic,
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recognizable, and valuable on the planet. This presents an interesting strategic challenge in its

own right: millions of consumers' aggregated perceptions, and those of potential consumers, of a

corporate symbolperceptions emerging from marketing activities, media narratives, cognitive

associations, and even interpersonal interactionswould, at first glance, appear to represent

something of a shaky and even ephemeral edifice upon which to build the value of a

multinational firm. Managing that brand identity is a critical success factor, but not all of these

lines of discourse can be readily controlled. As discussed below, in Nike's case, this difficulty is,

perhaps, nowhere more clearly illustrated than in the area of ethics and CSR practices. The

following articles, therefore, focus on this topic. First, Werther and Chandler (2004) explore

how CSR can be used as a kind of insurance policy against "lapses" in the management of global

brands, offering strategic and competitive benefits. Next, DeTienne and Lewis (2005) offer a

critical examination of the challenges associated with seeking to accomplish this effectively in

the context of a case-based discussion of a high-profile controversy surrounding Nike's CSR

practices. Together, these articles offer views of two sides of the same coin: the possible strategic

benefits of robust CSR practices, and the potential pitfalls and challenges associated with trying

to realize them.

Werther, W. B., & Chandler, D. (2005). Strategic corporate social responsibility as

global brand insurance. Business Horizons, 48(4), 317-324.

This article proceeds from a central premise, which is stated explicitly on its first page:

when corporations engage in behaviors that "violate societal expectations", they risking

damaging, potentially fatally, their brand image "among networked stakeholders who are affluent

enough to buy branded products and services", for whom purchasing decisions are typically

based upon a highly subjective and fluid cost-benefit "calculus" in which the branded product is

compared to competitors and substitutes (p. 317). Thus, the authors argue, it is in the interest of
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firmsand particularly firms like Nike, whose value is significantly rooted in brand identityto

make serious efforts to avoid any egregious violations. Because doing so involves making strong

commitments to build organization-wide coalitions valuing ethical behaviors and robust CSR

practices, however, this is likely to come with serious costs, which the authors suggest should be

viewed as something akin to an insurance premium: shouldering short-term costs in order to

pursue long-term profit maximization and "optimize" outcomes for stakeholders overall (ibid.).

While this basic argument may seem relatively straightforward, actually carrying out this

advice can be challenging at best for firms like Nike, which have global operations and a high

profile. Werther and Chandler note, for example, that despite relying on a supply chain which

emphasizes production in low-cost countries, the firm commonly asserts that it pays "double the

minimum wage in host countries", when confronted with an actual hourly wage figure, an

audience in the US or Europe might well consider these compensation levels to be blatantly

exploitative nonethelessand that perception can place Nike's brand in jeopardy (p. 320). This is

especially true when "contrasted with [the] multimillion dollar endorsement contracts" that have

historically formed a cornerstone of Nike's lifestyle branding approach. As an organization, it

would be difficult to hold Nike responsible for this highly globalized state of affairs, and local

community members may find a position with the firm a highly attractive opportunitybut it

nonetheless opens the door to salient narratives being promulgated by anti-globalization activists,

for example.

Thus, for Nike simply behaving in ways that are ethical and equitable at the local or

national level represents an inadequate CSR approach. To truly safeguard its brand, the firm

needs to go above and beyond; it needs to make a name for itself as numbering "among the most

progressive" firms with respect to CSR, and it needs to actively promote narratives to this effect,

citing specific actions in doing so (p. 323). The authors note that Nike fits the profile of firms
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which have adopted this strategy: namely, "brand-based companies that have been most heavily

criticized for CSR lapses in the past" (ibid.). In any event, proactive and positively (but

accurately) publicized CSR initiatives that are top-tier, standard-setting, and truly innovative

likely represent a critical organizational success factor for Nike.

DeTienne, K. B., & Lewis, L. W. (2005). The pragmatic and ethical barriers to

corporate social responsibility disclosure: The Nike case. Journal of Business Ethics, 60(4),

359-376.

