📚 Nike Sweatshop Crisis
Core Lesson: Supply chain ethics, reputational risk
📋 Overview
| Attribute | Detail |
|---|---|
| Subject | Ethics ESG |
| Core Lesson | Supply chain ethics, reputational risk |
| Source | HBS / Top MBA Case |
🕰️ Background
In the 1990s, Nike became the poster child for ‘sweatshop labor’ after reports of child labor, unsafe working conditions, and sub-minimum wages in its supplier factories in Indonesia, Pakistan, and Vietnam. Protests at US universities and a famous LIFE magazine photo of a 12-year-old boy sewing Nike soccer balls led to a massive brand crisis and stock collapse.
❓ The Central Problem
Is a company responsible for the actions of its ‘outsourced’ suppliers? In the 90s, Nike’s position was: ‘We don’t own the factories, we just buy from them.’ The public revolt proved that this legal distinction is ethically and commercially irrelevant.
📊 Analysis
Transformation: CEO Phil Knight realized the brand was in ‘unprecedented’ danger. Nike responded by: (1) Creating the Fair Labor Association (FLA), (2) Mandating 100% transparency of its factory list (the first to do so), (3) Setting minimum age and environmental standards. Nike went from ‘worst to first’ in ESG reporting, turning a liability into a competitive advantage in sustainability.
🔑 Key Lessons
- Reputational risk in the supply chain is ‘Direct Risk’ for the brand, regardless of ownership
- Transparency is the only cure for supply chain mistrust—list your factories
- Industry-wide collaboration (FLA) is more effective than individual auditing
- ESG can be a competitive advantage if integrated into the core business model after a crisis
🎓 Discussion Questions
- Why did Nike’s initial ‘we don’t own the factories’ defense fail so badly?
- How can a company ensure compliance at Tier 2 or Tier 3 suppliers?
- Is Nike’s current ESG leadership ‘authentic’ or just ‘reputation management’?
🔗 Connected Concepts
- Supply Chain Management — Ethics in global sourcing
- Stakeholder Theory — NGO and activist pressure
- Corporate Governance — CEO-led turnaround during a crisis