Nike Shareholders Lack ‘Just Do It’ Energy

Nike shareholders rejected on Tuesday a proposal that would have required the sportswear Goliath to oversee and issue a report evaluating the effectiveness of supply chain due diligence efforts and whether they align with its stated equity goals and human rights commitments.

Filed by Tulipshare, a London-based “activist investment” platform that owns at least $25,000 of Class B stock, the resolution also asked Nike to supply the metrics it uses to track and measure performance on forced labor and wage theft risks, to consider implementing the American Bar Association’s model contract clauses on human rights, and to determine if its findings led to any changes in the company’s policies, decision making or implementation mechanisms.

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“Nike has not disclosed adequate analysis regarding the efficacy of traceability steps taken to address the risk of alleged Uyghur forced labor across its supply chain tiers, nor does Nike disclose engagement with effective rights holders or whether remedies are satisfactory to victims,” Samuel Collins-Charles, Tulipshare’s communications manager, said at a prerecorded message during the annual meeting, which was held virtually.

Collins-Charles pointed to ongoing labor disputes with the Air Jordan maker, including a complaint filed in March alleging that Nike’s treatment of garment workers, including its purported failure to remedy wage losses during the pandemic, violated the Organisation for Economic Co-operation and Development’s (OECD) guidelines for responsible business conduct by multinational enterprises.

Workers’ rights organizations such as the Asia Floor Wage Alliance and the Global Labor Justice-International Labor Rights Forum, which filed the complaint with 20 garment-sector unions across Cambodia, India, Indonesia, Pakistan and Sri Lanka, claim that the Adidas rival owes workers in Cambodia an estimated $1.4 million in unpaid wages and $28 million everywhere else. Instead of compensating workers or investing in safety or productivity programs, they say, Nike engages in buyback schemes to “falsely inflate” its stock price.

“Nike did not engage with garment worker unions representing Nike supply chain workers about those impacts, despite the OECD guidelines’ expectation that multinational enterprises do so and despite unions’ requests for dialogue,” the complaint said.

In its opposition, Nike’s board of directors recommended that its shareholders vote against the proposal, calling it “unnecessary” in light of its commitment to ethical practices that respect human and labor rights “at the highest level.” The Oregon-headquartered firm said that its code of conduct lays out minimum standards for suppliers making its products, including strict requirements regarding forced and child labor, excessive overtime, compensation and freedom of association, and that it monitors compliance with those expectations through regular internal and external third-party audits, both announced and unannounced.

But Collins-Charles said that traditional codes of conduct such as Nike’s place the burden to uphold human rights entirely on suppliers, which he said is “not realistic and has a very weak track record of effectiveness as it does not acknowledge Nike’s own role in human rights impacts.” He compared this with the model supplier contracts, which “bridge this gap” by promoting a shared responsibility approach to upholding human rights, such as reasonable assistance to suppliers, responsible exits and victim remedies, by both the buyer and supplier.

With the European Union adopting a corporate sustainability due diligence directive that requires businesses like Nike to identify, prevent and mitigate adverse impacts on human rights, ensuring the effectiveness of its existing supply chain management infrastructure would serve only to safeguard the company and its investors from financial legal and reputational risks.

“This is why the report needs to be issued to provide assurance that the board is fulfilling its fiduciary duty to protect Nike and its shareholders from adverse financial, legal and reputational risks associated with forced labor,” Collins-Charles added.

Nike, which is facing scrutiny from both the House Select Committee on the Chinese Communist Party in the United States and the Canadian Ombudsperson for Responsible Enterprise for potential ties to Uyghur forced labor, has repeatedly claimed that it does not source materials or products from the Xinjiang Uyghur Autonomous Region and that it conducts ongoing due diligence with its suppliers to identify potential forced labor risks related to the employment of Uyghurs and other Muslim minorities elsewhere in China.

Last year, Domini Impact Investments, a women-led investments advisor from New York, filed a shareholder resolution urging Nike to suspend manufacturing in China until the U.S. government lifts or rescinds its advisory about the heightened risks for businesses with supply chain and investment links to Xinjiang.

“Nike says they do not source directly from the Uyghur region. That’s good news. But forced labor-picked Xinjiang cotton is shipped all across China,” Laura Murphy, a human-rights researcher who spoke to shareholders on behalf of Domini and the resolution, told Sourcing Journal at the time. ​​“Uyghur forced labor-spun yarn is shipped all across China. Uyghur forced labor-woven fabric is shipped all over China. Until apparel companies can show that their entire supply chains are free of Uyghur forced labor, there is [a] high risk that products made in China will be made with Uyghur forced labor.”

The measure, too, failed to pass.

Both Domini Impact Investments and Tulipshare are also part of a group of investors that wants Nike to finally put the allegations of wage theft to bed, in particular, a three-year campaign to claw back roughly $2.2 million in owed wages for garment workers at two of its supplier factories: Violet Apparel in Cambodia and Hong Seng Knitting factory in Thailand.

“As investors, we are raising this issue with you in line with the expectations for investors provided by the United Nations Guiding Principles for Business and Human Rights and the OECD Guidelines for Multinational Enterprises because we understand that remedy has not yet been adequately provided,” wrote Kees Gootjes, business and human rights advisor at ABN AMRO Bank and Martin Buttle, Better Work lead at CCLA Investment Management, on behalf of more than a dozen signatories, in a letter dated Sept. 7 to Nike CEO John Donahoe.

