Nike: CEO Selections Mirror Boardroom Mood

In October 2019, when Nike board member John Donahoe was named CEO, the company was running on all cylinders.? With Nike shares at an all-time high, here’s how then CEO, Mark Parker put things in the company’s most recent earnings release:

“Our strong start to FY20 highlighted the depth and balance of NIKE’s complete offense…NIKE’s strong product innovation, combined with our industry-leading digital experiences, continue to deepen our consumer relationships around the world.”

In “complete offense” mode, Nike leadership was in the Comfort Zone – intensely certain and in full control of the company’s future.? The goal was simple – sell more to more people in more places, especially direct-to-consumer, where the company saw its biggest opportunity.

With that, John Donahoe seemed like the perfect candidate to replace Parker. ?With “expertise in digital commerce, technology, global strategy and leadership combined with his strong relationship with the brand,” Donahoe was “ideally suited to accelerate [Nike’s] digital transformation and to build on the positive impact of [the company’s] Consumer Direct Offense.”

When COVID hit eighteen months later, the company’s direct-to-consumer efforts paid off in spades.? With Nike shares at an all-time high – and double in value from where they were when Donahoe was first named – confidence was soaring when the company released its earnings report in September 2021.

Here’s how management framed things:

“NIKE’s strong results this quarter are continued proof of our deep consumer connections, unrelenting innovation pipeline and a digital advantage that fuels our brand momentum,” said John Donahoe, President and CEO, NIKE, Inc. “We have the right playbook to navigate macroeconomic dynamics, as we create value through our relentless drive to fuel the future of sport.” First Quarter revenues increased 12 percent, on a currency-neutral basis, with growth across all channels, led by NIKE Direct growth of 25 percent. Contributing to NIKE Direct growth was the steady normalization of owned physical retail, which grew 24 percent, exceeding pre-pandemic levels from the first quarter of fiscal 2020. NIKE Brand Digital business continued strong growth, increasing by 25 percent, led by North America growth of 43 percent. “NIKE is a growth company with a market opportunity as large as it's ever been,” said Matt Friend, Executive Vice President and Chief Financial Officer, NIKE, Inc. “Our Q1 results illustrate how NIKE’s Consumer Direct Acceleration strategy continues to fuel growth and transform our long-term financial model.”

If John Donahoe had stepped down then as CEO, I suspect his reputation would be very different from the one he has today.? Donahoe had done exactly what he had been hired to do.? Moreover, the company’s direct-to-consumer effort was the perfect business model for a pandemic.? In the fall of 2021, John Donahoe was a rock star.

The Nike stock chart above tells a very different post-2021 story for both Donahoe and the company.? So much so, that this week, he “retired,” replaced by “long-time Nike veteran” Elliott Hill.? Here’s how now Executive Chairman Mark Parker framed the selection of Hill - the one-time head of all commercial and marketing operations for Nike and Jordan Brand.

Given our needs for the future, the past performance of the business, and after conducting a thoughtful succession process, the Board concluded it was clear Elliott’s global expertise, leadership style, and deep understanding of our industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, make him the right person to lead Nike’s next stage of growth.

In the Stress Center with its stock languishing and activist investors at the door, once again, a major U.S. corporation has boomeranged a former business lead back into the C-suite. ?Like Hollywood executives with movie sequels, corporate boards know that when confidence is low, a proven track record and familiarity win.

Over the coming years, we will all see whether Hill lives up to current expectations, but there are clear lessons to be learned from the selection of both Donahoe and Hill.

Just like the rest of us, boards make decisions based on how they feel and the future they imagine arising from those feelings.? They hire new business leaders based on how they see those leaders faring ahead and their ability to address the obvious vulnerabilities of the organization.? Moreover, if you look closely at the hiring announcements, boards are clear about the skills they believe are crucial in doing so.? In Mr. Donahoe, the Nike board sought someone who could accelerate the company’s growth in the direct-to-the-consumer channel.? With Mr. Hill, they went with a nostalgic want for the good old days and someone to make Nike great again.? ?In both cases, the picks precisely mirrored where the board was on “The Confidence Map” when they made their selection (in the Comfort Zone and Stress Center, respectively).

What the Nike board missed with its selection of Mr. Donahoe was how high up in the Comfort Zone the company already was.? In “complete offense” mode, the company unknowingly signaled that it was rapidly approaching the upper right corner of the Comfort Zone.? Nike felt like it was invulnerable and acted like it.

While Mr. Donahoe may have been the perfect fit for that moment, it was clear that the moment wouldn’t last.? And here it is worth highlighting his shortcomings in a downturn: he was an accelerator; he was an outsider; and he was a consultant by background and training.? While great skills for an organization in the Comfort Zone moving up and to the right, they aren’t what is needed in more challenging times.? Whether the Nike board realized it or not, Mr. Donahoe was on borrowed time.? So long as confidence continued to rise, he would be safe; but he would be especially vulnerable when things turned down.

It is also worth pointing out that with former Nike CEO Mark Parker in the Executive Chairman role, Donahoe was vulnerable in other ways, too.? While Donahoe had the title of CEO, it is highly likely that true leadership control continued (and dare I suggest continues) to rest with Parker.?

Here, the parallels to Starbucks are worth considering.? In a downturn, recently hired CEOs don’t stand a chance with long-time leaders/founders in the wings.? (And it’s not just Starbucks.? Stephanie Linnartz arrived at Under Armour with similar fanfare as Donahoe and was gone in less than a year replaced by Founder and Executive Chairman Kevin Plank.)

There is another important parallel with Starbucks to consider, too.? In response to COVID, both companies moved their businesses from the Passenger Seat to the Launch Pad.? They went from experience brands, as it were, to grab and go.? As both companies are now witnessing, it is hard to operate in both boxes at the same time, where one client demands extreme control while the other demands extreme certainty.? How both brands resolve this conflict will be interesting to see.? Successful brands aren’t all things to all people.

With respect to Mr. Hill, his future, like the future of all CEOs, will depend on where confidence goes from here and whether his skills fit with that direction.? If this summer’s CEO swap marked the low, it is likely that the board will grow impatient with safe hands leadership.? More aggressive risk taking, dare I suggest acceleration, will be back on the table.

On the other hand, if confidence continues to fall, Mr. Hill’s deep understanding of the company’s past will serve him well.? “Just do it like we did in the past” could quickly become not only an internal operating mantra, but an important marketing message as the company focuses more and more on Nike nostalgia to carry it through.

Either way, as boards consider new CEO candidates, they would be wise to appreciate the ever-changing confidence backdrop of their own organization.? While planning for what they currently imagine is ahead may be helpful, being prepared for what they can’t is likely to be far more important.

Peter Atwater is the author of The Confidence Map: Charting a Path from Chaos to Clarity and an adjunct lecture in Economics where he studies the impact of confidence on individual and group decision-making.