Can Nike Still Do It Without Phil Knight?
Now that Knight has stepped down, it's up to new CEO Bill Perez to channel one of the most inscrutable, contradictory, and inspirational leaders around.
(FORTUNE Magazine) – I had been warned that the interview would be a crapshoot. On some days Phil Knight opens up; on others he barely says a word. I got lucky. On this gray January morning the founder of Nike was willing to talk. Perhaps Knight felt nostalgic: He had just finished his last official day as CEO of the company he had built from scratch some 40 years earlier, and this was his first--and so far only--extensive interview. Or perhaps he just wanted to talk. No one ever really knows with Knight; they just take what they can get. Tinker Hatfield, a 24-year Nike veteran, told me that when he goes to Knight with a question, sometimes Knight doesn't even answer. (Tinker says he simply treats that as a yes.) Whatever the reason, Knight happily ruminated on the highs and lows of his career; he reminisced about the joys of building his company, about the hunt for a successor, about the athletes he had signed--good and bad--and about the people he had managed--well and not so well. He talked, haltingly, about the death of his son last May. Knight, famous for wearing his sunglasses just about everywhere--even inside the buildings on Nike's 176-acre campus in Beaverton, Ore.--kept the Nike shades off, though they were always within his reach on the table in the small conference room.
There was only one question that got shot down, and it came as we were wrapping up. "May I see your office?" I asked. Knight didn't speak; he simply shook his head. "You don't want to show it?" Again, he shook his head. It wasn't a surprise. Few employees, let alone an outsider, have ever been in Knight's office. One executive who works closely with Knight told me he hadn't been in there in almost a decade. The only thing that anyone seems to know about the sanctum is that Knight fashioned it in a Japanese style. So Japanese, in fact, that inside the office of the man who controls the most powerful shoe company in the world, no shoes are allowed. Not even Nikes.
Knight has always been one of the oddest of the FORTUNE 500 CEOs, a man who seems to embody exactly the opposite of what his creation extols. Hidden behind those sunglasses, he's an inscrutable presence in a company that mastered making multimillionaire athletes seem accessible. He's an introvert who loves attending big sporting events, an accountant by training in a company that values great salespeople and designers, an advertising pioneer who introduced himself to his ad agency with "I'm Phil Knight, and I don't believe in advertising."
And yet in spite of--or because of--those quirks, he has created a company that most any other CEO would drool over. Just check the scorecard (and at Nike a sports analogy is never far from anyone's lips): In the past four years the company has grown from $9.5 billion to what is expected to become a nearly $14 billion design and marketing machine by its year-end this May. About 40% of all branded athletic footwear sold in the U.S. is made by Nike; the next-biggest player is Reebok, at 13%. With Nike's stock at a recent $87--up 75% in the past two years--its $23 billion market cap is more than three times that of Adidas, the No. 2 seller of sneakers in the world. An investor who bet $1,000 on this odd company with the droopy check-mark logo when it went public in 1980 (and reinvested dividends) would now be holding $64,000. Knight's own stock--he controls 27% of the company--is worth $6.2 billion, making him one of the richest men in the world.
But now Nike finds itself at a major crossroads. Knight has ceded the reins to Bill Perez, the former CEO of consumer-goods company S.C. Johnson, just as Nike's growth seems hard to sustain. With the U.S. market for high-end athletic footwear now mature, Perez will have to find new markets to tackle (see box). What's more, he comes in knowing that Knight has stepped back from active supervision of the company twice before. Both times the company has foundered, forcing him to return. If Perez wants Knight's retirement to be permanent this time--and he does--he's got his job cut out for him.
The hardest part isn't the business challenge; Perez has built S.C. Johnson's multiple brands over the years and sold them around the globe, and at Nike he has a deep bench to rely on. Instead, it's the management challenge. The ultimate delegator, Knight has bred legions of executives who have interpreted his silences and nods as freedom to do their own thing and take the company in new directions. One competitor likens Nike's internal structure to the Winchester Mystery House, the Victorian mansion in San Jose loaded with staircases to nowhere, false passageways, and doors that open on walls. "Basically I started selling Tiger shoes in 1964, so it's been 40 years that the company has grown around my idiosyncrasies," says Knight. "They don't even know that they're idiosyncrasies anymore, and of course neither do I." If Perez is to succeed at growing Nike and steering it into new areas, he'll first have to learn what makes Nike tick. And that means figuring out what exactly makes its founder--whose management tools will never be taught in Management 101--so successful.
