Nike's Unpaid Wages and Erosion of Corporate Credibility in Global Supply Chains

The Nike controversy starkly illustrates the inadequacy of voluntary labour standards and social auditing practices that have long been presented as the industry’s primary response to labour rights risks. For decades, major apparel brands have relied on codes of conduct, third-party audits, and “supplier scorecards” to demonstrate responsible sourcing. But as multiple investigations have shown, these tools are riddled with loopholes and are often more about optics than impact.

Take the case of Violet Apparel in Cambodia. Nike claims that the factory was not an “authorized supplier,” yet investigations by Clean Clothes Campaign and other watchdogs reveal that subcontracting—often a murky and under-documented aspect of supply chains—was at play. Subcontracting remains the dirty secret of global apparel manufacturing. Brands benefit from cost arbitrage and production flexibility, while escaping direct liability for labour violations. As noted by the Business & Human Rights Resource Centre, Nike’s attempt to disown any responsibility based on the absence of a direct commercial contract fails to address the realities of how supply chains actually function.

Voluntary codes of conduct typically lack enforcement teeth. The auditing industry itself is compromised by conflicts of interest; factories often pay the auditors, and many audits are scheduled in advance, giving suppliers time to "prepare" their premises. Moreover, these audits frequently focus on documentation and surface-level compliance rather than conducting worker interviews or unannounced inspections that could reveal actual working conditions. When audits become a ritualistic box-ticking exercise, they lose all efficacy.

This problem is compounded by a fundamental misalignment of incentives. Factory managers are pressured to meet unrealistic deadlines and cost targets imposed by brands, often forcing them to cut corners. In such a context, labour rights become expendable. Nike’s defence that their audits revealed no non-compliance is emblematic of the problem: compliance frameworks that don’t capture the lived experience of workers are effectively meaningless.

The same issue arose at Hong Seng in Thailand. Despite Nike's claim that the furloughs were lawful and voluntary, labour groups on the ground, including the Worker Rights Consortium, collected testimonies indicating that many workers felt coerced into unpaid leave, with little understanding of their rights or options. In an environment of economic desperation and limited legal protections for migrant workers, voluntariness becomes a hollow term.

The reliance on voluntary standards also places disproportionate responsibility on the workers to report violations and seek redress—an often-impossible task given the power asymmetries involved. Fear of retaliation, language barriers, and lack of legal recourse all combine to silence the very voices that most need protection.

In short, the Nike controversy has become a textbook example of the systemic weaknesses embedded in voluntary compliance systems. If brands continue to depend on these flawed tools to monitor and enforce labour standards, they will not only fail to prevent abuses—they will perpetuate them.

Investor activism has emerged as a potential counterweight to corporate inertia in addressing labour rights violations. The sheer scale of investor involvement in the Nike case—more than 70 investors with US$ 4 trillion in assets—suggests a sea change in how capital markets view labour rights as a material risk factor. This isn't just about moral suasion; it's about recognising that failure to address human rights issues can lead to reputational damage, legal liability, and long-term brand erosion.

CCLA and Trillium’s shareholder resolution, while ultimately unsuccessful, was significant in that it attempted to link human rights risk directly to fiduciary responsibility. The resolution called on Nike’s board to commission an independent assessment of the company’s processes for identifying and addressing labour abuses in its supply chain. While Nike’s management urged shareholders to vote it down, citing ongoing due diligence measures, the very existence of such a proposal signals a broader shift in stakeholder expectations.

However, there is a danger that this investor pressure will remain episodic unless it is institutionalised. In the absence of enforceable ESG (Environmental, Social, Governance) disclosure mandates that include labour rights, investor activism can too easily become performative. Shareholder resolutions are non-binding; even those that pass can be ignored or delayed. Furthermore, most ESG frameworks still prioritise climate-related risks over social ones, leaving labour rights in a relative blind spot.

What is needed is a more integrated approach that treats labour rights as core to supply chain governance, not as an add-on or PR liability. This means embedding labour metrics into investment decision-making processes, demanding third-party verification of labour conditions, and penalising non-compliant companies through divestment or proxy votes. There is precedent for this. After the Rana Plaza collapse in 2013, investor pressure helped push several brands to sign the Accord on Fire and Building Safety in Bangladesh—one of the few binding agreements in the industry with demonstrable outcomes.

In Nike’s case, the reputational fallout may still escalate. Public protests have already taken place at high-visibility events, including during Nike’s Olympic advertising campaign in Paris. Activists have been leveraging this spotlight to draw attention to the unpaid wage claims (Clean Clothes Campaign). If investors begin to see these issues not as isolated reputational risks but as systemic failures with long-term implications, Nike—and its peers—may find themselves under sustained pressure to reform.

The challenge is translating investor concern into durable governance mechanisms. Until ESG policies adopt binding human rights criteria and investors actively engage beyond annual meetings, the leverage they hold will remain underutilised.

The most glaring lesson from the Nike controversy is that voluntary measures are not enough. The future of ethical supply chains depends on legally binding agreements that obligate brands to uphold labour rights across their production ecosystems—including at sub-contracted and outsourced sites.

The Accord on Fire and Building Safety in Bangladesh is the most cited example of what binding agreements can achieve. Developed in response to the Rana Plaza disaster, the Accord has legally mandated brand responsibility, independent inspections, and worker participation—all of which led to demonstrable safety improvements in thousands of factories. While it focused on building safety, its success offers a roadmap for broader labour protections.

There is no equivalent binding mechanism in place for wage theft or severance violations. The Pay Your Workers campaign, led by Clean Clothes Campaign, Worker Rights Consortium, and others, aims to address this gap. It calls on brands like Nike to sign enforceable agreements that commit them to a global severance guarantee fund and mandatory wage restitution protocols.

Nike’s failure to sign such an agreement, even as it spends billions on marketing and high-profile athlete endorsements, sends a clear message about corporate priorities. According to Clean Clothes Campaign, Nike spent over US$ 3 billion on marketing in the lead-up to the Paris 2024 Olympics. In contrast, the total unpaid wages in dispute amount to less than 0.1% of that budget. This disparity underscores the moral absurdity of a system that rewards image over substance.

Without binding frameworks, supply chains will continue to operate on a model of plausible deniability and race-to-the-bottom pricing. Workers will remain at the mercy of opaque subcontracting arrangements, and brands will continue to externalise the social costs of their business models.

Legal mandates are beginning to catch up. The European Union’s forthcoming Corporate Sustainability Due Diligence Directive (CSDDD) and Germany’s Supply Chain Due Diligence Act are early signals of a regulatory shift. These laws require companies to actively prevent and mitigate human rights abuses throughout their supply chains, with potential penalties for non-compliance. But global brands like Nike operate in jurisdictions far beyond the reach of European regulators. The onus, therefore, is on multilateral action and transnational enforcement.

In conclusion, the Nike case should not be treated as an isolated scandal but as a structural failing that demands structural reform. Without enforceable standards, empowered worker representation, and legal accountability, the cycle of exploitation will persist—repackaged each time with a new corporate excuse.