Read articles and answer the questions

BEST PRACTICE

Companies don't become

model citizens ovemight.

Nike's metamorphosis

from the poster child for

irresponsibility to a leader

in progressive practices

reveals the five stages

of organizational growth.

The Path to Corporate Responsibility by Simon Zadek

N IKE'S TAGLINE, "JUST DO IT," is aninspirational call to action for the millions who wear the company's ath- letic gear. But in terms of corporate re- sponsibility, the company hasn't always followed its own advice. In the 1990s, protesters railed against sweatshop con- ditions at its overseas suppliers and made Nike the global poster child for corporate ethical fecklessness. Nike's every move was scrutinized, and every problem discovered was touted as proof of the organization's irresponsibility and greed. The rea! story, of course, is not so simple.

Nike's business model - to market high-end consumer products manufac- tured in cost-efficient supply chains - is no different from that ofthousands of other companies. But the intense pres- sure that activists exerted on the ath- letic giant forced it to take a long, hard look at corporate responsibility faster

than it might have otherwise. Since the 1990s, Nike has traveled a bumpy road on this front, but it has ended up in a much better place for its troubles. And the lessons it has learned will help other companies traverse this same ground.

Over the past decade, I have worked with many global organizations, includ- ing Nike, as they grappled with the com- plex challenges of responsible business practices. This experience has shown me that while every organization learns in unique ways, most pass through five dis- cemable stages in how they handle cor- porate responsibility. Moreover, just as organizations' views of an issue grow and mature, so does society's. Beyond getting their own houses in order, com- panies need to stay abreast ofthe pub- lic's evolving ideas about corporate roles and responsibilities. A company's jour- ney through these two dimensions of learning - organizational and societal -

DECEMBER 2004 125

B E S T P R A C T I C E • T h e P a t h t o G o r p o r a t e R e s p o n s i b i l i t y

invariably leads it to engage in what I call "civil leaming."(To map this process for your organization, see the sidebar "The Clvil-Leaming Tool.")

Organizational Learning Organizations' learning pathways are complex and iterative. Companies can make great strides in one area only to take a few steps backward when a new demand is made of them. Nevertheless, as they move along the learning curve, companies almost invariably go through the following five stages.

"It's not our Job to fix that" In the de- fensive stage, the company is faced with often unexpected criticism, usually from civil activists and the media but some- times from direct stakeholders such as customers, employees, and investors. The company's responses are designed and implemented by legal and commu- nications teams and tend to involve ei- ther outright rejections of allegations ("It didn't happen") or denials of the

Simon Zadek ([email protected] .uk) is the CEO ofAccountAbility, a London- based institute that promotes account- ability for sustainable development, and a senior fellow at Harvard University's John F. Kennedy School of Government In Cambridge, Massachusetts. An anthology of his writings on corporate responsibility, Tomorrow's History, was recently pub- lished by Greenleaf.

links between the company's practices and the alleged negative outcomes ("It wasn't our fault"). Think of Royal Dutch/ Shell's handling of the controversy around carbon emissions. For years, the company-along with the rest ofthe en- ergy sector - denied its responsibility for emissions created by the production and distribution of its energy products. Today, Royal Dutch/Shell acknowledges some accountability. But unlike some of its competitors, the company contin- ues to resist environmentalists' demands that it accept responsibility for emis- sions from its products after they have been sold.

"We'll do just as much as we have to." At the compliance stage, it's clear that a corporate policy must be estab- lished and observed, usually in ways that can be made visible to critics ("We ensure that we don't do what we agreed not to do"). Compliance is understood as a cost of doing business; it creates value by protecting the company's reputation andreducingtheriskof litigation. Until recently, for example, much ofthe food industry has understood "health" as the avoidance of legally unacceptable "non- health." When Nestle came under fire for the health dangers of its infant for- mula - activists claimed that mothers in developing countries would end up mixing the powder with contaminated water, thereby compromising their chil- dren's health - its response for many

years was to shift its marketing policies to make this hazard clear to new mothers rather than, for example, trying to edu- cate them generally about ways to en- sure their babies' overall nutrition. The current public debate on obesity high- lights the same dynamics-food compa- nies' instinct is to simply aim for com- pliance, while the public clearly wants a far greater commitment from them.