"What the hell is this?" asks Knight, grabbing Tinker Hatfield's brown imitation-suede jacket by the zipper. Hatfield holds the title of vice president of special projects, and he's revered inside the company as the designer of multiple Air Jordans. He and I are sharing a booth in the Boston Deli, the sports-bar-cum-cafeteria in Nike's Joan Benoit Samuelson Building, named after the runner who took gold in the first Olympic women's marathon in 1984.
"It's a Jordan jacket!" says Hatfield, flashing it open to show a lining bearing a collage of images from Michael Jordan's career.
"Is it one of a kind?" asks Knight.
"No, no. They're going to sell these."
With that, Knight laughs and walks off. Tinker takes the ribbing in stride. For one, Knight--despite his position at the top of this apparel company--is far from a sartorial role model. On this day he's wearing a T-shirt covered by a stained pinstriped blazer, too-long jeans, and a pair of beat-up Cole Haans (a brand that Nike owns). His pale blond hair is so unruly that it looks as if he has just come in from running sprints. In a hurricane. The other reason Tinker isn't fazed by Knight's jokes or general cluelessness about the product is that Knight is not the kind of CEO who has ever made it his place to know everything going on in the company.
What Knight actually does every day in his role managing Nike, in fact, is mostly a mystery. When employees tell stories about him, they call him a father figure, a leader, a visionary. Howard White, the VP of the Jordan brand, calls him a genius. Yet when I ask for specifics--about what exactly Knight did or said to help Nike out of a jam, to inspire them, or to come up with some big idea--the talk turns hazy. At any major turning point for Nike, it's as if there's a Knight-shaped hole in the room--he's there, but doing what?
Even people who work with him most closely are often unable to come up with answers. Mark Parker and Charlie Denson are the co-presidents of the Nike brand and have both worked at the company since 1979, Parker starting in design and Denson in retail. I asked Denson how often he met with Knight during the past few years. "Once a week," he says. Then he pauses. "And we probably did that twice a month." To Parker, that's part of Knight's genius: He gives his people freedom to breathe. "I wouldn't call him a directive CEO in terms of 'Hey, we should be doing this, that, or this other thing,'" says Parker. Indeed, Parker says that when PowerPoint presentations are passed around or market data is discussed, Knight "sort of checks out." Parker also tells a story about visiting one of Wal-Mart's famous Saturday-morning meetings with Knight. As Lee Scott, Wal-Mart's CEO, ran through just about every detail of his company's operations, Parker turned to Knight and said, "It's a little different [here]." To which Knight replied: "You're damn right!"
If Nike were simply surfing a decades-long sports boom, it would be possible to argue that Knight is the luckiest entrepreneur alive: He found a market and rode it. Case closed. But it's not that simple. The company has survived periods of intense growth and others of retreat, in which Wall Street, the press, and competitors assumed that its best days were behind it. But Knight managed to right the ship each time. And he did it by acting against his nature. Knight is not a people person in anyone's book. And yet he manages to do three things better than just about anyone in the business: hire good people, shuffle them around, and inspire them.
Knight's story starts with the latter. At the University of Oregon in the 1950s, he was an accounting major, but more important, he was a middle-distance runner on the outstanding track team coached by Bill Bowerman. Bowerman at the time was already legendary for his toughness and dedication; he regularly cobbled his own running shoes at home and gave them to the team. When Knight graduated he kept thinking about better shoes. At Stanford Business School he wrote a paper arguing that there might be a good business in importing and selling Japanese running shoes in the U.S., where most runners wore expensive German-made Adidases or Pumas. In 1962, Knight took a trip to Japan and persuaded the company that made Tiger shoes--now known as Asics--to make him its first U.S. distributor. He invented the name of the new company on the spot--Blue Ribbon Sports--and on his return signed Bowerman as his co-founder.
In the early years Knight kept day jobs, first as a CPA with Price Waterhouse, then as an accounting professor at Portland State. He also started to develop the management style that would define his reign over the next 40 years: finding people who cared about the product and letting them handle the details. He dealt with finance, Bowerman designed shoes, and the first employee, Jeff Johnson, managed the company's retail store in Santa Monica, creating ads and stationery on his own and rarely communicating with Knight. Another early employee (and Knight's former student) was Penny Parks, who helped keep the company's books. Knight started dating her when she was 19 and he was 30. They married in 1968 and quickly had the first of three children.
