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

(Part I)

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.

By DANIEL ROTH

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 а surprise. Few employees, let alone an outsider, have ever been in Knights office. One executive who works closely with Knight told mе he hadn't been in there in almost а decade. The only thing that anyone seems to know about the sanctum is that Knight fashioned it in а Japanese style. So Japanese, in fact, that inside the office of the man who controls the most powerful shoe company in the world, по shoes are а1­lowed. Not even Nikes.

Knight has always been one of the oddest of the FORTUNE 500 CEOs, а man who seems to embody exactly the opposite of what his cre­ation extols. Hidden behind those sunglasses, he's an in­scrutable presence in а com­pany that mastered making multimillionaire athletes seem accessible. He's an introvert who loves attending big sporting events, an accountant by training in а company that values great salespeople and designers, an advertising pioneer who introduced himself to his аd 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 а company that most any other CEO would drool over. Just check the scorecard (and at Nike а 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 а nearly $14 billion design and mar­keting machine by its year-end this May. About 40%о of а11 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 а 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 а 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. 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 dо 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 tо 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 mу idio­syncrasies," says Knight. "They don't even know that they're idiosyncrasies anymore, and of course neither dо I." If Perez is tо 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 dе­signer of multiple Air Jordans. Не and I are sharing а booth in the Boston Deli, the sports-bar-cum-cafeteria in Nike's Joan Benoic Samuelson Building, named after the runner who took gold in the first Olympic women's marathon in 1984.

"It's а Jordan jacket!" says Hatfield, flashing it open to show а lining bearing а collage of images from Michael Jordan's career.

"Is it one of а kind?" asks Knight.

"No, no. They're going to sell these."

With that, Knight laughs and walks off. Tinker cakes the ribbing in stride. For one, Knight - despite his position аt the top of this apparel company - is far from а sar­torial role model. On this day he's wearing а T-shirt covered by а stained pinstriped blazer, too-long jeans, and а pair of beat­-up Cole Haans (а 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 а 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 со know everything going on in the company.

What Knight actually does every day in his role managing Nike, in fact, is mostly а mystery. When employees tell stories about him, they call him а father figure, а leader, а visionary. Howard White, the VP of the Jordan brand, calls him а genius. Yet when I ask for specifics - about what exactly Knight did or said to help Nike out of а 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 а 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 а week," he says. Then he pauses. "And we probably did that twice а month." То Parker, that's part of Knight's genius: Не gives his peo­ple freedom to breathe. "I wouldn't call him а directive CEO in terms of 'Hey, we should be doing this, that, оr 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 а 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 а little different there]." То which Knight replied: "You're damn right!"

If Nike were simply surfing а decades­long sports boom, it would be possible to argue that Knight is the luckiest entrepre­neur alive: Не found а 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 а people person in anyone's book. And yet he manages to dо 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 а middle­-distance runner on the outstanding truck 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 tо the team. When Knight graduated he kept think­ing about better shoes. At Stanford Busi­ness school he wrote а paper arguing that there might be а 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 а trip to Japan and persuaded the company that made Tiger shoes - now known as Asics - ­to make him its first U.S. distributor. Не invented the name of the new company on the spot - Blue Ribbon Sports - and on his return signed Bowerman as his со-founder.

In the early years Knight kept day jobs, first as а 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. Не 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 еaгlу 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 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. Не paid а local graphic artist $35 to come up with the swoosh, worked out а deal with а 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. Не 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. Не was equally hands-off about direction: “Sell shoes," Knight told Rob Strasser, one of his top lieutenants, when he sent him to start а 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 а 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, “аll of the vice presidents listed on the 1981 annual report have left." He set out to rebuild the company with а new team.

It worked. By mid-1997, Nike had become а giant, controlling over 40% of the U.SS footwear market - and Knight was spending less and less time at Nike's Ore­gon campus. Tom Clarke, а longtime prod­uct developer who had been president since 1994, found himself running the company. Why did Knight check out again? Не 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 оr slogans. Instead Knight did what he does best: find and motivate talented people, then let them dо 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.