"It's the business, stupid." At the managerial stage, the company realizes that it's facing a long-term problem that cannot be swatted away with attempts at compliance or a public relations strat- egy. The company wilt have to give man- agers ofthe core business responsibility for the problem and its solution. Nike and other leading companies in the ap- parel and footwear industries increas- ingly understand that compliance with agreed-upon labor standards in their global supply chains is difficult if not im- possible without changes to how they set procurement incentives, forecast sales, and manage inventory.

"It gives us a competitive edge." A company at the strategic stage learns how realigning its strategy to address responsible business practices can give it a leg up on the competition and con- tribute to the organization's long-term success. Automobile companies know that their future depends on their abil- ity to develop environmentally safer forms of mobility. Food companies are

126 HARVARD BUSINESS REVIEW

The Path to Corporate Responsibility • BEST PRACTICE

struggling to develop a different con- sciousness about how their products af- fect their customers' health. And phar- maceutical companies are exploring how to integrate health maintenance into their business models alongside their traditional focus on treating illnesses.

"we need to make sure everybody does it" In the final civil stage, compa- nies promote collective action to ad- dress society's concerns. Sometimes this is linked directly to strategy. For in- stance, Diageo and other top alcohol companies know that as sure as night follows day, restrictive legislation will come unless they can drive the whole sector toward responsible practices that extend well beyond fair marketing. Among other activities, these compa- nies have been involved in educational initiatives that promote responsible drinking. Likewise, energy companies understand that their industry has to grapple with the sometimes unethical ways in which governments use the windfall royalties they earn from oil and gas extraction. So they are supporting the UK's Extractive Industries Trans- parency Initiative, which urges govern- ments to report the aggregate revenues they derive from resource extraction. Some organizations look even further ahead and think about metastrategy: the future role of business in society and the stability and openness of global so- ciety itself

Societal Learning A generation ago, most people didn't think tobacco was a dangerous health threat. Just a few years ago, obesity was seen as a combination of genetics and unhealthy lifestyle choices-certainly not the responsibility of food companies. Today, ageism is rarely seen as a corpo- rate responsibility issue beyond compli- ance with the law-but in an era of dra- matic demographic shifts, it soon will be.

The trick, then, is for companies to be able to predict and credibly respond to society's changing awareness of partic- ular issues. The task is daunting, given the complexity of the issues as well as stakeholders' volatile and sometimes underinformed expectations about busi-

ness' capacities and responsibilities to address societal problems. Many civil advocates, for instance, believe phar- maceutical companies should sell life- saving drugs to the poor at reduced prices; after all, the drug companies can afford it more than the patients can. The pharmaceutical industry has claimed over the years that such price limits would choke off its research and devel- opment efforts. But today, drug compa- nies are exploring how to sustain R&D while pursuing price reductions in de- veloping countries and how to integrate the prevention of illness into their busi- ness models.

Danish pharmaceutical company Novo Nordisk has created a practical tool to track societal learning on some of its core business issues-animal test- ing, genetically modified organisms, and access to drugs. The drugmaker's ap-

proach can be adapted and used by any company facing any number of issues. (See the exhibit "The Four Stages of Issue Maturity.") In the early stages, is- sues tend to be vague and their poten- tial significance well below conven- tional thresholds used by the financial community to determine materiality. These issues are often first identified through a company's interactions with nontraditional sources of knowledge, such as social activists. As one senior business manager explains, when he deals with nongovernmental organiza- tions,"! see the future of our markets, our products, and this business."

As issues mature, they become ab- sorbed into mainstream professional debate and eventually into practice. Once leading companies adopt uncon- ventional commitments and practices around certain societal issues, laggards

The Five Stages of Organizational Learning

When it comes to developing a sense of corporate responsibility, organizations

typically go through five stages as they move along the learning curve.

