Governance and Sustainability at Nike Case Study Discussion The assignment itself is rather simple; Governance and Sustainability at Nike Case are written

Governance and Sustainability at Nike Case Study Discussion The assignment itself is rather simple; Governance and Sustainability at Nike Case are written so that the last couple pages strongly imply or explicitly state some issues or challenges facing the firm or decision maker. Identifying and addressing these is your task; you will simply write a report identifying and answering these questions. Part of the assignment is your determination as to what the most pressing issues/questions are that you should address.

In formulating and structuring your essay, you should identify and organize your paper around what you believe are the three biggest issues, problems, challenges, or opportunities raised in the case. What are these three? Why did you choose these three and not other possible choices? What specific recommendations do you offer for these issues? I would recommend that you start with a brief introduction, but do not dwell on case details, as they are already provided. Get right into your identification, analysis, and recommendation of your 3 issues. Close with a summary conclusion and present any possible caveats or concerns regarding your analyses and recommendations.

As to grading of the case, you will be primarily graded upon:

1- Are the issues you address reasonably/arguably the most important issues?

2- Are your analyses complete and thorough, with your key points well-justified?

3- Do your recommendations build from your analyses? Are they specific, well-developed, and likely to be practicable? Are your key points well-justified?

4- Throughout the paper, are you transparently showing applied mastery of MGT 500 concepts? Do I see evidence that you have learned a great deal in the class?

5- Is the paper well-written, organized, grammatically correct, informative, persuasive, and in conformance with all requirements?

You can use outside references. Use a referencing/citation method as appropriate; I am not a stickler for this but it must be reasonable and APA is always a good choice if you are looking for guidance.

