ANALYSIS: Corporate Reputation - Nike still sweats its Far East factory problems. A damaging new report shows that Nike is still dogged by conditions in its Third World factories. So what's new? It was Nike who published them. Claire Murphy reports

Just when you thought it was safe to buy Nike again, here's another Third World scandal to give consumers food for thought, and keep the company's PR people busy.

Just when you thought it was safe to buy Nike again, here's another Third World scandal to give consumers food for thought, and keep the company's PR people busy.

Just when you thought it was safe to buy Nike again, here's another Third World scandal to give consumers food for thought, and keep the company's PR people busy.

Last time it was under-age and under-paid workers that made the Nike brand synonymous with sweatshops. This time it is arguably worse.

A report from Global Alliance for Workers & Communities (GAWC) has discovered sexual abuse of women working in Nike's sub-contracted factories in Indonesia, and possible denial of proper healthcare that may have led to deaths.

The allegations are bad enough in themselves. But they are a particular blow for Nike, as the company has spent the past four years telling anyone who would listen that they now constantly monitor the working practices of the factories they use in Asia.

Nike researches itself

But delve a little closer into this issue, one that has dogged Nike for nearly 15 years, and you begin to see how Nike has been working its corporate butt off behind the scenes to dissipate criticism of its policies towards its activities in the Third World.

For starters, it was Nike's efforts to embrace its critics and take a proactive stance toward its corporate reputation, which led to the creation of GAWC.

GAWC is not just any NGO (non-governmental organization), taking aim at Nike, the perennial activist's easy target. It was set up in January 1999 by the International Youth Federation, with funding from Nike, the World Bank, and Gap, another brand with its share of public troubles from its Asian factories.

Fed up of reports appearing in the media from all sorts of unverified sources, Nike chose to commission an organization with which it already had a dialogue to conduct some in-depth research.

Since then, GAWC has been to Thailand and Vietnam, former hotspots of controversy for Nike, and discovered that factories are being run in a far more humane way than in previous years.

But GAWC's report into Indonesia didn't make as happy reading for Nike's management. Interviews with 4,400 workers threw up serious allegations that has already sent the company's VP of corporate responsibility, Dusty Kidd, over to the country to investigate.

Unusually, Nike not only commissioned the report, but also released the grizzly details. Vada Manager, Nike's PR chief and director of global issues, says, 'We'd originally made the commitment to publish the results of (GAWC's) report. Our only stipulation was that we talk about facts. We couldn't then selectively release information if we didn't like it. We are confident that GAWC has produced a comprehensive piece of research, and we disclosed it to the media. So there is no dispute on our part about resolving these difficulties.'

Public Affairs Council president Doug Pinkham believes that, despite the risks, Nike made the right move in telling the world about the seamier side of its operations.

'Nike is a lightening rod for these issues. The one thing it really needs is to have access to facts which it can work with. It is becoming more proactive, by building allies, and increasing the transparency of its operations.'

'The age of spin is over - I really believe that. We live in a world where if you are doing something unethical, someone will find out. So it's far better to get in first and be able to say 'we've discovered this problem and we're dealing with it.''

Image repair operation begins

The road to paying for a group to wash your dirty linen in public began in earnest for Nike in January 1998, when it appointed Kidd, its former US director of PR, to the new post of VP, corporate responsibility. Kidd had already been in charge of Nike's Labor Practices Department, set up two years previously to monitor Nike's production processes, principally in Indonesia, China and Vietnam. These three countries account for 75% of the company's sub-contractors.

Creating the role of VP of corporate responsibility, still a relatively rare position in a US firm, was designed to focus the entire business on issues which had become paramount for Nike. 'We identified a need to have one senior person responsible for manufacturing, environmental and labor issues, as well as our philanthropic and community efforts,' explains Manager. 'By putting one person in charge of this area, it gives a focal point for NGOs. It also humanizes the issue.'

Exactly 12 months later, Nike pledged dollars 7.8 million to help set up GAWC and begin the process of using a third party to investigate any allegations with the potential to show up on an activist group's Web site.

Later that year, Nike went a step further to monitor and control the activities of its Asian partner factories. It invited a small number of students, a group that has traditionally been one of its most vocal critics, to form a working party to tour various Nike factories. It picked students from 11 colleges where opposition to Nike - organized through United Students Against Sweatshops - has been very strong. The program was arranged with help from PricewaterhouseCoopers, who sent inspectors into factories with individual students.

Although the students found some 'difficulties,' as Manager refers to them, they were nothing compared to allegations that GAWC's study unearthed.

So, why, after so many years of fervent monitoring activity by Nike, are problems like this still appearing? According to GAWC's director of International Programs, Maggie Alexander, the problem is that things can change very quickly in the factories. 'Monitoring has to be a continual process of checking,' she says. 'This is the first study of this size that has been conducted into Nike's Indonesian factories, and it will act as a baseline for future research.'

'GAWC conducted over 4,000 interviews. It was a highly in-depth study,' adds Manager. 'We can't expect our own people to gather that level of information.'

Early anecdotal evidence shows that the strategy may be working. Although Manager derides use of the word 'widespread' in some press reports of the alleged sexual abuse ('we're talking about 2.5% of employees - that's hardly widespread'), much of the press coverage that greeted the report praised Nike's quick response.

Nike's relationship with GAWC is expected to be a long-term one, with the group providing the company with information with which it can act before the activists. Looking into the future, the company is likely to keep even closer tabs on the practices of its factories. A profit warning released by Nike last week predicts that earnings in its current quarter will come in a whopping 30% below predictions.

Therefore, Nike will most likely need to cut costs and put the squeeze on its production process, the vast majority of which is sited in Asia.

All of which is going to lead to a quandary for Nike's senior management - whether to continue to pour money into programs to improve the lives of its Asian employees (and consequently improve its corporate reputation), or justify the expense to anxious shareholders.

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