ORGANIZATIONS DO WHVTHEVDOIT

DEFENSIVE

COMPLIANCE

MANAGERIAL

STRATEGIC

crviL

Deny practices, outcomes, or responsibilities

Adopt a policy-based compliance approach asacost of doing business

Embed the societal issue in their core management processes

Integrate the societal issue into their core business strategies

Promote broad industry participation in corporate responsibility

To defend against attacks to their reputation that in the short term could affect sales, recruitment, productivity.and the brand

To mitigate the erosion of economic value in the medium term because of ongoing reputation and litigation risks

To mitigate the erosion of economic value in the medium term and to achieve longer-term gains by integrating responsible business practices into their daily operations

To enhance economic value In the long term and to gain first- mover advantage by aligning strategy and process innovations with the societal issue

To enhance long-term economic value by overcoming any first- mover disadvantages and to realize gains through collective action

DECEMBER 2004 127

BEST P R A C T I C E • The Path to Corporate Responsibility

must either follow suit or risk the con- sequences, m 1991. when Levi Strauss publicly launched its "terms of engage- ment"- which defined the labor stan- dards for Levi's business partners and was one of the world's first corporate- conduct policies-every other company in its industry looked the other way, arguing that labor standards in other people's factories weren't their respon- sibility. When the Body Shop adopted human rights policies in the mid-1990s, most mainstream companies deemed its practices unfeasible. And when BP CEO Sir John Browne acknowledged in his infamous Stanford Business School speech that BP had a co-responsibility to address the challenges associated with global warming, he was taking a leader- ship role and betting that others would have to follow-as indeed they did. Each

of these actions played a big part in dragging the rest of the players in the industry toward common approaches to responsible btisiness practices.

How Nike Just Did It Nike's story illuminates better than most the tensions inherent in manag- ing corporate performance and societal expectations. In the 1990s, the company was blindsided when activists launched an all-out campaign against it because of worker conditions in its supply chain. There's no doubt that Nike managed to make some extraordinary errors. But it also learned some important lessons. Today, the company is participating in, facilitating, convening, and financing initiativesto improve worker conditions in global supply chains and promote corporate responsibility more generally.

The Four Stages of Issue Maturity

Pharmaceutical company Novo Nordisk created a scale to measure the maturity

of societal issues and the public's expectations around the issues. An adaptation of

the scale appears below and can be used by any company facing any number

of societal issues.

»LATENT

L • n n

EMERGING

CONSOLIDATING

• Activist communities and NGOs are aware ofthe societal issue. There is weak scientific or other hard evidence.

• The issue is largely ignored or dismissed by the business community,

• There is political and media awareness ofthe societal issue. There is an emerging body of research, but data are still weak.

• Leading businesses experiment with approaches to dealing with the issue.

• There is an emerging body of business practices around the societal issue.

• Sectorwide and issue-based voluntary initiatives are established.

• There is litigation and an increasing view ofthe need for legislation.

' Voluntary standards are developed, and collective action occurs.

• Legislation or business norms are established. • The embedded practices become a normal part of a business-excellence model.

From Denial to Compliance. Nike's business model is based exclusively on global outsourcing. Simply put, the com- pany has rarely produced a shoe or a T-shirt outside of its design studio. By the time the company was singled out in a 1992 Harper's Magazine article for the appalling working conditions in some of its suppliers' factories, almost all of its competitors were using a similar sourcing model. Labor activists in the early 1990s were exerting enormous pressure on premium-brand companies to adopt codes of conduct in their global supply chains. These groups targeted Nike because of its high-profile brand, not because its business practices were any worse than its competitors'.

The company's first reaction was de- fensive. "We said, 'Wait a minute; we've got the best corporate values in the world, so why aren't you yelling at the other folks?'" one of Nike's senior man- agers recalls."That was a stupid thing to do. It didn't get us anywhere. If any- thing, it raised the volume higher."The company realized it couldn't just shut out the noise. It eventually responded to activists' demands for labor codes and, after further pressure, agreed to exter- nal audits to verify whether these codes were being enforced.

