NIKKNI~1.txt file of Nike Inc. in series of files; created Friday, June 19, 1998 5:38:15 PM; Modified Saturday, February 14, 1998 2:44:58 PM; saved bo D. Boje as NIKknightMEETGSe2297 (file origins).





Annual Shareholderís Meeting

Oregon Convention Center

Portland, Oregon

September 22, 1997



This last summer, NIKE celebrated its 25th year as a brand, and over those 25 years, weíve seen a lot of changes. Twenty-five years ago we were only a shoe company; we introduced seven models: three tennis shoes, two basketball shoes, and two running flats. Those seven models were good enough to get us to $3 million in sales and get us started with NIKE as a brand.


Back in those days, we put a lot of emphasis on the quality of the shoe; the environment demanded it, and it was really part of our heritage and what we wanted to do. Good shoes are made in good factories; good factories basically have good labor relations. Good shoes are not made by factories that have high labor turnover, and basically bad working conditions. So this is not something that is a new issue to us, it is something that has been around for 25 years. But, over those 25 years there has been enormous improvement in the factory conditions and the work areas. Essentially, the spacing for the workers has improved dramatically, the lighting in the factories has improved, and most especially the air quality has improved enormously.


Twenty-five years ago, and even as late as five or six years ago, the workers in a rubber room in a sneaker factory basically all had to wear surgeonís masks because of the fumes turned out and the pollutants turned out by the rubber mixers. You go into the new shoe factories in Indonesia and Thailand and Vietnam today, there are no surgeonís masks, and youíll find the air quality even in the rubber room is better than it is in Los Angeles.


Since this issue has come to the headlines literally around the world, I havenít had a single Taiwanese or Korean shoemaker that Iíve talked to thatís been with us for a long time that hasnít made the observation that if a shoe worker in Korea or Taiwan had gone to sleep in the shoe factory there ten years ago and wakened in a shoe factory in Indonesia or Vietnam today, wouldnít have thought that he or she had died and gone to heaven; the conditions have improved dramatically.


First Company to Have Code of Conduct/Independent Monitoring


In 1992, NIKE became the first company in our industry to have a Code of Conduct--in 1994, we became the first company, I believe in any industry, to have that Code of Conduct monitored by an independent third party. The party that we picked was a certified public accountant, Ernst & Young. So you can see, that in 1994, when we received a lot of criticism for our factory relations and the monitoring of the Code of Conduct, it caused us some surprise and in fact probably some of our response hasnít been always the best, maybe because we were so surprised and we felt, perhaps wrongly, that truth is a defense in this whole issue.


A lot of the criticism about our having certified public accountants monitor our Code of Conduct is that they are not really independent because theyíre being paid by us. I would just make the observation that if in fact that were true, there is a problem much greater than NIKEís foreign factory relations, that basically the whole New York Stock Exchange is built on a bed of quicksand, since that is what itís built onĺ since the independent audit is absolutely essential to the whole functioning of the New York Stock Exchange.


Ambassador Young Independent Assessment of NIKE


We pledged in our meeting that we had with you last year, if you were here, to have a review of our foreign factory practices by an independent monitor other than a certified public accountant. Essentially our first and only and best choice was Goodworks (GoodWorks) out of Atlanta, headed up by Ambassador Andrew Young, who we felt at the time, and feel even more so today is a man of great intellect, enormous accomplishment, and unquestioned integrity.


Basically, Ambassador Young took on this assignment, and did in fact prepare for the assignment over the course of the winter, visited factories in China and Indonesia and Vietnam over the course of March and issued his report in April. It found, as we believe any truly independent monitor will find, that basically NIKE is acting as a good citizen in those communities and is running essentially good factories; that the incidences that you hear about and have gotten so many headlines are just that. They are basically exceptions to what goes on in those factories.


NIKE Production: A Small City


And Iíll point this out: that on any given day in Southeast Asia, there are at least 500,000 people working on NIKE shoes and clothes. Thatís a community thatís only slightly smaller than the city of Portland. And you do not see [Portland Mayor] Vera Katz being charged with abusing the citizenry whenever there is a crime or an exception to the laws in this community, and I would suggest that you hold us to the same standards.


