Through most of the 90's, consumers and social investors have witnessed a tug-of-war between fair labor groups and Nike regarding the overseas factories that manufacture Nike products. Each time Nike publicly asserted it was a leader in improving factory conditions, there would be another revelation of abuses at one of its plants.
One particularly important revelation came in 1997. It was then that a 1996 Ernst & Young audit of a Nike factory in Vietnam, commissioned by Nike itself, was leaked to CorpWatch, a non-profit "CorpWatchdog." According to the audit, workers were exposed to toxic chemicals without protection or safety training, made to work illegal excess overtime and forced to endure other hazardous conditions.
This audit contradicted the findings of a widely publicized report completed five months earlier by Goodworks International. The Goodworks report, also commissioned by Nike, basically supported Nike's previous statements that it was providing good conditions for workers.
Marc Kasky, a self-described environmentalist, viewed the Ernst & Young audit as an opportunity. Enlisting the support of San Francisco attorney Alan Caplan, he filed a suit against Nike in April of 1998. The suit claims that Nike's assertions about the labor conditions in its Asia factories amounted to false advertising. The evidence Kasky and Caplan point to is a list of Nike's statements on worker conditions, compared with a list of labor and human rights violations.
Nike maintains that this is a free speech issue, and that the statements mentioned in the suit were part of a public debate on globalization. It moved to dismiss the case on the grounds that the statements are not commercial speech, and thus are protected by the First Amendment.
A trial court judge has ruled in Nike's favor, and an appeals court has supported that ruling. The California Supreme Court granted a hearing on the case after being petitioned by Kasky's lawyers.
The essential question is whether Nike's statements were commercial speech. Commercial speech would be subject to truth-in-advertising laws, and therefore could be regulated by the government. Companies could also be sued over such statements.
"If Nike's position were the law, then a company could make blatantly false statements as long as they included something in there that looks like its part of a public debate," said Alan Caplan.
Interested groups have also filed briefs to California's Supreme Court on the case. California's Attorney General, environmental advocate Environmental Defense and the California Labor Federation/AFLCIO are among the groups that have filed supporting briefs for Marc Kasky. Nike has received support from the Northern California American Civil Liberties Union (ACLU).
Environmental groups are interested because of the implications this case has for companies whose core activities affect the environment. For example, BP Amoco's Beyond Petroleum campaign may lead consumers to believe that the company is truly focusing on alternative sources of energy. This is in contrast to the company's recent opposition to a shareholder resolution asking BP Amoco (ticker: BP) to report the risks of drilling for oil in Alaska's Arctic Wildlife Refuge.
CorpWatch periodically hands out "greenwash awards" to companies whose actions do not match their image promotions. Nike was a recipient, along with a number of other apparel manufacturers, of a "sweatwash award" in 1998.
Josh Karliner, executive director of CorpWatch, believes that little will change if the court rules for Nike. "This lawsuit challenges a practice that has been widespread for many years," he noted. "I think [if Nike wins] it will mean more business as usual."
A ruling in favor of Kasky, on the other hand, could effectively reduce corporate whitewash. Whichever way the court rules, this case may influence how corporations handle truth in image advertising for years to come.
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