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Responding to charges that it exploits workers in its Asian factories, sports apparel giant Nike announced a series of changes in its labor practices. Following a background report, Phil Ponce talks with Nike CEO Phil Knight about the company's new policy. Also, continue the discussion in an Online Forum with Mr. Phil Knight.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: May 13, 1998: A background report on Nike's labor practices. Online Forum Nike CEO Phillip Knight takes your questions. February 3, 1998: Exploring the impact of Asia's economic crisis on the U.S. April 14, 1997: President Clinton announces efforts to eliminate sweatshops worldwide. July 16, 1996: A discussion on sweatshops, both here and abroad. Browse the NewsHour's coverage of business economy and Asia. OUTSIDE LINKS Nike's page on labor practices. The National Labor Committee, an advocacy group for worker rights.

PHIL PONCE: And with us now is Nike chairman and CEO, Philip Knight. Welcome, Mr. Knight. By the way, in our setup piece I think we mentioned Thailand. We meant to say Indonesia. Mr. Knight, how do you respond to what we just heard, that this--these set of proposals are basically a response to pressure?

Responding to pressure?

PHILIP KNIGHT, Chairman & CEO, Nike: Well, I think two ways. I think that since Nike began 26 years ago, we've always tried to do the right thing, including have the best shoe factories that we could possibly get and have the best conditions for the workers in any shoe factories any place. I think that--but it is true, I think, that probably criticism has probably sped up some of our efforts, and I'd say there's probably about a 10 percent impact that's been created by that.

PHIL PONCE: Some of your critics are making the point that in the past Nike has been very reluctant to admit any mistakes, any wrongdoing, any problems, and that these set of proposals basically reflect an acknowledgment that you have made mistakes.

The mistake of not being perfect.

PHILIP KNIGHT: Well, we've made mistakes in the sense that we haven't been perfect. And the critics have found anecdotes and incidents which I don't think characterized what Nike factories really were. But rather than spend our time looking at that and trying to defend those things. We've asked ourselves what does the 21st century shoe or apparel factory look like, and I think the six steps that we took yesterday really kind of reflected our thinking on that and I really think raised the bar for our industry.

PHIL PONCE: By the way, those steps--these employees that are affected are technically not Nike employees, they're employees of subcontractors.

PHILIP KNIGHT: That's right.

PHIL PONCE: But yesterday in Washington you said basically that you accept responsibility for the conditions under which they work.

PHILIP KNIGHT: No question. And we really look at it as more than just a subcontracting relationship, that it's really a partnership not in the legal sense but in the moral sense, with the Asian factories.

PHIL PONCE: Mr. Knight, some of the critics today are pointing out that while the steps that you took are worthwhile and important, first ones that the main topic that you didn't address is the question of wages, and they point out that many workers make under $2 a day. Why didn't you address the question of wages?

The issue of wages.

PHILIP KNIGHT: Well, first of all, I think that Nike critics is basically a growth industry and has been growing quite steadily for the last couple of years, and they have sort of their own reasons for the business that they're in, but we really didn't change our policy yesterday on wages, which is that we will pay no less than minimum wage in any country that we operate in and essentially wages get periodically reviewed, and just on April 1st, we raised wages 15 percent at the entry level in all our Indonesian factories, which is not 15 percent above the minimum wage. I think the studies conducted by Dartmouth and by the World Bank and by CARE have indicated that workers in Nike shoe factories can not only sustain themselves but save a substantial part of their weekly wages.

PHIL PONCE: And with that 15 percent increase in Indonesia, in dollar terms, what does that amount to?

PHILIP KNIGHT: Well, I'm not sure. Basically, as you know, the dollar relationship to the rupiah has changed radically, virtually on a daily basis. But our basic wage is about 200,000 rupiah a moth, which, again, is an amount that allows a worker to live comfortably and save an amount of money.

PHIL PONCE: Ballpark, you don't have to give me a specific figure, maybe you don't know, but is it still under $2--$2 a day?

PHILIP KNIGHT: It's been far above that in the dollar/rupiah exchange rate when it was at a rupiah high. I think right now it's at a low for a rupiah, and I don't know how far it's dipped, but, again, I think it's been substantially above that. And every time that the dollar/rupiah exchange rate changes, it really doesn't impact the worker's lifestyle, since most of his purchases basically are not only in rupiah but are in locally made goods, either housing or clothing or food.

PHIL PONCE: Mr. Knight, aside from the question of the minimum wage and fluctuations and currency net, do you comfortable that your workers are making a living wage?

PHILIP KNIGHT: Absolutely. No question about it.

