Nike's mission for corporate responsibility is "to lead in corporate citizenship through programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike."

We took a few pages of last year's annual report to talk about efforts to fulfill that mission, and will do so again here. For the calendar year 1999, we will also be producing Nike's first-ever, stand-alone Corporate Responsibility Annual Report. Expect to read a lot more detail about the breadth and depth of the challenges that lie before us in labor practices, diversity, community affairs and the environment soon after the first of the year.

For now, we'd like to give you an idea of where we are heading in corporate responsibility. By looking at it from the perspective of one factory, you will get a sense that our commitments to labor practices, the environment and communities go hand in hand.



Nike has more than 500 contract factories around the world in about 45 countries. In May 1998, we set out six new corporate responsibility goals for these factories. Rather than address the goals and progress across all 500 factories, which we will try to do for you in the complete report, here's a snapshot of how those six initiatives have changed one factory, Tae Kwang Vina, a Korean owned and operated footwear manufacturer in Vietnam. To begin, Tae Kwang Vina is referred to as "VT" by our contract manufacturing group. VT just celebrated its fourth birthday. It has 10 production assembly lines and 10,000 people, who together produce 500,000 pairs of our best running shoes each month.

Since it was established in the summer of 1995, VT has been run by a Tae Kwang vice president, C.T. Park, who has worked closely with us on corporate responsibility implementation - and done some things on his own, like donating almost $300,000 to local community projects like housing for war widows. C.T., like hundreds of other factory directors, was consulted about the proposed steps, and then briefed on the May 1998 initiatives just before Phil Knight announced them. He has been an enthusiastic partner in making these things happen. Here is how the six initiatives have played out, so far, at VT:



We raised our minimum age limits from the International Labor Organization standards (15 in most countries and 14 in developing countries) to 18 in all footwear manufacturing and 16 in all other types of manufacturing (apparel, accessories and equipment.) Footwear factory managers, including C.T., pledged not to hire anyone under the age of 18. In Vietnam, that is the minimum age anyway, so the factory did not have to alter hiring practices. (According to the labor law, Vietnamese under that age are allowed to work with parental permission. Not at our factories.)

At VT and all other Nike factories, workers legally employed according to previous standards or local standards were grandfathered into the new system. No one lost a job. But no one under the age of 18 is making a Nike shoe today, to the best of our knowledge. To ensure that is the case, Nike also embarked on a comprehensive, global independent auditing of all contract manufacturers. To our knowledge, we are the only company of our size and scope that requires independent labor audits of all factories around the world. Our global labor practices auditors are Pricewaterhouse- Coopers (PwC). A local team of PwC's Vietnamese employees visited VT in May 1999, to ensure our age and other labor practices standards are being met. They found one worker, age 17, employed at a stitching subcontractor. Because that factory does only stitching, its manager assumed our 16 age limit applied. While the worker remains, no one will be hired under the age of 18 in that facility going forward.



The May 1998 initiatives included a pledge to involve non-governmental organizations (NGOs) and in our independent monitoring efforts.

Since 1997, VT has participated in an independent monitoring- focus group program for all Nike factories under auspices of CESAIS, a social and market research branch of the University of Economics, Ho Chi Minh City. On a rotating basis, workers randomly selected by CESAIS from VT and all other factories are invited to the University, without Nike or VT management present, to participate in focus group discussions about the workplace. Results are forwarded to Nike's labor department for follow-up.

In September 1998, we began to exchange information and health and safety concepts with an independent monitor who had been highly critical of Nike, and VT itself, in the past. In December 1998, he visited the factory and spent a day there with C.T. Park, J.M. Lee and others on the VT staff, reviewing test information, touring all the factory spaces, and talking to VT's health clinic professionals and workers. A follow-up report to Nike, which was made public and discussed in The New York Times, noted progress the factory has made, and areas for further improvement, on which Nike and VT - as well as all other factories - are working today. The monitors have been invited to look at other Nike footwear factories to confirm that parallel progress is being made in these facilities as well.

In April 1999, Nike embarked on a far more ambitious independent monitoring program as a charter member of the Global Alliance for Workers and Communities. The Global Alliance, operated by the International Youth Foundation, with partners including the World Bank, the John D. and Catherine T. MacArthur Foundation, and Mattel, Inc., will let workers themselves, through local NGOs and other assessment agents, identify workplace issues and life aspirations, which Nike and our factory partners will then work to address. Assessment and worker feedback began at factories in Thailand in June, and were scheduled to begin in Vietnam, including at VT, in August, with Indonesia and China to follow. By fall 1999, the Fair Labor Association, the White House sponsored initiative to eliminate sweatshop practices in the apparel and footwear industries, was expected to begin oversight of members' monitoring efforts. It is behind schedule, but progress has been made with many universities, colleges and companies signing on. Nike is a charter member of the FLA. Its monitoring efforts at VT will be shared with the FLA, whose members include consumer rights, human rights and labor rights groups.



