The tenure of William Perez as the CEO of Nike (NKE) ended only 13 months after he took over for Phil Knight - the company's founder. The reasoning behind the resignation stemmed from a clash between Perez and Knight on how to run the company. Here we'll take a look at the differing views and weigh in on whether or not it was the right move for Perez to go.

Under Knight the strategy at Nike was to forge sales through sleek advertising campaigns and a large portfolio of athlete endorsements. This strategy produced the highly successful "Just Do It" campaign, along with endorsement deals with superstars such as Michael Jordan and Tiger Woods. The strategy has not been an inexpensive one, as the company spent $1.6B in fiscal 2005 on "demand creation." The strong branding strategy has been a major factor behind Nike becoming the largest apparel footwear company in the world. The company's annual revenue was $13.7B in fiscal 2005, up from $12.3B in 2004, an 11% increase.

When Phil Knight finally gave up the helm of Nike in 2004, the choice of William Perez was surprising to both employees and the market. At the time there were a lot of questions on whether Perez would be able to integrate himself and his strategy into the well ingrained Nike culture. Before heading Nike, Perez was the CEO of S.C. Johnson & Sons, a global household products company (Ziploc, Drano, etc.).

Perez was brought in by Knight to bring a more disciplined organizational and managerial style to the company, while respecting the company's innovative roots. Perez focused on cutting costs and working on distribution efficiencies to unlock value. An area that Perez looked to make cuts was in the $1.6B "demand creation," expenditure, however this concept faced stiff opposition in the company. It appears that Perez was unable to bridge the gap between a more restrictive management style, one of cost cutting and efficiencies, and the innovative (and expensive) marketing culture of Nike.

Knight's hiring of Perez, even though unsuccessful, is a good sign that Nike understands that it won't be able to market their way to success indefinitely. The company will need to focus more and more on organizational efficiencies, ensuring that the money being spent is creating value for shareholders. This has become a focal point recently as the company has had problems with marketing campaigns in Japan and faces stiffening competition. The pending merger between Adidas-Salomon (ADDYY) and Reebok (RBK) will allow the newly formed company to better compete with Nike largely due to the resulting synergies and scale created.

Even though there are threats looming, I view the resignation of Perez as a positive. The company returns to their inner circle for talent with the promotion of long-time Nike executive Mark Parker as the new CEO. This removes the culture clash that resulted from the leadership of Perez and brings in a leader who better understands the dynamics of the organization. Looking forward the company should continue their focus on strong branding of their main Nike line along with their increasing portfolio of brands. But hopefully integrate cost cutting measures and greater organizational discipline - but at their own pace.

Related Articles
  1. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  2. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  3. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  4. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  5. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  6. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  7. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  8. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  9. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  10. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!