Nike Fell for Plug-and-Play CEO John Donahoe. He Flopped.
Nike’s John Donahoe is right out of CEO central casting.
The former college athlete with an Ivy League pedigree and a Stanford MBA has claimed to meditate for 10 minutes every morning, espouses the virtues of servant leadership and is reportedly a devotee of black-and-white bullet-pointed PowerPoints. He’s got the credibility that comes with spending more than two decades at a big-name consultancy, along with the coveted status of a Silicon Valley insider. When he became chief executive of Nike Inc. in 2020, Donahoe already had three stints as a CEO under his belt — at Bain & Company, eBay Inc. and cloud computing company ServiceNow Inc.
But in his latest role as Nike CEO, Donahoe has been a flop. Up until Thursday when the board announced Donahoe was out, the stock was down about 25% since the start of the year as the company struggled with declining sales, a talent exodus and a creative pipeline in shambles. Perhaps the worst offense of all: Donahoe had become the “the man who made Nike uncool,” as Bloomberg News dubbed him earlier this month.
In Donahoe, Nike had fallen for the allure of the plug-and-play CEO — the idea that there’s a generic model chief executive who can be unboxed and plopped down in any corner office. It’s a conceit that makes sense on the surface: If a CEO has done the job successfully before and has all the right credentials, shouldn’t he or she be able to do it again? But as I wrote earlier this year about Boeing Co., “it’s time to abandon the premise of interchangeable CEOs, who are produced at a GE-like CEO factory and can be swapped in and out like widgets. The world is too complicated, the job of a CEO today too challenging and the products many companies produce too technical for this model to work anymore — if it ever did.”
For one thing, repeat CEOs don’t perform as well as rookies. In a 2020 study of 855 S&P 500 CEOs over two decades, executive search firm Spencer Stuart found that while 97% of repeat CEOs outperformed the market in their first CEO job, only 38% did so in their next gig. First-time CEOs actually have higher total shareholder returns and less volatility in performance than repeaters. That’s because experienced CEOs tend to fall back on the same playbook, which may give them an edge in the early years but gets stale by year four. What worked at one enterprise, at one point in time, under a specific set of circumstances is far from guaranteed to work in another.
Donahoe made just that mistake at Nike, relying on what Bloomberg News called “Bain mode” when things got tough. Consultants are known for “fixing” a business by cutting, so in December, Donahoe defaulted to what he knew when the company slashed its revenue forecast. He announced $2 billion in cost cuts, which included laying off 2% of the company’s workforce.
The Nike board made an unexpected pick when it tapped Donahoe back in 2019 to replace company veteran Mark Parker — especially considering that Nike had a bad experience hiring a company and industry outsider in the past. Parker’s predecessor, William Perez, had joined from consumer goods company S.C. Johnson & Son in 2004 and had lasted only about a year as he clashed with Nike founder Phil Knight. “Basically the distance between the company that Bill managed in the packaged goods business and Nike and the kind of new athletic equipment business was too great for him to make that leap,” Knight said at the time.
Nike seemed to think the gap between sneakers and Donahoe’s consultancy and Silicon Valley background wouldn’t be as challenging to close. That’s likely because he had sought-after digital expertise at a time when most every enterprise thought it was a tech company, or at least wanted to be. Over at Starbucks, for example, two years earlier the board had installed former Juniper Networks CEO Kevin Johnson to run the coffee giant.
Donahoe’s outsider status also gave Nike a chance to signal a clean slate after its toxic boys’ club era, which resulted in the departure of some dozen executives — including at least one considered a possible successor to then-CEO Parker. But Donahoe also had the advantage of not being a complete unknown, having served on the board since 2014.
In the end, his big problem was that he didn’t know enough about sneakers — a point Nike seems to have recognized as it swings the pendulum back in the other direction with its next CEO pick. Donahoe will be replaced next month by Elliott Hill, who is built more in the Mark Parker mold. He started at the company as an intern in 1988 and retired more than 30 years later after getting passed over as CEO when Donahoe was named.
As Nike fell into its recent death spiral, there had been some speculation that the board would reinstate Parker as CEO to save the company. But he was likely turned off by the idea of becoming a boomerang CEO thanks to his front row seat to the drama at Walt Disney Co.; Parker serves as Disney chairman and a member of the succession planning committee tasked with finding a replacement for Bob Iger, who is now in his second run in the top job.
Instead, it’s Hill who is now the boomerang executive. The Nike board might have thought that was a creative solution to its succession problem. But really, the underlying logic is not all that different than what drives a company to choose a plug-and-play CEO. Both reflect a lack of imagination and a narrowness of thinking on the part of the board when it comes to what a CEO should look like.
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