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

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  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 >>
COMPANIES IN THIS ARTICLE
Trading Center