1996 NIKE PROPOSAL 3 - Labor Rights - Indonesia
The General Board of Pension and Health Benefits of the United Methodist Church, of 1201 Davis Street, Evanston, Illinois 60201, a holder of 61,700 shares of NIKE, Inc. Class B Common Stock, submitted the following resolution for the reasons stated:
"WHEREAS, the image of Nike Incorporated is an extremely important corporate asset--recently valued at between $1.3 and 1.7 billion by authoritative Trademarks and Licensing Associates--assuring continued strong performance of our brand in an intensely competitive market.
There are persistent reports of exploitative conditions and military suppression of workers' legitimate protests at shoe factories near Jakarta, Indonesia.
The Indonesian Legal Aid Institute reports that nearly 70 workers are currently struggling for reinstatement and back-pay settlements with NIKE contractors as a result of their courageous efforts to get those contractors to pay a living wage, treat workers with respect and bargain collectively with genuine workers' representatives. The case of 24 workers who made Nike shoes is now before the Supreme Court of Indonesia.
Corporations, sourcing from dozens of contractors, have begun to recognize their responsibility to protect workers from harsh management practices and denials of their basic rights.
Nike's retention of Ernst and Young to monitor contractors' compliance with Indonesian wage regulations is an indication of the difficulty our company faces in speaking with certitude about only one of the provisions of the Code of Conduct.
That code is supplemented by the Athletic Footwear Association's "Guidelines on Business Practices of Business Partners"--signed by Nike on 9/3/93--which call for the observation of the right of free association, fair compensation and the prohibition of corporal punishment and mental or physical coercion.
Consumers must rely on the good faith of corporations such as ours which pledge to observe production guidelines intended to guarantee that fair treatment of employees is monitored with integrity and in a consistent manner.
BE IT RESOLVED, THAT the shareholder request the Board of Directors to review compliance with the Nike Code of Conduct & "Memorandum of Understanding" with contractors concerning the company's "commitment to people, communities and the environment". We encourage Nike management to take under advisement the following recommendations:
- Research conducted by Indonesian non-governmental organizations in direct contact with employees who make Nike shoes.
- Establishing independent monitoring and enforcement mechanisms in conjunction with non-governmental organizations.
- Strengthening of internal monitoring procedures.
- Translating the Nike "Code of Conduct" and "Memorandum of Understanding" into the languages of employees where Nike has international contracts, and to distribute these documents to suppliers.
- Utilizing positive influence to encourage suppliers to adhere to NIKE standards of conduct.
A summary of the review should be made available to shareholders by April, 1997."
The Board of Directors recommends that shareholders vote AGAINST Proposal 3.
We at NIKE empathize with workers in any industry who may be treated unfairly. As the shareholder resolution correctly observes, some years ago NIKE established labor standards in order to regulate and improve working conditions of Indonesian footwear factory subcontractors. Without a doubt, NIKE endeavors to possess the highest business ethics. Our shareholders expect nothing less from the industry leader.
This shareholder proposal, however, is directed toward monitoring compliance with NIKE's labor standards. Although well-intentioned, the Board of Directors believes the Proposal is unnecessary in that NIKE's management has for years utilized careful monitoring procedures that have proven effective, and NIKE continues to enhance and strengthen enforcement of its labor standards with new initiatives.
Putting aside any misleading media accounts and unfair attacks, here are the facts:
- . NIKE footwear subcontractors in Indonesia pay above the minimum wage of 126,500 rupiah per month as required by law, and actually pay an average wage of 240,000 rupiah per month (including non-compulsory overtime, which pays double the rate). In addition, employees are provided with paid holidays, free meals, free health care, transportation subsidies, lodging, and bonuses for improved skills. These benefits add an estimated 20-25% to wages. These are among the most sought-after factory jobs in the industry, because of the pay scale and good working environment. In fact, an entry-level Indonesian factory employee with no skills earns five times the average income of a farmer (before any government subsidies). In the six years that NIKE has subcontracted production in Indonesia, the minimum wage has been increased 13 times. Due in part to NIKE and other multinational corporations, real wages in Indonesia have risen 55 percent since 1990.
