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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
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primary data, or illustrations of effective or ineffective management.
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L Y N N S . P A I N E
N I E N – H Ê H S I E H
L A R A A D A M S O N S
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 buy-
in, 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.’”
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313-146 Governance and Sustainability at Nike (A)
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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 three-
packs 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 15-
year 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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Governance and Sustainability at Nike (A) 313-146
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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
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313-146 Governance and Sustainability at Nike (A)
4
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) 313-146
5
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 growing criticism, Conway offered
to visit some of Nike’s contract factories in Southeast Asia in connection with a trip to her native
Australia. With Knight’s blessing, she embarked on what became an extensive series of visits where
she spoke, through interpreters, with factory owners, managers, and workers on the front lines.
In the factories she visited, Conway was struck by the poor communication between managers,
many from Korea and Taiwan, and workers, mostly young women who did not share their
supervisors’ language. To learn what these young women were experiencing, she proposed a project
to survey them in their own languages. Tapping into her network of feminist organizations and
university faculty around the world, Conway and Eitel brokered a partnership with the International
Youth Foundation to help create a nonprofit organization that would conduct some 67,000 face-to-
face interviews. Based on findings from the project, one of Nike’s first NGO collaborations, the
corporate responsibility group set up training programs for factory supervisors, sought protections
for workers’ health, and offered workers classes in financial literacy. After much deliberation and
with board input, Nike’s leadership team decided to disclose the project’s results to the public in the
hope that transparency would help effect change.
Throughout this period, Conway spoke frequently with Knight. “Once Phil grasped that there
were real problems,” she recalled, “he just said ‘we’re going to fix them and we’re going to raise the
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313-146 Governance and Sustainability at Nike (A)
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standards of the whole industry,’ and that was the goal.” Looking back on that time period, Conway
felt that “Phil’s ownership in the company meant that when he made CR a priority, the board began
to ask questions about CR issues and plans, not just about the budget. It gave the CR team the
mandate to pursue its strategic priorities aggressively.”
Creating a Board-Level Corporate Responsibility Committee
In the late 1990s, environmental concerns moved into the mainstream, and the CR group’s work
expanded as Nike launched programs around product recycling, water use in the supply chain, and
toxic substances in the manufacturing process. In an effort to engage the board with the CR issues the
company was facing, Conway suggested creating a board-level committee on corporate
responsibility. Knight embraced the idea and asked Conway if she would chair the committee. Her
response: “I will, if you will be there at every meeting.” Conway saw Knight’s attendance as
insurance that the committee would not be marginalized. Indeed, “everybody wanted to come before
that committee,” knowing that it would put them in front of Knight, she recalled. With the full
board’s vote, the CR committee was established in 2001. Besides Conway, other members included
Michael Spence, the former dean of Stanford University’s business school, and Richard Donahue, vice
chairman of the board and former president and COO of Nike. One of the committee’s initial tasks
was working with Eitel on Nike’s first stand-alone CR report. Published that year, the report
discussed Nike’s activities concerning the environment, labor practices, community affairs, Nike
employees, and engagement with NGOs and other stakeholders. It also set out Nike’s first public
targets for improving labor conditions and reducing its environmental impact. (See Exhibit 8 for a
history of public Nike targets in environmental and other areas.)
At the time, few companies had board-level CR committees, so Conway and her colleagues were
operating in largely uncharted waters. In the early years, the committee focused primarily on labor
issues and, to a lesser extent, on environmental issues and philanthropy. Much of the work centered
on “putting out fires”—addressing code-of-conduct violations or labor issues in contract factories.
Discussions often revolved around how an incident had been handled or, if it was still pending, what
could or should be done. Over time, the committee began to differentiate between truly isolated
incidents and those that were part of a larger pattern. The “overtime task force,” formed in 2005 to
examine why excessive overtime was such a recurring problem, helped catalyze this shift. Chaired by
Parker, then co-president of the Nike brand, the task force worked with systems experts to get to the
root of the issue. When analysis revealed that the problem’s origins lay largely at the front end of the
supply chain, in sudden changes in demand or materials rather than in the factories, it was a big
“aha” for management and the committee. (See Exhibit 9 for Nike CR committee members, 2001–
2012.)
Integrating Corporate Responsibility into Operations
In 2004, Eitel was tapped to head the Nike Foundation, and Jones, by then CR director for Europe,
the Middle East, and Africa, was invited to Beaverton to interview for the job of vice president of CR
for the Nike brand. Jones recalled her interview with Parker, then co-head of the Nike brand, as
“galvanizing.” “The conversation that Mark and I have is usually about potential and opportunity,”
she continued. “He is extremely knowledgeable and understands the complexity of the issues, but he
comes at it from the viewpoint of a designer and someone who has nurtured innovation. And that, to
me, was the magic.” Jones took on this role in 2004, and at the end of 2005, with two small children
and a husband who didn’t speak a word of English, moved from Brussels to Oregon. In her new
position, Jones reported directly to Parker. She was also the executive responsible for reporting to the
CR committee of the board. In that capacity, she worked with Parker and Conway to set the
committee’s agenda and prepare materials for its meetings, all of which she attended. Her first task,
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however, was completing Nike’s CR report for FY 2004. In reviewing the data for the report, she “hit
the pause button” to take stock of her team and the group’s strategy.