PHIL PONCE: Hmm. Some--

PHILIP KNIGHT: Well, let me just tell you that basically in a factory, that when we sent Jill Conway and John Thompson out to look at a factory in Vietnam, they hoped to keep the visit a secret. John Thompson is, of course, the basketball coach at Georgetown. And Jill Conway was former president of Smith College, both of them on the board of directors. They found 300 people outside the factory waiting and they thought, oh, our visit's been tipped off. It wasn't. It was just a typical day of people lined up, hoping one of the workers in that factory would quit so that they could get that job.

PHIL PONCE: So when you hear critics say that the shoes that--the shoes are produced in Asia for $3 a pair, they're sold in the United States for in some cases more than $100 a pair, that Nike can afford to pay more, how do you respond to that?

PHILIP KNIGHT: Well, it's just totally and completely false. That statement has been printed twice in the Los Angeles Times, and it couldn't be more wrong. Nike's gross profit average is about 40 percent, which is an industry standard. We make our money not on our gross profit margin; we make our money on the volume of shoes we sell a year, which is about 175 million pair.

PHIL PONCE: As far as the age of the work force is concerned, your new proposal calls for what?

PHILIP KNIGHT: Minimum age of 18 in shoe factories and minimum wage of 16 in apparel and equipment factories.

PHIL PONCE: How will that be enforced, as far as the shoe factory workers are concerned?

Enforcing the changes.

PHILIP KNIGHT: Well, you know, essentially two ways, that basically we require some kind of proof, and then on top of that, that it gets audited by independent auditors.

PHIL PONCE: There are still--there will still be workers, according to your statement yesterday, though, that--who are still as young as 14, yes?

PHILIP KNIGHT: I don't--I don't believe that's correct, but I think that the minimum age is 16, is my understanding.

PHIL PONCE: As I understand--as I understood your statement yesterday, you indicated that in those places where the legal age is lower than the new age limit that you're setting, that those workers would allow--would be allowed to stay on the payroll.

PHILIP KNIGHT: Well, we'll certainly grant--particularly in the shoe industry--sort of grand-fathered people in--and the minimum age has been 16 in the past. Those people that are working are not going to get fired, but any new workers that are hired will be 18.

PHIL PONCE: Mr. Knight, can you say with confidence that children say under the age of 14 are not involved in the production of Nike products?

PHILIP KNIGHT: Absolutely. And I think that's always been true, that basically we have not had a problem with child labor. It has been in somewhat of a problem in the apparel industry, but it hasn't been a problem at Nike factories.

PHIL PONCE: Respond to the criticism that it's somehow unseemly to pay Michael Jordan and Tiger Woods millions and millions of dollars when the people who produce the products earn so little.

PHILIP KNIGHT: Well, that's a great sound bite, and it's resonated a bit, but I do think that basically it ignores the fact that basically Michael Jordan and Tiger Woods are really part of a very big advertising program, and the fact that they make so much money is because the markets have dictated that they get that money, and the fact that they endorse our products allows us to sell more products and create more jobs.

PHIL PONCE: How about the issue of physical abuse of workers, how are you monitoring that, making that doesn't happen?

PHILIP KNIGHT: Well, once again, I think you've got anecdotes, two of them, and specifically one where a woman manager hit 14 workers with a shoe upper, which is two pieces of leather, on the shoulder; another case where a woman manager ran her 14 workers around the factory floor a couple of times. And as bad as those incidents are, I'll point out that there's something like 530,000 workers in Nike shoe factories in Southeast Asia with literally billions of incidents a day and when you find two of them that basically embarrass you, it doesn't really characterize what goes on in those factories.

PHIL PONCE: And how do you respond to reports that really there are more than those two anecdotes? ESPN was in one of your factories last month, for example, and reported that something had taken place.

PHILIP KNIGHT: Yes. What a great story that was, that basically they claimed that one worker, you know, hit another worker and essentially we followed up and said, what are they talking about, and the actual matter, fact of the matter was it was two of the workers were quite good friends and one of them hit the other on the shoulders, as friends often do. But basically we found a lot of cases where media and critics really want to sensationalize this issue.

PHIL PONCE: Mr. Knight, why do you think your company has been such a target?

Answering the charges with "fact and truth."

PHILIP KNIGHT: Well, I think really it's--one, we're number one in our industry, but more than that, I think it's really kind of reflective of the emotion off the athletic field that resonates really with all Americans and to some extent the motion that our ads create really have been flipped against us by our critics and has created, as I indicated before, a lot of interesting sound bites, and essentially what we try to answer that with is fact and truth.

PHIL PONCE: Mr. Knight, thank you for being with us.

PHILIP KNIGHT: Thank you.

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