If Werther and Chandler (2004) made the case for (among other things) utilizing CSR

disclosures to actively promote and secure brand identity as a strategic consideration, DeTienne

and Lewis (2005) offer a word of caution. Using a case-based exploration of a high-profile

ethical controversy in which Nike was embroiled in the late 1990's and early 2000's, the authors

identify a number of pragmatic and ethical barriers to making such disclosures in an effective

way, since disclosing the activity (rather than the policy) can carry surprising risks. The series of

events described in the article is fairly complex and involved and will not be repeated here, but a

relatively cursory summary might be attempted. As Nike began to utilize more complex supply

chains in which aspects of production were outsourced to contractors, who in turn utilized a

number of subcontractors, the firm's awareness of participating factories and their working

conditions began to deteriorateuntil reports emerged in 1996 describing exploitative,

sweatshop working conditions in several Nike facilities in Asia. The firm responded by

commissioning CSR audits of a number of facilities, which documented relatively safe and

standard practices, implementing a new code of corporate conduct and CSR regime, and then

aggressively promoting these efforts through personal letters, its website, and the media. Later,

however, it was revealed that working conditions in one of the factories covered by the audit
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were profoundly subparwhich is to say, Nike's PR efforts omitted certain unsavory details

revealed during the firm's self-examination (p. 364).

The result was a lawsuit alleging false advertising. For the purposes of the present

discussion, of course, while the outcome of the lawsuit would likely be significant for legal

reasons, of equal concern are the implications of being engaged in such a lawsuit at all with

respect to brand identity and legitimacy. In short, Nike had approached its PR campaign aimed at

demonstrating its robust CSR practices and rebutting the 1996 report much as it would any other

advertising/PR push. Additionally, for DeTienne and Lewis, the fact that the firm elected to

undertake this push "as a reaction to negative public perceptions... raises serious ethical

concerns", insofar as the ethical requirements for "marketing good corporate conduct" are

substantially more stringent than those used for marketing individual products; "puffery" in the

latter case is far more acceptable than in the former (p. 361).

It is difficult, of course, to characterize Nike's omission as anything short of pufferyand

even that is fairly generous. However, it is also worth considering Nike's response from a

strategic perspective in addition to a legal and ethical one. Understandably, Nike's leadership

must have felt that it was vital to issue a strong and timely response to the allegations that the

firm was actively complicit in exploitative behaviors, and feared the repercussions of admitting

that the accusations were not entirely groundless. Indeed, there is little indication that the firm

was even aware of the poor working conditions in this facility prior to undertaking its own

extremely rigorous audit. Once the firm had that information, however, and not only chose not to

share it but actively publicized its progressive CSR policy, it placed stakeholder trust, and

therefore the legitimacy of its brand image, at risk by jeopardizing consumers' willingness to rely

on the truthfulness of its claims. This, of course, is foundational to its ability to promote its CSR

practicespractices which were, for the most part, not only ahead of the competition but also
 Yu 21

quite effectivein the first place. It also likely undermined the salience and legitimacy of its

claims that CSR represented an important organizational value among internal stakeholders.

V. Conclusion

Nike is a major MNC and industry leader with a complex matrix organizational structure

and an organizational culture that promotes innovation and autonomy. The firm's most significant

strategic asset is arguably its brand, which is among the most valuable in the world. That brand

has suffered as a result of past CSR failures, but overall the firm has some of the most robust

CSR practices in its industry.

Investors should recognize Nike for what it is: an established, highly innovative leader in

a mature industry segment. Arguably the greatest internal risk associated with its business model

is that of ethical breaches or negative press from substandard CSR practices; the same is true for

almost any brand-reliant firm in its industry sector. However, Nike has arguably pioneered

increasingly thorough and robust CSR approaches, and appears to have successfully integrated

ethics and CSR into its organizational culture. Prospective employees would do well to recognize

this last point as well: Nike's culture is competitive, but it is not cutthroat, pushing for success at

all costs. Prospective employees should also be comfortable with critical thinking and working

with a degree of autonomy, potentially reporting to multiple bosses and working in

interdisciplinary teams, as a result of the firm's horizontally-integrated matrix structure.

 Yu 22

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