As to report length, I’m guessing somewhere in the 6-8 page range double spaced. Longer cases are always welcome. Remember that your goal here is two-fold. One is identify and address the key issues in the case, and the other is demonstrate to me in a transparent way how much you have learned from this class. Obviously, the two goals are closely related but don’t lose sight of either in pursuing the other. 9 – 313 – 146
REV: SEPTEMBER 30, 2016
LYNN S. PAINE
NIEN-HÊ HSIEH
LARAADAMSONS
Governance and Sustainability at Nike (A)
Nike is not here to create a new world order. We are not here to eliminate poverty and famine or lead the war
against violence and crime. Our critics say that the world is going to hell in a Nike sports bag. Then, again, our
critics, for the most part, aren’t athletes.
— Nike Annual Report, 1997
I believe that any company doing business today has two simple options: embrace sustainability as a core
part of your growth strategy, or eventually stop growing.
— Nike Annual Report, 2011
Hannah Jones and Eric Sprunk had little time to spare. With the next meeting of the Nike board’s
corporate responsibility committee just weeks away, they had taken over a corner conference room in
the John McEnroe building at Nike’s world headquarters in Beaverton, Oregon, to review the
preliminary sustainability goals for 2015–2020 that they had presented to the committee at its
previous meeting in February 2012. The two members of Nike’s 12-person executive team quickly
focused in on the proposed target for eliminating toxic discharges from the supply chain. Although
their presentation had been based on extensive work done over the previous year, further research
and analysis after the February meeting revealed that reaching the target—zero discharge of
hazardous chemicals by 2020—would be more difficult and costly than previously estimated, since it
would require innovations in chemistry, systemic changes throughout the supply chain, and
collaboration across the industry. Finding the necessary resources and people to develop scalable
solutions would be challenging, particularly within the proposed time frame.
The conversation was intense. Jones, Nike’s vice president of sustainable business and innovation,
brought to the table more than 16 years of experience on the front lines of the corporate responsibility
debate, close to 14 of them at Nike. Sprunk, a college basketball player, former accountant, and nearly
20-year veteran of Nike, was responsible for all Nike brand products worldwide as vice president of
merchandising and product. Since 2009, the two had served as executive representatives to the
board’s corporate responsibility (CR) committee. They and their teams had worked closely together
in designing Nike’s sustainability goal-setting process as well as the preliminary goals themselves.
Together they would have to find a solution to present to Nike CEO Mark Parker and, with his buyin, to the board CR committee at its next meeting in mid-April. As Sprunk explained, “Hannah and I
are asked to propose the goals jointly. Not Hannah alone. And not Eric alone. Mark will be
comfortable if he looks at Hannah and me across the table and says, ‘Are you two in agreement and
are you comfortable?’ and we say, ‘Yes, we are.’”
Professor Lynn S. Paine, Visiting Scholar Nien-hê Hsieh, and Research Associate Lara Adamsons prepared this case. It was reviewed and
approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School, and
not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
Copyright © 2013, 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be
digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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Governance and Sustainability at Nike (A)
Company Background
With over $20 billion in revenues for FY 2011, Nike, Inc. was the world’s largest athletic footwear
and apparel company and owner of one of the world’s best-known brands. The Nike swoosh
adorned the gear of athletes around the globe, weekend warriors and Olympians alike. LeBron James
won his first NBA championship, with the Miami Heat, in Nikes; Manny Pacquiao was the first boxer
to win world titles, in eight different weight divisions, in Nikes; and the U.S. Olympic team was
heading to London for the 2012 Summer Olympics in high-tech Nike uniforms. Nike served even the
youngest of athletes-to-be, offering an infant/toddler version of its iconic Air Force 1 shoe and threepacks of Jordan onesies for newborns. In addition to the Nike brand business, which accounted for
some 87% of sales, Nike, Inc. included affiliates such as shoe and apparel maker Converse, action
sports brand Hurley, Jordan Brand premium athletic products, and Nike Golf. (See Exhibit 1 for
Nike, Inc. financials 2001–2011. See Exhibit 2 for revenues by region and product type.)
The athletic footwear and apparel industries were both fiercely competitive. Globally, Nike
ranked first or second in market share in most major product categories. In its core athletic footwear
segment, Nike’s share ranged from 25% in Asia to 44% in the U.S. Its closest competitor in this
segment, with 21% globally, was adidas Group; smaller rivals included Puma, Fila, New Balance, and
Asics. Competitors in the more broadly defined athletic and leisure category also included VF Corp.,
with brands such as The North Face, Vans, and Nautica; Columbia Sportswear; Under Armour; and
Skechers. In emerging markets, Nike was facing a bevy of ambitious rivals such as Li Ning in China
and Olympikus in Brazil.1 (See Exhibit 3 for competitors’ market shares.)
Origins and Growth
Nike traced its origins to 1964 when Oregon track coach Bill Bowerman and runner Phil Knight
founded Blue Ribbon Sports to import and sell Onitsuka Tiger running shoes manufactured in Japan,
then a low-cost labor market. Knight, who had earned a degree in accounting from the University of
Oregon before getting his MBA at Stanford, worked as a certified public accountant while getting the
business off the ground. Selling shoes from the trunk of Knight’s Plymouth Valiant at local track
meets, Knight and Bowerman worked closely with their athlete customers and experimented with
improvements, such as the wedge heel, to enhance runners’ experiences. As revenues grew, the
relationship with Onitsuka deteriorated and eventually ended. Meanwhile, Bowerman and Knight
began developing their own shoe, and the first running shoe bearing the Nike name arrived in time
for the 1972 Olympic trials. Eight years later, with revenues of $270 million, Nike went public with a