Then Knight started an empire. When, in 1971, his Japanese supplier tried to take over his business, Knight broke away. He paid a local graphic artist $35 to come up with the swoosh, worked out a deal with a supplier, and named the new brand Nike after the Greek goddess of victory--a name Johnson had literally dreamed up one night. Knight was now taking on entrenched brands, and he kept the company thinking like an underdog. He hired people he liked hanging out with: Nike's early management meetings were rowdy, drunken affairs known internally as "buttfaces." When fights broke out among his men--and they were mostly men--Knight would rarely interrupt. He liked to see the passion. He was equally hands-off about direction: "Sell shoes," Knight told Rob Strasser, one of his top lieutenants, when he sent him to start a European division in 1981, according to Swoosh, the unauthorized account of Nike's early days, written by Strasser's wife and sister-in-law. It was easy then: Running was hot, sneakers were a fashion item, and Nike made the ones everyone wanted.
Knight figured he could easily leave the company in the hands of others for a while. "I'm splitting from this turkey farm," he told longtime employee Bob Woodell in the spring of 1983 before taking an extended trip through China. "I want you to be president." Within months, the jogging craze ebbed and the aerobics craze began. Nike pooh-poohed the trend and kept focused on running and basketball. Mistake. Upstart Reebok snagged the new market, and Nike's U.S. revenues dropped 6% in two years, to $730 million in 1985. Knight realized he had the wrong management in place. In the fall of 1984 he returned and took over from Woodell. Over the next few years most of Knight's earliest employees, including Woodell, left, many feeling they had been frozen out. Others were hit by Black Friday, the December 1986 day when Nike laid off 10% of its U.S. employees. By 1988, Knight noted in his letter to shareholders, "all of the vice presidents listed on the 1981 annual report have left." He set out to rebuild the company with a new team.
It worked. By mid-1997, Nike had become a giant, controlling over 40% of the U.S. footwear market--and Knight was spending less and less time at Nike's Oregon campus. Tom Clarke, a longtime product developer who had been president since 1994, found himself running the company. Why did Knight check out again? He won't say, and people in the company say only that he was spending more time attending sporting events. Soon Nike hit the rocks. It failed to spot the slowing of demand for $100-plus sneakers among U.S. consumers, got caught in the Asian economic meltdown, and reacted slowly as college kids switched from sporting Nikes to accusing the company of running sweatshops. Revenues, which had more than doubled to $9.2 billion between 1994 and 1997, stagnated, slipping to $9 billion in 2000.
By 1999, Knight was back; in May 2000 he shunted Clarke off to head up new business ventures and retook the role of president himself. He revived the company not by rolling up his sleeves and building shoe molds in the design lab, nor by dreaming up new ads or slogans. Instead Knight did what he does best: find and motivate talented people, then let them do their thing. He brought in outsiders, stars like Mindy Grossman from Ralph Lauren to run apparel, Don Blair from Pepsi to be the CFO, and Mary Kate Buckley from Disney to head up new ventures.
He didn't leave longtime executives completely alone, however. He liked to shuffle them around. That habit created what Nike calls its "matrix": the accidental internal structure that forces people to answer to more than one boss. For example, a basketball-shoe marketer reports not just to the head of basketball but also to the heads of U.S. marketing and overall footwear--and, more informally, to anyone who wants to weigh in. As Knight moved executives here and there, someone who was a boss one day could find himself a subordinate to his former charges the next. Rotating titles meant there might be half-a-dozen people in the company who had served in any one position, giving them license to critique the performance of the newcomer. In this setup employees learn quickly that the only way to get things done is to come up with ideas and build alliances. Brashly making demands won't get you far.
And forget trying to work a backdoor to Knight. His reluctance to take a stand is well known. Knight puts people in positions to make decisions, not to come to him. Anytime his hand is forced, he likes to hedge by using a standard disclaimer: "I reserve the right to change my mind tomorrow." Says Don Murray, a management consultant in Eugene, Ore., who has worked closely with Knight and Nike for a dozen years: "People who don't get the culture don't stick around very long. They know they don't fit. That's it."
In the wrong hands this management style--can it even be called that?--could easily lead to chaos. Twenty-five thousand employees selecting their jobs, answering to multiple bosses, and taking cues from a quiet, distant guy at the top seems a sure recipe for entropy. But it isn't. And that gets back to Knight's ability to inspire, to successfully tap into athletes' desire to strive for something higher--to satisfy not just themselves but fans, coaches, teammates. He does it by bringing in heroes.
