case study

Opening Case Part II Assignment – Sample Answer

Ethical Issue(s)

The ethical issue in this case is whether to follow the narrow view or broader view of corporate social

responsibility. The narrow view of corporate social responsibility, also called profit maximization, is

most associated with Milton Friedman. In his book Capitalism and Freedom, economist Milton

Friedman (1912–2006) argues that diverting corporations from the pursuit of profit makes the economic

system less efficient. Therefore, Friedman argues that business’s only social responsibility is to make

money within the rules of the game. The broader view of corporate social responsibility, also called the

stakeholder model, states that business has obligations in addition to pursuing profits. In other words, a

corporation has obligations not only to its stockholders, but to all other constituencies that affect, or are

affected by, its behavior. Most scholars recognize the broader view of corporate social responsibility as

the most ethical approach to decision-making. As the CEO of Nike, I have the ultimate responsibility for

our corporation’s welfare. In response to a lawsuit against my company for false advertising, my legal

team fought the claim on the grounds of corporate free speech with the ultimate goal of protecting the

stockholders of Nike. However, the underlying reasons for the false advertisement lawsuit—misleading

claims about working conditions inside Nike factories—were not considered. Therefore, I need to use

the broader view of corporate social responsibility to determine what Nike’s next step will be in this

situation.

Stakeholder Analysis

CEO Philip Knight (Decision-Maker)/Nike

1. I want to make a decision that will consider all of our stakeholders’ stakes.

2. I fear alienating present and potential customers.

3. I want to make a decision that is based on sound reasoning.

4. I hope to find a way of effectively dealing with the lawsuit.

5. I do not want to make false claims about the working conditions inside Nike factories even if they

are protected by commercial freedom of speech rights.

Nike Stockholders

6. They want to maximize the return on their investment over the long-term.

Present/Potential Customers

7. They want quality products made by workers who have not been exploited or forced to work in

poor working conditions.

8. They want quality products at competitive prices.

[There are other stakeholders in stakes not listed here. For purposes of completing step three of

the case analysis, we will only analyze the eight stakes above.]

Sample Answer

Decisions and Analysis

Decisions

Decision #1: I would follow the broader view of corporate social responsibility as my next step as CEO.

This means I would need to take into account all of my stakeholders’ stakes. I would need to investigate

whether the allegations in the lawsuit alleging false advertising are true. Based on what I found, I would

need to make provisions to ensure my contractors were treating their employees fairly while also

keeping in mind my present and potential customers’ and stockholders’ needs.

Decision #2: In addition, if employee abuse is uncovered, I will admit that we were wrong and settle the

lawsuit; if no employee abuse is found, I will have the facts needed to successfully defend against the

allegations of false advertising. I will not try to hide behind commercial freedom of speech rights if

employee abuse is uncovered.

Decision #3: Any increase in expenditures will be absorbed by cutting profit margins instead of

increasing product prices.

How My Decisions Resolve the Ethical Issue: The ethical issue in this case is whether to follow the

narrow view or broader view of corporate social responsibility. Decision #1 specifically states that I will

follow the broader view of corporate social responsibility as my next step as CEO. Decisions #2 and #3

further demonstrate that I am taking into account all stakeholders’ needs, not just stockholders’ needs.

Nonconsequentialist Analysis of Decisions

Integrity: Consistency between our stated values and behavior; demonstrating the courage to do the

right thing regardless of the costs (a.k.a. moral courage). Decisions #1 and #2 demonstrate that I am

willing to do the right thing even if it costs our company additional money. Investigating the allegations

in the lawsuit itself will cost me time and money. In addition, if the allegations regarding the exploitation

of employees turn out to be true, additional money will need to be spent correcting these problems.



Consequentialist Analysis of Decisions

Costs:

6. The additional time and cost of the investigation and possible expenditures correcting potential

exploitation of employees may harm stockholder return on investment over the short-term since I

will not be increasing product prices to cover any expenditures.

Decision #1: Personally conducting the investigation may force me to neglect other areas of the

company potentially resulting in poor performance in these areas.

Decision #2: If employee abuse is found, it will cost money to settle the lawsuit; if no employee abuse is

found, it will cost money to defend against the allegations of false advertising.

Benefits:

1. Adopting the broader view of corporate social responsibility in Decision #1 means that I will

consider all of our stakeholders’ stakes.

2. By personally investigating the allegations of employee abuse, I know that I will correct any

problems found which should keep Nike from alienating present and potential customers.

3. Decision #1 allows me to make a decision based on sound reasoning since I will be personally

conducting the investigation.

4. My personal investigation will produce the evidence I need to effectively deal with the lawsuit. If

employee abuse is found, I will admit that we were wrong and settle the lawsuit; if no employee

abuse is found, I will have the facts needed to successfully contest the allegations of false

advertising.

5. If my investigation uncovers evidence of abuse of employees, I am going to admit that we were

wrong instead of trying to seek protection under commercial freedom of speech rights.

6. The additional time and cost of the investigation and possible expenditures correcting potential

exploitation of employees will bolster Nike’s reputation and brand loyalty leading to increased

profits over the long-term.

7. Decisions #1 and #2 will ensure that employees are not exploited or forced to work in poor

working conditions.

8. Any additional expenditures will be absorbed by reducing profit margins instead of increasing

prices.

Decision #1: Personally conducting the investigation will show that Nike is committed to the truth since

I, the highest officer in the corporation, is conducting the investigation.

Decision #2: If employee abuse is found during my investigation, the expenditures necessary to correct

the abuse will be offset by increased brand loyalty and increased employee productivity over the

long-term.

Decision #3: Absorbing any expenditure increases as opposed to raising prices will increase brand

loyalty over the long-term.

Analysis:

The benefits clearly outweigh the costs over the long-term. If employee abuse is found, it will cost a

significant amount of money in the short-term to correct the problems. Furthermore, absorbing these

higher expenditures through lower profit margins will significantly harm stockholder return on their

investment in the short-term. However, if my investigation fails to uncover any evidence of employee

abuse, the cost of the investigation is minimal. In addition, even if my investigation uncovers evidence of

employee abuse, correcting the problems now will benefit Nike over the long-term.