listing on the Nasdaq and a dual-class share structure under which Knight, as chairman and CEO,
owned 42% of the company—all in Class A stock, which was not publicly traded—and elected the
majority of the board.2 In October 1990 Nike moved its listing to the New York Stock Exchange
(NYSE) and the Pacific Stock Exchange. (See Exhibit 4 for major shareholders and Exhibit 5 for stock
price.)
Knight stepped down as CEO in 2004 but remained a strong presence on the board as chairman
and 15% owner in 2012. “One of the great things about having Phil in the room is that we’re in touch
with our entrepreneurial past,” commented CFO Don Blair, who had joined Nike in 1999 after a 15year career in finance at PepsiCo. “His view of what the board contributes, and what he looks for
from the board, is really colored by that experience.” Knight saw the board’s purpose as helping the
company and the management team by sharing experiences and expertise and asking questions.
Beginning in the late 1980s, Knight had sought to bring new thinking to the then largely “friends and
family” board by adding directors with a wide range of backgrounds—from industry, finance, law,
athletics, and academia. In 2012, nine of the twelve directors were classified as independent,
including six of the nine elected at the 2011 annual meeting by holders of Class A shares and the three
elected by holders of the publicly traded Class B shares. The board committee structure included the
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three NYSE-required committees (audit, compensation, and nominating and governance) plus three
others—executive, finance, and corporate responsibility. (See Exhibit 6 for board members.)
Business Model
From its earliest days, Nike’s business model combined innovative shoe design with low-cost
manufacturing by independent contractors in low-wage countries. Inspired by Bowerman, who had
famously invented the “waffle sole” one morning by mixing up a batch of urethane and cooking it on
a waffle maker, the Nike team was determined to reimagine the running shoe for better performance.
Ever the coach, Bowerman constantly reminded everyone that the limits of human performance were
unknown. His “just do it” attitude became a defining element of the young company’s culture. At
Nike’s R&D center, set up in Exeter, New Hampshire, in 1978, scientists and designers worked
together with elite athletes to create and test innovative prototypes. With a research budget roughly
equivalent to its advertising budget in the early 1980s, Nike spent significantly more on research than
most of its competitors.3 Shoe production was outsourced—initially to contractors in Japan, then to
Korea and Taiwan in the 1970s, then to China, Malaysia, and Indonesia in the 1980s, and so on as
wages and costs rose in one source country after another. In 2012, Nike, Inc.’s 500,000 different
products were made at more than 900 contract factories employing over a million workers in some 45
countries. China accounted for about a third of factories and workers. Employees of Nike itself
numbered over 40,000, including almost 7,000 in Beaverton.
In early 2012, Nike was on track to achieve its revenue target of $28 billion to $30 billion by 2015
through a strategy of expanding globally and getting closer to the customer. Organized by
geographic regions and categories of sport—action sports, running, basketball, football (soccer),
men’s training, women’s training, and sportswear—the company was investing heavily in China and
other emerging markets regions and seeking to grow its direct-to-consumer business across all
brands in both online and brick-and-mortar environments. As part of this effort, Nike was investing
some $500–$600 million to strengthen its retail presence and expected to have more than 970 retail
outlets globally by 2015, up from 515 in 2010.4 Plans for the continued expansion of Nike’s digital
business were no less important. A new division of digital sport had been established in 2010 to build
on the company’s success with Nike+, a line of offerings developed in collaboration with Apple that
allowed runners and other athletes to track and share their activity using their iPods and iPhones.
The core of Nike’s strategy for growth, however, lay in innovation. As Parker wrote in his 2011 letter
to shareholders, “The key for Nike, Inc. in any market is to drive innovation at every level—brand,
product, retail, operations, events, and communications.” Parker was optimistic: “I started here as a
designer in 1979 and I’ve never seen so much opportunity to innovate as I do today. It’s just amazing.
It’s exciting.”
Innovation and Sustainability
Parker had joined Nike as a footwear designer and product engineer in the Exeter R&D center
shortly after graduating from Penn State in 1977. A college runner, Parker had established the
product testing team and was the designer behind some of Nike’s most successful innovations,
including the Nike Air Max technology, which was credited with relaunching the Nike brand in 1987
after several years of sluggish sales. By the time he was named CEO in 2006, following a one-year
stint by William Perez, who had been hired from the outside to replace Phil Knight as CEO, Parker
had held positions in design, research, engineering, marketing, and general management at all levels
of the organization, including five years (2001–2006) as copresident (with Charlie Denson) of Nike
brand. Nonetheless, Parker remained at heart very much a designer who liked nothing better than
spending time in Nike’s “innovation kitchen,” where employees worked on secret new ideas.5
3
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Governance and Sustainability at Nike (A)
Parker and other members of the Nike, Inc. executive team (NET) were particularly bullish on the
potential for innovations borne of environmental and social concerns to drive future growth and
profitability. “What’s new in the last few years,” commented Blair using Nike sports parlance, “is this
‘offensive’ [as in ‘playing offense rather than defense’] element of sustainability and corporate
responsibility that we see as a growth driver . . . We’re not just managing risk. We’re putting down
investments around long-term growth and innovation.” The leadership team envisioned a day when
every product would represent a closed-loop system that generated no waste, and sustainability
would be synonymous with performance. (See Exhibit 7 for NET membership, calendar year 2012.)
The company’s new Flyknit running shoe, introduced in the run-up to the London Summer
Olympics and given star billing at a Nike “innovation summit” for media, retailers, and investors in