Nike hired high-profile firms or indi- viduals to conduct the audits, which were initially one-off events. But these companies and individuals had little actual auditing experience or credibil- ity in labor circles, and the approach backfired. Statements such as former UN Ambassador Andrew Young's casual conclusions that all was well in Nike's supply chains were publicly challenged and subsequently proved to be flawed or overly simplistic. Consequently, many labor activists believed Nike's early, failed attempts at building credibility were proof of insincerity.

Companies frequently resist accept- ing new responsibilities because they see how risk-taking organizations are criticized for their efforts to do just that. But the pressure on Nike was so intense that it couldn't afford to wait until the whole sector advanced. Labor activists' demands for action were cascading into

128 HARVARD BUSINESS REVIEW

The Path to Corporate Responsibility • BEST PRACTICE

Nike's core and highly profitable youth markets in North America and Europe. So in 1996, Nike "went professional" in creating its first department specifically responsible for managing its supply chain partners* compliance with labor standards. And in 1998, Nike established a Corporate Responsibility department, acknowledging that acting responsibly was far more than just reaching com- pliance; it was an aspect ofthe business that had to be managed like any other.

Managing Responsibility. By the turn ofthe millennium, Nike's labor- compliance team was more than 80 strong. The company had also hired costly external professionals to audit its roughly 900 suppliers. Even so,new rev- elations about Nike's failure to adhere to its own labor codes constantly came to light. Many outsiders took this as proof that the company still lacked any real commitment to address labor stan- dards. Those inside Nike's walls were incredibly frustrated by their failure to move past this ongoing crisis. After a particularly painful documentary on Nike aired in the United Kingdom, the CEO assembled a team of senior man- agers and outsiders led by Nike's vice president for corporate responsibility, Maria Eitel.The team was instructed to leave no stone unturned in figuring out how to get beyond the company's con- tinued failure to effectively comply with its own labor codes.

The team's review didn't focus on the behaviors of factory managers and workers, as many previous studies did; the group considered issues at the fac- tory level symptoms of a larger systemic problem. Instead of looking down the supply chain, the team studied the up- stream drivers. After six months, it con- cluded that the root ofthe problem was not so much the quality of the com- pany's programs to improve worker con- ditions as Nike's (and the industry's) ap- proach to doing business.

Like its competitors, Nike offered per- formance incentives to its procurement teams based on price, quality, and deliv- ery times. This standard industry prac- tice undermined Nike's many positive efforts to comply with its own codes of

The Civil-Learning Tool

The civil-learning tool Is intended to

help companies see where they and

their competitors fall on a particular

societal issue. It can help organizations

figure out how to develop and position

their future business strategies in ways

that society will embrace.

The tool factors in the two different

types of learning, organizational and

societal. When an issue is just starting

to evolve, companies can get away with

defensive actions and deflections of

responsibility. But the more mature an

issue becomes, the further up the learn-

ing curve an organization must be to

avoid risk and to take advantage of op-

portunities.

As the tool makes clear, there is a

point where the risky red zone turns

into the higher-opportunitygreen zone.

The question for most companies is,

"Whereisthat line for my organiza-

tion?" The answer depends on a host of

factors, and a company's actions can ac-

tually shift the line in its favor. A com-

pany might step way out in front of an

immature issue while most of its rivals

are still in defensive mode. Cases in

point: BP's aggressive stance on pub-

lishing the amount of royalties it pays

to host governments; Rio Tinto's adop-

tion of a human rights policy when

most companies would not go near the

idea; and Levi Strauss's groundbreaking

"terms of engagement," which set out

the company's responsibilities to work-

ers In its global supply chains.

Additionally, events in one industry

can affect companies in a different in-

dustry or organizations in the same in-

dustry that are facing different issues,

For example, the heated public debate

about the pricing of drugs in poorer

communities has created a broader de-

bate about the fundamentals of intellec-

tual property rights and the merits of

a preventive approach to health at a

time when the pharmaceutical indus-

try makes its money from treating ill-

nesses. Similarly, the emergence of obe-

sity as an issue for the food industry has

been accelerated by both rising health

care costs and the devastating impact

of litigation on the tobacco industry.