We try to be as good citizens and operate as good factories as we can, but there are exceptions from time to time to our Code. And as Andrew Young pointed out, and I would certainly agree with, is that the process is made more explosive by the fact that the people of Indonesia and Vietnam are being taught to make shoes by the people who know how to make them, which at this time is still the Koreans and Indonesians.

The process of having managers from foreign countries overseeing those 500,000 workers is somewhat difficult for all of us, but over the next two or three years, you will see that process change as the knowledge of the workers gets better, the management talents grow up, and they come to be managed by countries of their own nationóby citizens of their own nation.


Independent Wage Study Commissioned


So I think that we continue to make good progress, and I think that any independent party will find as Andrew Young, that we are operating morally. I think that his report basically in some ways shifted the issue. You saw the issue shift from being the fact that NIKE was having workers abused in their factories to the fact that they werenít paying adequate wages in those factories. Basically weíre quite confident that we will win that issue as well, that itís simply a case that those are the best jobs in those countries, and that we do pay more than minimum wage. In fact, those studies that we have had presented to us lately have shown that itís substantially more in Indonesia and somewhat more in Vietnam.


In addition to that, we have commissioned a prestigious university to do a study on wages throughout Southeast Asia and in the NIKE factories to give you a report on just what is going on as far as the wages in those countries is concerned. That report will be issued fairly shortly, and weíre sure that once again, it will exonerate us.


Andrew Young also suggested, among other suggestions, that we try to reach out to the non-governmental organizations that are being critical of us. And we have tried to do that over this last summer. We tried to do it before that, but we tried a little harder to do it over these last few months, and with some success.


President Clintonís Apparel Industry Partnership


But there are certain extremist organizations that we simply cannot have reasonable dialogue with, and one of those extremist organizations is Global Exchange which had a press conference today where they announced that they were issuing some report. I would suggest to you the timing is not a coincidence and itís not really a reportówhat it really is is a publicity stunt.


We continue to try to be good citizens. We were the first in our industry to join the Presidentís Apparel Industry Partnership that involves labor unions and non-governmental organizations and other factories. Itís a partnership that Reebok originally declined to join, and three months after it was operating and having meetings, Reebok has since joined. Levi Strauss has refused to join. That partnership basically reached a resolution on what the Code of Conduct for foreign factory relations should be, which was issued last April, and NIKE was very instrumental in drafting that. Youíll see many, many similarities between NIKEís Code of Conduct and the Code of Conduct drafted by that partnership. That group continues to meet, trying to work on ways that these codes can be properly monitored. Weíre taking a leadership role in that as well.


Informing Workers of Their Rights


In addition to that, a lot of our critics say that our Code of Conduct has no teeth, itís just a piece of paper. But I think you saw in USA Today, that not only do we post our Code of Conduct on the wall of all the major rooms in the factories, in addition we are handing out plastic cards showing the Code of Conduct to all the workers in these factories in his or her native language. In addition to that, over these last few weeks, we have terminated four factories which have not lived up to NIKEís Code of Conductóthatís two apparel factories and one glove factory.


I hope what you get out of this, itís a fairly complex issue, and it covers a lot of ground, both figuratively and literally, but what I hope you get out of this is that NIKE truly has , and continues to try to be, a good citizen. We work hard at that, and weíre proud of that. We are glad to be held to a higher standard, and we try to improve our operations in this area with every breath that we take.


United Methodists Withdraw Resolution


If you were here at last yearís meeting, you will remember that the United Methodists had a motion on the monitoring of foreign factories that they wished to have passed.

Since we felt we were already acting responsibly in this area, we recommended that shareholders vote against it, which they did. This last year the Methodists initially proposed that they make that motion again. We had a one day meeting out at our offices in Beaverton and essentially they have withdrawn that motion, but we did accede to their request to speak to you today. And actually Iím quite proud and happy that Miss Vidette Bullock Mixon, of the United Methodists General Board of Pensions and Health Benefits, is here to talk to you today, and I hope you join me in giving her a warm NIKE welcome. Ask Us