February 2012, was a physical embodiment of this vision. Inspired by the textile knitting process and
by runners’ desire for a lightweight shoe that combined the comfort of a sock with the performance
attributes of a running shoe, each shoe was made from strands of high-tech yarn. Through Nike’s
proprietary technology, desired attributes such as support, stretch, and breathability could be
engineered into the design at the thread level. Compared to traditional methods for making shoe
uppers used in performance running footwear, which involved the meticulous cutting and sewing of
layer upon layer of multiple materials and generated massive amounts of waste, the production of
Flyknit was virtually waste-free. Nike Flyknit was also almost 20% lighter than the Nike Zoom Streak 3,
worn by the top three marathoners at the 2011 World Championships. Like other members of the
leadership team, Blair deemed Nike Flyknit “a home run on all fronts—visually iconic, high
performance, and very little waste.” What’s more, the technology had potential to revolutionize the
footwear production process and, indeed, to transform Nike’s entire business model, given the
possible implications for labor costs and capital deployment.
With a long-term vision of “decoupling profitable growth from scarce resources,” Nike was
banking heavily on innovation in consumer-facing areas such as digital sport. But even in less visible
areas such as auditing and monitoring compliance in contract factories, Parker saw opportunities not
just for incremental improvement but for game-changing innovation that could drive sustainable
growth. “[By] actually changing the way factories work, how they incentivize workers, how they build
skills . . . we think we can transform how the product is made and how our business model works,” he
commented. Parker’s vision extended well beyond the confines of Nike: “What we’ve realized is that
we are a successful brand that can create change. And we can do that in a way that not only improves
athletic performance and creates products that are more sustainable, but that also contributes to a
better world . . . One of the things I want to leave as a legacy in my role at Nike is to make sure that
we’re innovating in every aspect of our business, where it really matters, where we use our brand
strength and success to create positive change on a larger scale.” In this spirit, Nike was seeking to
hardwire sustainability principles into innovation and decision making throughout the organization.
The Origins of Corporate Responsibility at Nike
The leadership team dated Nike’s sustainability journey to the 1990s when a groundswell of
criticism over labor practices at contract factories making Nike products threatened the company’s
brand with its core consumers, particularly college students. Nike’s critics alleged that workers in the
contract factories were subjected to inhumane treatment and grossly underpaid. At first, Nike
responded defensively, arguing that it was not responsible for the actions of its suppliers and that
wages and working conditions should be seen in the context of the manufacturing countries, not
measured against U.S. standards. Internally, executives at the time thought the critics were just
radical activists and troublemakers who didn’t understand how good the contract factories really
were.
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Governance and Sustainability at Nike (A)
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In 1998, however, Nike’s approach shifted. In January, the company hired Maria Eitel from
Microsoft as Nike’s first vice president of corporate responsibility. Eitel set about consolidating the
community affairs department, environmental action team, and labor practices team to create a new
corporate responsibility department, and began work on a strategic framework to address the issues
facing the company. That same year, in a speech to the National Press Club, Knight acknowledged
that “the Nike name has become synonymous with slave wages, forced overtime, and arbitrary
abuse” and vowed to change that equation. He affirmed Nike’s commitment to improving working
conditions at its contract factories and announced initiatives to expand independent monitoring; raise
minimum age requirements; strengthen environmental, health, and safety standards; expand worker
education programs; increase support of Nike’s micro-enterprise loan program for workers; and
build understanding of corporate responsibility in the larger community.
On assuming her new position, Eitel had taken the unprecedented step of sitting down with the
head of Global Exchange, one of Nike’s most outspoken critics. Widely praised internally as a
charismatic communicator, Eitel introduced a section on corporate responsibility into Nike’s annual
report to shareholders and, along with the environmental action team, played a key role in the
company’s decision to phase out PVC (polyvinyl chloride). Shortly after Eitel arrived, she hired Jones,
her former colleague, for the new Brussels-based role of director of community and government
affairs for Europe, the Middle East, and Africa. Jones, who had started her career at Britain’s BBC
working on social action campaigns, took up the post just as Nike announced its new policy to
eliminate PVC—and just in time to receive a call from Europe’s chemical employees’ union
threatening to burn shoes in front of her home for destroying workers’ jobs.
As Eitel forged Nike’s approach to corporate responsibility, she frequently turned to Nike board
member Jill Ker Conway for counsel. Conway, a former president of Smith College and a historian of
women’s participation in the paid workforce, had been recruited to the board in 1987 for her
expertise on women’s issues and understanding of student perspectives. A self-described “jock from
way back and ardent feminist,” she agreed to join the board, in large part due to her interest in
promoting physical fitness for girls and women. At the time, recalled Conway, Nike’s revenues were
under $1 billion and the board, still in start-up mode, was racing to keep up with the company’s
rapid growth. The board had never before included a woman, let alone an Australian-born, East
Coast academic. As criticisms of Nike heated up in the mid-1990s, Knight sought Conway’s counsel
on dealing with student protests. At one annual shareholders’ meeting, he called on her, without
warning, to preside when activists took to the floor. In the face of …
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