In the early 1960s, Phil Knight conceived his idea for a successful athletic shoe company. His strategy was to minimize production expenses by outsourcing manufacturing to low-cost foreign suppliers. That would leave him more money to spend promoting his products. The concept worked, and today Nike is the largest -- and most recognized -- athletic shoe company in the world.

But in the 1990s, critics began condemning Nike for contracting with overseas suppliers that paid low wages, employed young children, required excessive work hours, obstructed unionization efforts, and physically abused workers. Nike's initial reaction to the criticism was to deny responsibility. The company, they argued, could not control how its foreign suppliers treated their workers. In other words, Nike claimed that outsourcing absolved them of their obligation to protect the workers making their products.

As criticism increased, public outrage and a consumer boycott forced Nike to take responsibility. The company implemented reforms requiring suppliers to increase the minimum age of factory workers, improve air quality standards, educate employees, and enforce compliance with the rules. As a result, Nike has been generally praised for its newfound social responsibility.

Compare the Nike case to what's happening right now at a company called Auto One Warranty Specialists. Auto One, located in Irving, California, utilizes telemarketing to help sell its extended warranty programs. Consumer advocates say the company's telemarketers dishonestly tell consumers that their car warranties are about to expire. Critics also complain that the company violates government regulations by ignoring do-not-call lists and pestering cellphone users via automatic dialers and computerized messages.

Here's the similarity to the Nike situation. Auto One's president David Tabb has responded to the criticism by saying his company is not responsible for the unscrupulous phone calls because it outsources telemarketing to third-party marketing firms. Criticism, he says, should be directed to those companies and not at Auto One. Sound familiar?

By initially denying its responsibility to the deplorable conditions at its suppliers' factories, Nike demonstrated a lack of moral sensitivity. That is to say, the company seemed incapable of recognizing that an ethical problem existed. As a result, Nike faced the dual problem of improving its working conditions and restoring public faith in the company.

For Nike, it took waning consumer loyalty to convince company leaders that the ethical problem was indeed theirs. Auto One is currently the target of internet activists who are inundating the company's own phone lines with calls intended to disrupt its business. Time will tell if the action serves as a wakeup call for Auto One's leaders.

Leaders must possess the moral sensitivity necessary to spot their ethical responsibilities. Are you morally sensitive? Bookmark this post on del.icio.us