I Higher-OpportunityGreen Zone MANAGERIAL

COMPLIANCE

Risky Red Zone DEFENSIVE

CONSOLIDATING INSTITUTIONALIZED

conduct; it had the unintended effect of actively encouraging its buyers to cir- cumvent code compliance to hit targets and secure bonuses. And there were other tensions between Nike's short- term financial goals and its longer term strategic need to protect the brand. For

Issue Maturity

instance, the company's tight inventory management often led to shortages when forecasting errors were made. That created urgent short-term needs for more goods to satisfy market de- mand, which drove procurement teams to take what they could get. Often, this

DECEMBER 2004 129

BEST P R A C T I C E • The Path t o Corporate Responsibility

would force suppliers to cut comers to push the envelope on delivery times, which would drive up overtime in the factories - exactly what Nike's labor code was trying to prevent. To cap it all, when something went wrong and Nike's reputation took a hit, the procurement, marketing, and inventory management teams weren't the ones that suffered financially. The brand shouldered the burden, and the legal and other costs were charged to the corporate center, not to those whose behavior had caused the problem in the first place.

Nike realized that it had to manage corporate responsibility as a core part of the business. Technically, it was rela- tively easy to reengineer procurement incentives. The review team proposed that Nike grade all factories according to their labor conditions and then tax or reward procurement teams based on the grade ofthe supplier they used. But commercially and culturally, it wasn't so simple. Nike's entrepreneurial cul- ture extended from brand management to procurement. Any challenge to that spirit was considered by many as an af- front to a business model that had de- livered almost continual financial suc- cess for three decades.

Nike's resistance to shifting its pro- curement methods cannot be dismissed as some irrational distaste for change. It knew that constraining its procure- ment teams would involve real costs and commercial risks. And the hard re- ality was that Nike's efforts to secure adequate worker conditions delivered little to the financial bottom line in the short term-which was the sole focus for the bulk of the company's mainstream investors. (For more on the business im- plications of doing good, see the side- bar "Being Good Doesn't Always Pay.") Nike's challenge was to adjust its busi- ness model to embrace responsible prac- tices - effectively building tomorrow's business success without compromising today's bottom line. And to do this, it had to offset any first-mover disadvan- tage by getting both its competitors and suppliers involved.

It has turned out to be a long and rocky path for Nike and other compa-

nies working to get the labor piece right. Several muitistakeholder initiatives were launched that focused on the develop- ment of credible and technically robust approaches to compliance. Most well- known in the United States are the Fair Labor Association (FLA), which was ini- tially established with support from the Clinton administration as the Apparel Industry Partnership, and the SA8000 standard, which evolved with help from parties outside the United States. The multistakeholder Ethical Trading Ini- tiative (ETI) emerged from the United Kingdom. Each initiative has distinct characteristics, involves diverse com- panies, and associates with different NGOs, labor organizations, and public bodies. But all have broadly responded to the same need to develop, monitor, and comply with now commonly ac-

cepted labor standards underpinned by UN conventions.

Responsible Business Strategies. Nike's underlying business strategy wasn't static as it moved up the corpo- rate responsibility learning curve. The prevailing trade agreement in the ap- parel industry, the Multifiber Arrange- ment (MFA), was nearing its end. The MFA had established country-based gar- ment import quotas to the all-important U.S. market. The growth of Nike's ap- parel supply chains during the 1990s was partly driven by cost grazing-the ongoing search for lower prices. But the MFA had reinforced that need to graze because companies had to search the world for spare quota. The MFA also in- hibited businesses like Nike from mak- ing longer-term procurement commit- ments to their suppliers and thwarted

Being Good Doesn't Always Pay

There is no universal business case for being good, despite what we might

wish. Civil regulation, attacks by NCOs to damage corporate reputations,

and the like rarely cause measurable, long-term damage to a fundamentally

strong business. In the short term, which is what most investors focus on,

variations in financial performance are usually attributable to business fun-

damentals such as design,cost of sales, and market forecasting.

Nike has been highly profitable the past three decades-a period in which

it was also subjected to continuous and vociferous opposition to its busi-

ness practices. Consider the global media coverageof the company's alleged

malpractices and the widespread anti-Nike protests at North American uni-

versities (a core market segment for Nike), Yet institutional investors have

shown a startling disinterest in Nike's handling of its labor standards.

