Nike gets a good report card


Nike Inc., once a principal target of activists protesting the use of sweatshop labor, has been pardoned by investment firms that screen companies for their social and environmental records.

The Bethesda-based Calvert Group mutual fund company announced yesterday that Nike now meets its standards for being a good corporate citizen. KLD Research & Analytics Inc., a Boston firm that provides research to institutional investors, also determined earlier this summer that Nike has become an acceptable investment for the socially conscious.

"Nike has been making progress for years, partly because shareholders and activists have spent years yelling at them. They've been a very controversial company," said Julie Fox Gorte, director of social research at Calvert Group. "At this point, we feel as though this company has turned the corner."

A stamp of approval from the social investment community would mark a turnaround for Nike, which along with Wal-Mart Stores Inc., Gap Inc. and other companies took a public relations bruising during the 1990s over labor practices at overseas apparel factories. The maelstrom of criticism reached a fever pitch when activists revealed that TV personality Kathie Lee Gifford's clothing line for Wal-Mart was produced in a Honduran sweatshop. Gifford became an outspoken critic of child labor.

Overcoming such a backlash isn't easy, said Donald Lichtenstein, a marketing professor for the Leeds School of Business at the University of Colorado at Boulder. "Once you've been labeled as an offender, then consumers many times interpret any subsequent actions as not motivated by a pure desire for corporate social responsibility but a public relations stunt."

The social investors' endorsements of Nike come as the anti-sweatshop movement wanes. Even as activists held a press conference in New York yesterday to denounce poor worker conditions at a Chinese factory that prints books for the Walt Disney Co., its organizer conceded that agitating over the issue has slowed compared to a decade ago.

"People are so concerned with so many other issues, the war in Iraq and Afghanistan, the loss of manufacturing jobs overseas, and preserving Social Security," said Charles Kernaghan of the National Labor Committee, a labor-rights watchdog that uncovered the use of sweatshops by the fashion lines of Gifford and rapper Sean "P. Diddy" Combs. "People who would gravitate to our movement are just overwhelmed."

Kernaghan, however, said the increasingly global nature of the economy will push the issue to the fore again, and said industry practices have changed dramatically because of the movement.

Nike, for one, developed an independent monitoring system to ensure that its contractors follow a code of conduct, which bars child labor, calls for a minimum wage or prevailing industry wage, and requires no more than 60 hours a week of work.

"Nike is very different now than it was in the 1990s, when they told you to take a walk, when they stood up and claimed plausible deniability," Kernaghan said. "They've accepted that it's their responsibility."

A mea culpa from Nike founder and Chairman Philip H. Knight had perhaps the biggest impact on critics. In a report on the company's progress with social responsibility released in April, Knight wrote, "After a bumpy original response, an error for which yours truly was responsible, we focused on making working conditions better and showing that to the world."

"Knight really took ownership of trying to address those who had brought these accusations against the company," said Karin Chamberlain, an index manager at KLD Research & Analytics. "He didn't try to push it down on someone else."

Critics also said the 108-page report seemed to be a frank assessment of labor practices at factories producing its goods. The report detailed audits of more than 550 factories in 2003 and 2004.

Nike acknowledged that workers had been harassed and that some were forced to work overtime. Monitors found cases of physical or verbal abuse in more than a quarter of its South Asian factories, and up to half of the contract factories in the region restricted access to toilets and drinking water during the workday.

Nike had been silent on its corporate responsibility since an earlier report in 2001 while the company dealt with a lawsuit from Mark Kasky. The labor rights activist sued under California's unfair-competition laws, alleging that Nike's public statements defending its labor practices constituted false advertising. Nike settled in 2003, agreeing to donate $1.5 million to the Fair Labor Association, a non-profit group that tries to improve working conditions worldwide.

With the latest report, Nike became the first major apparel manufacturer to voluntarily disclose its entire supply chain. Labor activists want companies to reveal where factories are located, so that independent observers can assess the conditions there, but companies argue that trade secrets could be stolen at those factories.

Calvert's Gorte said Nike is far from perfect - she said she has yet to find a completely virtuous company - but that Nike has changed its corporate culture for the better. Apart from improving conditions in sweatshops, she said the company has made strides on a number of other issues - reducing the toxic solvents used in the production process, pledging to reduce greenhouse emissions and banning workplace discrimination against homosexuals.

The decisions by Calvert and KLD Research won't translate into immediate investments by the social investment funds. A Nike spokeswoman declined to comment.

KLD's clients use its research as a guide. The firm doesn't have a fund but licenses indexes of recommendations to money managers. About $8 billion in funds use the indexes, including the Domini Social Equity Fund and TIAA-CREF Social Choice Account.

Steve Schueth, president of the First Affirmative Financial Network, an advisory firm, said he's sure investors will take notice of Nike now. "The moral of the story is that as companies become more responsible corporate citizens, the more socially responsible investors will invest in them," he said.

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