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Inside The Coup At Nike


From the time Nike founder and Chairman Philip H. Knight anointed William D. Perez as his successor in November, 2004, the two men had a regularly scheduled meeting on Monday mornings at 9. The get-togethers had been Knight's idea. They gave CEO Perez, a surprise choice who had previously held the top post at S.C. Johnson & Son Inc., the manufacturer of Glade air fresheners and Drano, an informal forum for bouncing ideas off the legendary figure who all but personified the company.

When Knight took a seat at the round conference table in Perez' office on Jan. 9, it seemed like any other mundane Monday meeting. The discussion methodically progressed through several unremarkable issues, Perez says. But Knight was saving a bombshell for last. Abruptly declaring that Perez had failed to mesh with the rest of the Nike team, Knight told him it was time to go. Perez was stunned. "He caught me off guard," he said in an extensive interview with BusinessWeek. Knight declined to comment on the details of Perez's account. "I and the Board decided that the company could be better managed with a proven, seasoned industry veteran," he said.

BAD CHAPTER

Perez says he asked Knight for a few days to absorb the news and prepare his family for upheaval. He also asked the board for an opportunity to appeal the decision and was granted a 15-minute audience on Jan. 18. But on Jan. 20 the board sided with the company's largest shareholder and approved Knight's recommendation to name Nike veteran and co-President Mark Parker as chief executive. "He will become the best CEO this company has ever had," Knight crowed in a Jan. 23 conference call.

No amount of corporate spin can conceal one of the worst chapters in the history of Nike Inc. (NKE). It marks the third time the mercurial Knight, 67, has tried giving up his throne.

Nike's leader and board members have long acknowledged that the company's top strategic priority is managing succession. But despite the company's hip image and record performance this year, it's hard to imagine they'll have much luck enticing strong outside candidates to consider joining the company in the near future. "It's almost like a death wish coming into that company from outside," says Stephanie R. Joseph, president of the Directors' Network Inc., which runs workshops and seminars for board members.

That perception could become problematic because Knight and the board, when they hired Perez, acknowledged the insular company's need for fresh blood. Knight also recognized Nike's reputation as a difficult place for transplants to thrive and promised to go out of his way to make Perez feel at home. "There will be a little bit of a bumpy period," Knight told BusinessWeek a month after he hired Perez, but "I'm committed to making it work."

The fact that Perez failed, despite Knight's stated intentions, underscores how hard it is for new CEOs to fill the shoes of charismatic corporate founders whose personality and ego are closely tied to their companies. History is full of examples of legendary leaders who, because of their own shortcomings or problems with their successors, had trouble handing over the reins. In Perez' view, Knight's name belongs near the top of this list. "From virtually the day I arrived, Phil was as engaged in the company as he ever was," Perez said. "He was talking to my direct reports. It was confusing for the people and frustrating for me."

DEFT JUGGLER

The wounds are still raw for the man who just got dumped from one of the most glamorous jobs in American business. He retreated to his second home in Naples, Fla., immediately after the dismissal. "It's been very tough on my family," said Perez, 58, noting that his wife had left a job she loved as a high school Spanish teacher in Racine, Wis., when he took the Nike post. He added that Knight "piled it on in the media" after the news was announced.

So why did Knight even hire Perez? Because he wanted someone with strong financial and managerial discipline and a track record overseeing the growth of a profitable consumer-products company. In running S.C. Johnson, Perez had deftly juggled the managing of multiple brands in multiple countries. Knight and the board took more than a year searching for the right candidate. After reading 75 résumés, conducting 15 interviews, and meeting extensively with three or four final candidates, Knight picked Perez, a self-described introvert with a quiet, analytic bearing.

Hoping to give his successor sufficient time to understand Nike's $11 billion global sneaker and apparel business, Knight put nothing on Perez' plate during the first six months. His sole job was to travel, listen to employees, and meet business partners. The honeymoon ended, says Perez, as soon as he began to assert his leadership. He triggered a widespread staff revolt, one that he was never able to overcome, with his first big move: hiring Boston Consulting Group to help him conduct a sweeping review of the company's strategies and practices.

The study required managers to spend two hours responding to a detailed survey. "Perez started asking questions of 20-to-30-year veterans that have never been asked before," says one Nike manager. "Surveys are not Nike's specialty. It's not Nike's culture."

The consultants had two goals: figuring out how to control the double-digit rise in operating expenses and examining whether Nike had the right growth strategy in place. Almost all of their ultimate recommendations hit longtime staffers, quite a few of whom came from rival firms McKinsey & Co. and Bain & Co., like bombshells. Boston Consulting proposed boosting sales by, among other things, opening outlet stores -- a move that the image-obsessed Nike team feared would degrade the value of the brand. The firm wanted to cut costs by outsourcing day care, janitorial, and security services. "The intent was to raise awareness in the company to control operating expenses," Perez said. "I was trying to accelerate the pace, but most of my resistance came from Phil."

Knight and Perez also clashed over a highly charged political battle between the company and the city of Beaverton, Ore., which was trying to annex the Nike campus against the company's wishes. This summer, a friendly state legislature stopped the city from its annexation claim and gave Nike its independence for another 35 years before the issue would be reviewed again. "I thought that was fine," Perez says. "But not Phil. He wanted to sue Beaverton. I thought that was a bad idea because it would have created ill will with the public and with the lawmakers that had helped us out." But what rankled Perez even more was the larger question: Why was Knight even devoting any time to such a minor issue?

Perez, who came from a consumer-product marketing background, says he sometimes wondered if Nike's famously creative, irreverent advertising was actually conveying relevant messages about the product. The first commercial he saw was a 30-second spot aimed at last year's NCAA basketball tournament. The commercial showed ants crawling onto the basketball court. After 28 seconds, a voice would say "Nike basketball." His concern: The ad explained nothing about the product, and it had minimal brand presence. "I came from a rational world of communications," Perez said.

Nike insiders, meanwhile, were developing a parallel set of concerns about Perez. "He didn't have an intuitive sense of Nike as a brand," said one of them. "He relied more on the spreadsheet, analytical approach as opposed to having a good creative marketing sense."

In the end, Knight said that he could tolerate only so much friction. "I think the failure to really kind of get his arms around this company and this industry led to confusion on behalf of the management team," he said at the Jan. 23 press conference. In a later interview with BusinessWeek, Knight claimed to have learned from the misadventure. "Communication is huge, and I didn't know that would be as big of an issue with Bill," Knight said. "There is no question communication between Mark Parker and me will be better than between me and Bill." That's probably true. It's hard to see how the dialogue between Knight and Perez could have been much worse.

By Stanley Holmes, with Jena McGregor in New York


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