This is not as corny as it sounds. Nowhere does the study, the worship, of heroes have as much resonance as in sports. And Nike is teeming with employees who played at elite competitive levels. Parker ran cross-country at Penn State; Denson was a free safety and defensive back for Utah State; the VP of communications and the VP of global footwear played college hoops; the global director of basketball played football at Stanford; the global director of football played in the NFL. Enrique Washington, a former Nike recruiter (and an 800-meter runner at Seton Hall), says that the company didn't always look for athletes, but having the athlete's drive and mindset was a must. "Most people had some passion in basketball or running. It helps with the message--not necessarily to be an athlete, but to embrace it," says Washington, now a partner at recruiting firm Generator Group in Portland. These are people who grew up with posters over their beds of the best in their fields. At Nike's college-style campus--whose outdoor passageways Knight has lined with plaques commemorating the likes of linebacker Lawrence Taylor and Welsh footballer Ian Rush, and whose buildings he has named after such greats as Tiger Woods and Nolan Ryan--they feel right at home.
But to remember the most important person they're working for, all anyone has to do is glance at the name of the road that leads into the empire: Bowerman Drive. There is no one more important to Knight--and subsequently to Nike--than Bill Bowerman. Knight turned his coach, who never played any sort of executive role after co-founding Nike, into everyone's coach. New employees at Nike get a book of maxims. No. 11 is "Remember the man." You can guess who that is. It's quite a legacy: Bowerman started America's running craze practically singlehandedly with his 1967 book Jogging, and in 1970 he invented Nike's famous waffle sole by pouring a liquid rubber compound into his wife's waffle iron.
Tough, relentless, the coach everyone wanted, Bowerman was the guy whom Nike people, including Knight, were working to please. "Maybe next to my parents I've been more influenced by him than by any other human being," says Knight. "I think about him from time to time, at odd moments. I remember walking out of a team meeting with Jimmy Grelle (a star runner on Oregon's exceptional team). He said, 'You look around that room, and you wouldn't think this would be one of the best track teams in the world, would you?' That was true. It was just guys. But [Bowerman] really did get in your mind that you could be the best in the world."
When Bowerman died in 1999 at the age of 88, his stature at Nike only grew. In this decentralized company, where self-managing is the best way forward, Bowerman is a god, and Knight is the self-anointed priest channeling his words. Liz Dolan, former VP of global marketing, once approached Knight for some help on a complicated problem. Instead of giving suggestions, Knight offered up a Talmudic tale: Once during college he had asked Bowerman for some advice in improving his running times. Bowerman replied, "Triple your speed." "That's the kind of advice you get from Phil," says Dolan, now a host of the Satellite Sisterssyndicatedradio show. "He is less likely to sit down and break it down for you. He believes you can figure it out.... He focuses more on talking to you one-on-one to get the best out of you rather than setting corporate strategy per se."
Though he detests public speaking--"I still get real nervous when I go in front of more than two people," he says--Knight drops in like a corporate Knute Rockne to give pep talks when his company needs them most. When he speaks he sends shivers through the crowd. And what Knight talks about is the company, the people who started it, the trials and successes, the internal heroes. In early 1999, when he returned from his year-plus absence to turn the company around, he called an all- employee meeting. As more than 1,500 people packed the basketball courts on the third floor of Nike's Bo Jackson Fitness Center, Knight reminded them of the company's heritage, explained that they had been down before but had come back, and said that it was time to "elevate their game." At the end he apologized for being gone, and he started to choke up.
"I'll never forget that speech," says Andrew Black, former general manager of Nike's U.S. equipment business and now the CEO of Virgin Mobile Canada. "He inspired you to such a level that you just knew you wanted to do more for him than you were doing before. He challenged us all to really get focused. He's the kind of leader--you can hear a pin drop when he speaks. He had the whole place giving him a standing ovation for quite a while when he finished."
If this company is able to run itself so well on autopilot--or at least with the pilot only lightly manning the controls--then what would make Knight step down? Certainly not the board: His ownership stake sees to that. But Knight realized that Nike needs inspiration to succeed, says a recruiter involved with the process--and that he won't have the energy to provide it forever. To hear Knight tell it, it was a decision based purely on logic: "The focus wasn't me," he explains. "The focus was what's best for the company. And obviously, man is mortal, so basically we're going to have a new CEO someday, and when is that time? I was getting into my 60s when I started looking around saying, 'What do we do?'"