The high-profile,two-year case of activist Marc Kasky versus Nike brought

the company before the California and federal supreme courts for allegedly

misrepresenting the state of labor standards in its supplier factories. Even

now, after an out-of-court settlement, the case raises the specter of further

legal action against Nike and others based on similar claims of commercial

misstatements. Yet the case has barely raised an eyebrow from the main-

stream investment community. Coping with such challenges, it seems, is sim-

ply an acceptable overhead cost of doing business.

That's not to say, however, that responsible business practices cannot pay.

As with any business opportunity, the chances to make money by being good

must be created, not found. Reinventing one's business isn't easy. And doing

so in socially responsible ways involves a major shift in managerial mind-

s e t - f r o m a risk-based, reputationai view of corporate responsibility to one

focused on product and process innovations that will help to realign the

business and the market according to shifting societal concerns.

130 HARVARD BUSINESS REVIEW

The Path to Corporate Responsibitity • BEST P R A C T I C E

the stable conditions needed to advance opportunities for brands to invest in technological and managerial progress.

The MFA's expiration on January l, 2005, will accelerate the consolidation of supply chains. With disperse supplier relationships and no quotas to destabi- lize, experts argue, the scene is set for changes in the apparel industry that will be as significant as the advent of glob- alized supply chains themselves, which was a major factor in Nike's original success.

It's not just that there will be fewer and larger suppliers. Intensified compe- tition is pushing apparel makers to shorten the time between design and market even as they continue to cut costs. The industry will probably move to some form of lean manufacturing- shifting away from traditional top-down managerial styles toward greater worker self-management that delivers more flexibility and productivity. Some esti- mates suggest possible manufacturer cost savings of up to 25%.

In terms of worker conditions, the move toward lean manufacturing could reduce the total number of people em- ployed, especially if fewer, more stable supply chains lead to advanced produc- tion technologies. But the shift could also improve conditions for the remain- ing workers over time. Because lean manufacturing requires employees to leam new skills, it would put upward pressure on wages and improve man- agement's behavior toward workers. Clearly, Nike and its competitors will soon have new opportunities to create value and new ways to align those op- portunities with responsible business practices. The challenge is to manage the transition to a post-MFA world in a responsible fashion.

Nike's 2004 acquisition ofthe athletic apparel and footwear brand Starter also affects Nike's strategy in terms of cor- porate responsibility. Starter is sold at large retailers such as Wal-Mart, Kmart, and Target, and the acquisition is a key element of Nike's growth strategy as the

company reaches the limits of organic growth in some of its core markets. Now that it has entered the world of value- channel economics, Nike must concern itself with high product volumes and low margins while also maintaining its commitment to its labor codes.

Although it is a king-size operator in the market for premium goods, Nike has far less leverage in the market for value items, in which it must deal with retailers like notorious cost-squeezer Wai-Mart. Furthermore, value custom- ers focus on price and are generally less responsive to ethical propositions-par- ticularly those involving faraway prob- lems like worker conditions in Asia or Latin America. Nike's public position on these issues is clear: It is committed to maintaining its labor compliance standards in all product lines and in all supply chains. But the business model underlying value-channel economics re- quires that Nike find new ways to keep its social commitments. Part of N ike's response to this challenge has been to

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BEST PRACTICE • The Path to Corporate Responsibility

argue for regulated international labor standards, which would offset any pos- sible competitive disadvantage that Nike would incur if it had to go it alone.

Collective responsibility simply makes sense. After the acquisition of Starter, Nike sent out letters to stakeholders ex- plaining its approach: "Whatever the channel where Nike products are sold, we have a growing conviction that it is essential to work with others to move toward the adoption of a common ap- proach to labor compliance codes, mon- itoring, and reporting to help ensure broader accountability across the whole industry. This will take time, but through these efforts and with the active partic- ipation of all the major players, we be- lieve we can further contribute to the evolution of supply chain practices, in- cluding in the value channel." Nike recog- nized that its long-term success required it to expand its focus from its own prac- tices to those ofthe entire sector.