The move is an escalation of efforts by labor and human rights groups, nearly 60 of which rallied together to pen an open letter pushing Nike for action in July. In addition to forming picket lines and launching campaigns on social media, supporters have also taken to the LinkedIn comments of Nike board executive Thasunda Brown Duckett, urging her to speak up for the workers in line with her outspoken support for women workers of color and labor rights. The former Chase Consumer Banking CEO did not reply to a message seeking comment.

The issue dates back to June 2020, when Violet Apparel suddenly shuttered after a Covid-induced decline in orders, leaving 1,280 workers without $1.4 million in legally owed severance, according to an investigation by the Worker Rights Consortium (WRC), a Washington, D.C.-based think tank. Ramatex Group, which owned Violet Apparel, did not respond to a request for comment.

Though a Nike spokesperson said that it has not sourced products from Violet Apparel since 2006, the investors wrote that there appeared to be “credible and consistent evidence” that Nike-branded clothing was being subcontracted there by fellow Ramatex Group subsidiary Olive Apparel. They said that the Swoosh came to the conclusion that its goods weren’t being produced at Violet Apparel based on an investigation after the factory had already closed and did not speak to workers.

“This is troubling both because of the manner and outcome of the investigation, as well as the conclusion by Nike that it is not responsible for the rights of workers manufacturing its products,” the letter said. “For investors, there seems to be enough evidence that Nike has a direct relationship with the rightsholders at Violet Apparel, and we urge Nike to take up its responsibility.”

The WRC also forwarded copies of Nike’s own supply chain disclosures from 2007 and 2008 that named Violet Apparel as a supplier, contradicting the company’s assertion.

“We take this as another indication of how little attention Nike is applying when it comes to taking seriously the rights abuses in this case,” Thulsi Narayanasamy, the WRC’s director of international advocacy, told Sourcing Journal. “Nike could resolve this today, it is extraordinary that they would act with such cruelty to the women who made their clothes.”

The investors were similarly concerned by the non-payment of wages at Hong Seng Knitting, where the WRC said that some 3,300 workers are owed more than $800,000 after they failed to receive their legally owed partial wages during a pandemic-driven factory shutdown from May to October 2020.

“Nike seems to support its supplier’s position that workers voluntarily ceded owed wages to the factory in spite of workers documenting coercion and intimidation when they attempted to ask for what they were owed under Thai law,” the letter said, adding that the owed amount is “relatively small” given the growing reputational risk to Nike and other brands involved in this dispute.

Hong Seng Group, which operates Hong Seng Knitting, did not respond to a request for comment. A Nike spokesperson said that, following an independent third-party investigation and legal review, all workers have been compensated in accordance with local law and Nike’s code of conduct and that “there is no evidence that workers are owed back-pay or compensation.”

But Narayanasamy isn’t convinced. “Nike’s report from the audit firm, Elevate, is being used to deny thousands their wages so why won’t they publish it?” she asked. “The Thai government found that the factory needs to pay, the law is clear; but Nike claims that workers were presented with a choice to get paid or not and freely chose not to, ignoring the documented protests and formal complaints from workers.”

She also pointed to evidence from the WRC that found that Hong Seng Group reported a profit in 2020, paying its owners a dividend of nearly half a million dollars even as workers were going unpaid.

Like Collins-Charles, Buttle raised the EU’s upcoming legislation as a warning.

“The issue with non-payment of severance pay to 1,200 workers has been rolling along for three years and other attempts to seek remedy have failed,” he told Sourcing Journal. “The UN Guiding Principles are clear [that] fashion brands like Nike need to ensure access to remedy when there have been clear breaches in human rights. As investors we expect Nike to show leadership and ensure remedy occurs. Furthermore, we expect that in the light of mandatory human rights due diligence legislation primarily in Europe businesses like Nike will have to make an ongoing commitment to remedy.”

In their letter, the investors asked the sneaker titan to make good on the money owed, commit to responsible purchasing practices that involve fair collaboration with suppliers, and pledge to provide workers with access to remedy if similar cases emerge in the future.

The problem with human rights policies is that they cannot just look good on paper, said Rui Chang, responsible investment advisor at PGGM, a not-for-profit cooperative pension fund service provider, as well as one of the letter’s signatories.

“Multiple stakeholders have engaged with Nike on these human rights incidents in its supply chains, however, there is a lack of response,” she told Sourcing Journal. “Nike has a strong commitment to human rights, but these cases signal a gap of implementation. Nike offers sports products that improve the well-being of its customers. This intrinsic value should be reflected for the workers that make this happen.”

While Tulipshare’s resolution didn’t receive majority shareholder support, its appearance at the meeting, in the wake of the investors’ letter about owed wages, was “another step in the right direction,” said Antoine Argouges, CEO and founder of Tulipshare.

“The company can no longer ignore the demands of shareholders for more transparency around the legitimacy of the company’s equity goals and human rights commitments,” he told Sourcing Journal. “These are material risks which could see one of the most beloved brands in the world jeopardize [its] longstanding legacy of innovation and creativity, a societal and cultural impact which transcends sport, because basic human rights are not being respected within its operations and throughout its supply chain.”

Tulipshare will continue to meet with and engage with Nike to resolve these issues at its “earliest convenience,” Argouges added.

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