Those who work closely with him say the decision was much harder. Knight is known more for wearing his emotions on his rumpled sleeve--Parker says over the years he's seen Knight cry "countless times" when inspired by an athlete or employee--than for taking an actuary's approach to business. And this was no easy call. "It's a tough process, and it took Phil some time," says Ralph DeNunzio, former CEO of Kidder Peabody and a Nike director. "He knows it's the right thing to do." Adds Parker: "This has been torturous for him."
Knight started the search in 2001, but his early steps were tentative at best. At the beginning all he wanted was an executive VP, maybe a chief operating officer, who, if things worked out, would possibly step into the CEO slot. He told Gerry Roche, the senior chairman of search firm Heidrick & Struggles, to find him that person. Then, in typical Knight form, he left the details to others. Roche combed through candidates, with director DeNunzio flunking about half before their names even got to Knight. About 18 months ago Roche told Knight that he had to make this a CEO search; there was no way to get the best candidates otherwise. It was time for Knight to face the fact that he'd have to give up the title, the office, everything.
Now came the hard part. What the search committee wanted was someone who wouldn't try to fix a company that was working. They wanted a Knight-plus: someone who would fit into the culture, not try to change it; someone who would keep honoring the Founding Fathers of Nike, not govern by numbers; someone with passion. And yet they also needed someone with skills that folks already at Nike didn't have, such as the ability to manage multiple brands--otherwise why go outside? They also needed a CEO who could relate to competitive sports--and even better, participate seriously in them. One candidate was about to be handed to DeNunzio until Roche tossed off the question: What do you do on Saturdays when not working? Play golf? Tennis? The candidate replied that he did store checks. Do you play anything? asked Roche. The reply: I'm big on bridge, and I do store checks. "He's a good person but didn't make the cut," says Roche. The search kept on at its leisurely pace.
Last May, though, that all changed. Knight's oldest son, Matthew, was scuba diving in El Salvador, visiting the country on a mission for the charity he worked for, when his equipment malfunctioned. The 34-year-old died in the waters of Lake Ilopango, leaving behind a wife and two sons. Knight and his wife, Penny, were devastated. In a note to his staff, Knight told them that instead of sending him condolences, they should make a point of spending more time with their own families. "I wasn't a good enough manager, really, is what it comes down to," says Knight. "You have to manage your time [as a parent], and it's a pretty tough balance. It's a hard balance, and when the kid's not there anymore, you can't make up for it." Those working on the CEO search noticed an immediate change. "It made him realize that there is a clock running and a calendar running, and that life is unpredictable," says one person who asked to remain anonymous.
Knight took the summer off. Soon after he returned, the search committee decided it had a winner: the 57-year-old Perez. He was a marathon runner, but more important, he came from a company that had a similarly inward-looking culture. S.C. Johnson, which makes products like Windex and Raid, constantly holds itself up as a family company, revering the five generations of Johnsons who shaped it over the years. Perez knew what culture means--he had joined S.C. Johnson in 1970 and never left--and he knew how to manage multiple brands.
Perez and Knight met for the first time in February 2004 at a hotel in Palm Springs. The two spent an hour in a café outside drinking Diet Pepsis. Perez showed up in a sport coat and slacks, Knight in jeans and sandals. Both introverts, they spent a big chunk of the time talking sports. Later the topic turned to culture, at both Perez's shop and Knight's. "I looked at how he'd fit in," says Knight. "I looked at that very hard." On another meeting, when the two, along with Penny, flew to Los Angeles, Perez's introspective, almost shy personality made Penny remark that he reminded her of Phil. In late September, Knight met with Perez and his wife at their home in Racine, Wis., and flew back on Knight's private plane--with the certainty that Perez was it.
Finally, on Jan. 24, someone other than Knight got a good long look inside his office. Knight had already vacated it for his successor, boxing up the accumulated paraphernalia of 14 years in that particular space: the custom-crafted Nikes that propelled Michael Johnson to a gold medal in the 2000 Olympics, loads of University of Oregon and John McEnroe gear. His new home as chairman is in the Mia Hamm Building, two floors above what Nike calls its Innovation Kitchen--a secretive place, locked down to outsiders, where designers dream up the next new Air or Shox. It's a fitting location for Knight, who has worked in mystery and privacy to create the company that has come to dominate the world of sports so completely that it's hard to believe that basketball, running, football--any of it--existed without the Swoosh.
Not that he's finished working. The baton may be passed, but Knight, as chairman, is still going to be there, strolling around, dropping in on people and projects when he feels like it, and most important, staying in their minds, reminding them that if they have problems, all they need to do is triple their speed.