- . Each of NIKE's footwear subcontractors has signed NIKE's Memorandum of Understanding and Code of Conduct, which prohibit, among other things, forced or prison labor, and require subcontractors to comply with all local and national laws regulating child labor, the minimum wage, overtime pay, benefits, insurance, occupational safety, and environmental safety. NIKE requires these documents to be translated into the native language and publicly posted in every building.
- . NIKE monitors and enforces compliance with the Memorandum and Code of Conduct with over 800 NIKE employees, many of them U.S. citizens, who live and work right at the factories worldwide. In addition to production assistance and quality control, they are required to ensure compliance with NIKE's labor standards. These are dedicated people who know that the only way to produce a high quality product is to assure that factory employees are treated well.
- . In 1994 NIKE engaged the services of Ernst & Young, an independent international auditing firm, to randomly audit NIKE's Indonesian footwear subcontractors for compliance with NIKE's Memorandum and Code of Conduct, and ensure that employees are receiving the required pay and benefits, and to find out how they like working in the facility. Any subcontractor found not in compliance is required immediately to implement a plan of corrective action. NIKE does not tolerate unethical business partners. Ernst & Young has a solid reputation of thorough and unbiased oversight of manufacturing operations in developing countries. To say that unspecified "non-governmental organizations" could do a better job ignores this reality and the size of the task.
- . In fact, the incident to which the shareholder proposal refers regarding 24 factory employees occurred in 1992, before NIKE engaged Ernst & Young to audit subcontractors. The employees' legal action does not involve NIKE, but is instead against the Indonesian Department of Manpower which authorized the dismissal of the employees. The case is on appeal. The Minister of Manpower found that the employees inflicted illegal and extensive damage to factory property.
- . Over the past 20 years NIKE has established long-term relationships with select subcontractors, and management believes that NIKE's high standards of business ethics and corporate responsibility have, and will continue to, influence that of our partners. But just like a competitive athlete, an industry leader never rests on its laurels. Enforcement is a continuing process. NIKE has proceeded to strengthen and improve monitoring of NIKE's labor standards in the following ways:
- . NIKE was recently invited by the Clinton Administration to join a coalition of select footwear and apparel manufacturers, retailers, labor representatives, and human rights groups to develop strategies to assure consumers that the products they purchase are produced under acceptable labor conditions.
- . NIKE is in the process of establishing a high-level corporate compliance position charged solely with monitoring adherence to NIKE's labor standards.
- . NIKE has extended formal invitations to the U.S. Secretary of State and the U.S. Ambassador to Indonesia to visit NIKE's contracted facilities, and has welcomed members of the press, and other agencies and organizations, including senior U.S. State Department officials.
- . NIKE has joined Business for Social Responsibility to learn how other industries have addressed monitoring and compliance issues.
The Board of Directors believes that NIKE has addressed each of the Proposal's concerns. NIKE's procedures for monitoring Indonesian subcontractors are extensive and effective. Given NIKE's record of leadership, proven monitoring system, and additional steps scheduled to be taken in the coming months, NIKE has addressed monitoring more effectively than the Proposal could, and without consuming the valuable time and funds of NIKE and its shareholders to micro-manage one aspect of one country's operations. Assuring that NIKE's subcontractors treat their employees with dignity and respect is not a new idea at the Company. It is something that NIKE has insisted on for years.
Accordingly, the Board of Directors recommends that shareholders vote AGAINST Proposal 3.
Holders of Class A Stock and Class B Stock will vote together as a single class on Proposal 3. If a quorum is present at the Annual Meeting, Proposal 3 will be approved if the number of shares voted in favor of the proposal exceeds the number of shares voted against the proposal. Abstentions and broker non-votes are counted for purposes of determining whether a quorum exists, but are not counted as voting either for or against and therefore have no effect on the results of the vote.
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