The May 12, 1998 agenda included a three-part commitment to environment, safety and health.

The first of these was adoption of the goal of sustainable business practices. That means we will conduct our business today conscious of the impact on future generations. We believe it's our responsibility to do our part in protecting the environment. In 1998, Nike engaged McDonough Braungart Design Chemistry on the first element of that concept, sustainable product design.

A number of sustainable design projects are underway and one goal is that, ultimately, NIKE will produce footwear that creates almost no waste in the manufacturing process, can be taken back and even remanufactured. We expect that V.T., as our most advanced running shoe manufacturer, will be a key player.

The second of the environmental initiatives was to accelerate our conversion of footwear factories from petroleum- based solvents to water- and detergent-based substitutes that do not emit potentially harmful vapors. Today, VT uses 100% water-based adhesives. In three years, VT has cut its use of solvents by 67% - which is pretty good, but actually a little below the three-year average of 80% for all Nike shoe factories. Our goal is 100% elimination of these solvents. A third major environmental health and safety goal set out was to ensure no workers are exposed to harmful fumes from those solvents not yet eliminated. Our target was the permissible exposure limit (PELs) for chemicals prescribed in the OSHA indoor air quality standards. Eliminating many of the solvents certainly made that process easier, but VT also embarked on an extensive re-engineering of ventilation systems. At the cost of about $500,000, the factory installed new equipment and ducting. The screen printing facility, for example, was re-engineered no less than three times in six months, until testing by American health professionals and Nike's Vietnam-based labor practices manager, Dr. Tien Nguyen, showed the worker protection was at or better than U.S. standards. The same process happened at 37 footwear factories across Asia.

Finally, all footwear factories are required to adopt a Management-Environment-Safety-Health (MESH) system to ensure the management of all corporate responsibility issues is to international standards. VT has since completed all nine of the required workshops, and has been granted ISO 14001 certification, the International Standards Organization program for environmental management.



The water-base conversion and air quality results are encouraging, but the most important aspect of that work is to pinpoint areas in factories where improvements should be made. Following up on the pledge to sponsor open dialog on issues of corporate responsibility, Nike shared air quality test results and water-base conversion concepts with the rest of the athletic footwear industry at an open forum in Bangkok in November 1998. Two of VT's major chemical suppliers were represented at that forum, and VT itself was highlighted as one example of the successes and challenges.

Nike also committed to fund university studies of corporate responsibility issues. To date, the Tuck School of Business at Dartmouth College has undertaken wage and spending surveys of workers in factories in Vietnam and Indonesia, and will continue that work in other countries for us. Workers from a factory near VT, operated by the Dae Shin company, were surveyed by Tuck students. In addition, The University of North Carolina's School of Public Health is working with us to develop a long-term study of health standards and training in footwear factories, and we expect VT will be very much involved with that program.



We also committed to work with manufacturers who take a leading interest in their worker welfare. A key component of that commitment is that every Nike contract footwear factory must have a supplemental worker education program. To date, such programs are up and operating in about half of the footwear factory base, or 22 factories, in four countries (China, Thailand, Vietnam and Indonesia). VT has had worker education since its opening, and in the first three years concentrated on Vietnamese language training for Korean expatriates, and Korean language training for Vietnamese workers and managers. In 1998, the factory expanded its education program by offering academic classes to workers. More than 400 of the factory's workers are now enrolled in some form of free education classes.



In May 1998 we committed to providing small business loans to women in Vietnam and three other Asian countries. In the intervening year, the Vietnam program - the largest share of which is centered in the poorest areas of Dong Nai Province where VT is located - has through the Vietnam Women's Union and the Colorado-based NGO Friendship Bridge been continually expanded. To date, more than 3,200 rural women and former workers have created small businesses in Vietnam, and the success rate has been absolutely amazing. Thus far there have been no defaults on loans, and business borrowers have come back to expand businesses with second and third loans. The typical business involves raising of pigs, ducks or chickens, the production of rice paper for spring rolls, or the production of incense sticks and other basic manufactured goods.

Meanwhile, VT itself has been an active partner in local development. Since its opening in July 1995, VT has contributed funding and support to 26 different projects in Dong Nai Province, ranging from a $77,000 contribution to a kindergarten for workers' children, to flood relief donations, housing for war widows and temple decoration projects.



By no means exhaustive, these are among dozens of steps VT and factories like it around the world have taken since the May 1998 initiatives were established. C.T. Park would cite the all-new kitchen facilities, a clinic that has expanded to three times its original size (a factory clinic the U.S. Surgeon General, on a recent visit, compared favorably with local hospitals), the fleet of buses imported from Korea to provide night-time transportation for shift workers, and the new aerobics team and the factory band. But C.T. Park sees no finish line. There is much more work to do. Stay tuned.