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

Leonard Abess likes to read annual reports. As the head of City National Bank in Miami, he especially likes to study the annual reports of other banks. He always pays particular attention to the opening letter written by the corporation's CEO. It struck Abess as backward that CEOs begin the final paragraphs of their letters with the phrase, "And last but not least, we wish to thank our loyal employees…" Why, he wondered, are the employees the last to be mentioned? In his letters, he always likes to acknowledge his employees first.

Last fall, Abess sold his majority stake in City National. In a business environment in which many corporate leaders have demonstrated mindboggling personal greed, he did something remarkable. He gave $60 million of his proceeds to 471 current and former employees. It was, he said, something he'd been planning to do for more than 20 years.

When deciding how to allocate the money, Abess created an undisclosed formula based on longevity. Recognizing that the highest ranking -- and thus, highest paid -- employees had the shortest tenure, Abess gave the largest amounts to those who had been with City National the longest. As a result, some long-term employees received bonuses equal to nine times their annual salaries.

At a time when the country has lost faith in the leaders of its major financial institutions, what Abess did is highly unusual. He wishes it wasn't. "I prefer to live in a world where this is ordinary," he has said.

Me too.

Labels: business, employees, integrity, leadership, management, values

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