Toward Civil Action. Nike has been involved in various initiatives designed to bridge corporate responsibility and public policy, starting with the FLA in 1998. In July 2000, CEO Phil Knight at- tended the launch ofthe Global Com- pact, UN Secretary-General Kofi Annan's multistakeholder initiative designed to encourage responsible business prac- tices. Knight was one of the 50 or so chief executives of companies, NGOs, and labor organizations from around the world who were at the event He was the only CEO of a U.S. company in attendance; since then, many more U.S. organizations have associated them- selves with the initiative. At the launch. Knight announced Nike's "support of mandatory global standards for social auditing," asserting that "every company should have to report on their perfor- mance" against these standards. His pro- posal meant that Nike's suppliers and competitors would have to share the fi- nancial burden of securing a regulated level of worker conditions in global sup- piy chains. When the social performance records of all the companies were made public. Knight believed, Nike would be revealed as a leader, which would help protect the brand.

In early 2004, Nike convened high- profile piayers from the international labor, development, human rights, and environmental movements at its Bea- verton, Oregon, headquarters. Their willingness to attend was itself a testa- ment to how far Nike had progressed - from a target of attack to a convener of erstwhile critics. Even more notable was the fact that the topics discussed weren't specific to Nike's operations. The con- versations focused on the potential neg- ative fallout from the MFA's demise.

The end ofthe agreement raises the challenge of how to assist countries with garment industries that may be sud- denly rendered far less competitive in international markets. For example, a significant portion ofthe export-oriented garment industry in Bangladesh is at risk. Today, that sector employs upward of two million people and accounts for 75% of the country's foreign-exchange earnings. Similar data for countries in Latin America, Africa, and Asia high- light the potentially disastrous social and economic fallout if the transition to a post-MFA world is botched.

The MFA is ending partly because of the lobbying by NGOs and governments of key exporting countries; they argued that the agreement was a barrier to trade for developing countries. Even though companies will be downsizing, relocating, and consolidating in re- sponse to the MFA's demise, the busi- ness community was not a significant player in this trade change and, in fair- ness, cannot be held responsible. How- ever, the public is already focusing on which companies are laying off work- ers and with what effects. Nike is one of a few companies that believe, regard- less of how this situation arose, they must be part of the solution if they don't want to be seen as part of the problem.

So Nike has joined a group of organi- zations - including companies such as U.S. retailer the Gap and UK retailer Asda; NGOs such as Oxfam Interna- tional and AccountAbility; labor orga- nizations such as the International Tex- tile, Garment, and Leather Workers Federation; and multistakeholder ini-

tiatives such as the ETI, the FLA, and the Global Compact - to explore how such an alliance could help to address the challenges of a post-MFA world. This alliance might be well placed to ad- vise governments and agencies like the World Bank on ways to develop public programs to assist workers in the tran- sition; establish a framework to guide companies in their realignment oftheir supply chains; or lobby for changes to trade policies that would confer bene- fits to factories and countries that took labor issues into greater account.

Nike is, of course, a business, and as such is accountable to its shareholders. But the company has taken significant steps in evolving a strategy and practice that shifts it from being an object of civil activism to a key participant in civil society initiatives and processes.

In dealing with the challenges of corpo- rate responsibility, Nike has come to view the issue as integral to the realities of globalization -and a major source of learning, relevant to its core business strategy and practices. That learning prompted the company to adopt codes of labor conduct, forge alliances with iabor and civil society organizations, develop nonfinancial metrics for com- pliance that are linked to the company's management and its broader gover- nance, and engage in the international debate about the role of business in so- ciety and in public policy.

As Nike's experience shows, the often talked-up business benefits of corporate responsibility are, at best, hard-won and frequently, in the short term, ephem- eral or nonexistent. When accusations arise, it's easy for companies to focus on the low-hanging fruit-employee mo- rale, for instance, or the immediate need to defend the brand. But making busi- ness logic out of a deeper sense of cor- porate responsibility requires coura- geous leadership - in particular, civil leadership-insightful learning, and a grounded process for organizational innovation. ^

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132 HARVARD BUSINESS REVIEW

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