A Systems Perspective
At the time, the department had about 150 members spread across three main subgroups: labor,
environment, and community investment. Much of the department’s work focused on monitoring
and remediation. “We were doing excellent work,” recalled Jones, “but we were also caught in this
policing game where you’re at the end of the process and looking into the rearview mirror.” Jones
saw the need for a more positive and forward-looking vision, and she was convinced by her
experiences in Europe that insights would come from combining the labor, environment, and
community groups with each other and with the business, and taking a systems-oriented perspective
on challenges facing the company. A visit to a contract factory prompted one of Jones’s “epiphanies”:
“I realized that you can either solve a worker’s rights issue by monitoring every single factory 24
hours a day for whether they’re wearing personal protective equipment. Or you can innovate a new
glue that removes all the toxics so you don’t have to have the personal protective equipment.” Jones
acknowledged that innovation would not solve everything, “but if we can make a lot of the stages
grow obsolete by innovation,” she continued, “then you can go much faster, at much greater scale,
with much greater ease.’”
Jones began efforts to bring the group together and to formulate a strategy around a few core
goals: moving beyond the policing stage, increasing transparency and cooperation with the outside
world, integrating corporate responsibility into the fabric of the business, and establishing the
corporate responsibility group as a “hotbed of talent and innovation.” “I mapped out my 30-day, 60-
day, 90-day, and 180-day plan, and I stuck to it,” said Jones.
Not long after taking on her new role, Jones proposed that Nike publish the names and locations
of its contract factories. At the time, Nike and other companies kept a tight grip on this information
fearing that, otherwise, competitors would poach their capacity and relationships. Jones, however,
reasoned that transparency would be good for the company because critics could go out and see for
themselves what conditions were like, and NGOs could monitor and thereby help address the issues.
Nike, moreover, could collaborate with other companies that used the same factories to coordinate
inspections, share costs, adopt common standards, and speed up the process of factory improvement.
Jones set out her case to Jerry Karver, then head of manufacturing, and she “nearly fell down the
stairs” when he said, “Let’s do it.” With the support of Karver, who phoned in to a board CR
committee meeting from a football match in Istanbul, Jones was authorized to publish a complete list
of factories contracted to produce Nike brand products, along with their locations.
Charting a Path Forward
The CR group was similarly receptive to Jones’s outlook, as many of its members had also begun
to recognize that monitoring was only part of the answer. The environmental team was already at
work on tools for designing footwear with environmental considerations in mind at the beginning—
rather than the end—of the supply chain. To help the company chart a path forward, Jones initiated a
scenario-planning effort. “We were very conscious that we had missed the weak signal of the labor
issue,” she explained, referring to the mid-1990s, “so we went out and involved others in asking what
are the big, big trends that maybe today are weak signals, but may become strong signals and may
fundamentally impact business.” Jones set aside resources for a new full-time position for scenario
planning and trend analysis. Over the next three years, the new “horizons director” worked with
outside consultants on scenario-planning workshops for key executives across the company. Held in
Nike’s Tiger Woods Center, the workshops explored implications of major global trends—population
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313-146 Governance and Sustainability at Nike (A)
8
growth, water scarcity, energy shortages, climate change, the Internet, health issues, governance—for
the world and for Nike’s business model.
Although many of the themes were familiar to Nike executives, the workshops provided an
opportunity to examine the underlying facts and probe the potential impacts on Nike’s businesses.
Models of projected water shortages, for example, revealed the potential for disruptions and cost
increases at multiple points in Nike’s value chain—from the production of cotton to the generation of
power for contract factories to the dyeing and processing of fabric by material vendors to the routine
laundering of a Nike T-shirt by the end user. The U.N. estimated that about 1.8 billion people were
expected to be living in areas of water scarcity by 2025, with two-thirds of the world’s population
experiencing water stress.6 Some of the greatest shortages were expected in the Asia Pacific region,
where 36% of the global water supply would have to meet the needs of 60% of the world’s
population—and where much of Nike’s manufacturing capacity was located. Global demand for
water, moreover, was expected to double every 20 years, with about 70% of that demand coming
from agricultural uses—like growing cotton for apparel. Nike had been attentive to water issues in
the supply chain for some time—for instance, the Nike Water Program launched in 2001 provided
suppliers with tools to track their water usage—but the scenario-planning exercise brought home the
risks to Nike’s business model and gave the executive team for the first time a shared understanding
of the issues. (See Exhibit 10 for Nike’s efforts to manage water use in its supply chain.)
Coming out of the scenario-planning exercises, Jones, Parker—now CEO—and other members of
Nike’s leadership, including the board CR committee, were more convinced than ever that natural
resource scarcity would increasingly define the business landscape, and that “doing less of something
wasn’t going to cut it.” Eventually, business would hit a wall of intractable constraints. How to
transition to the future was less clear, but Jones knew “we were going to need to build the plane as it
was flying. We were going to have to optimize today, while we seeded and built and scaled the
innovation that would enable us to transition to the models of the future.” (The scenario-planning
exercises later evolved into an employee-engagement program in the form of a simulation designed
to show how macro-trends could affect Nike’s business and to build shared accountability for
creating a sustainable business.)
Building New Capabilities
Jones continued to strengthen her department’s capabilities, recruiting people from other
functions who could run strategic planning and financial analysis and create models to integrate
what were by then being called “sustainability” factors into business decisions. Jones immersed
herself in understanding design. With leadership support from Parker, she teamed up with the head
of footwear design, John Hoke, to get the environmental team engaged at the front end of the process.
A result was Nike’s Considered Design ethos. Spearheaded by Parker, Jones, and Hoke, Considered
was described as the “first step” toward the long-term goal of closed-loop manufacturing—a system
that minimized waste by using outputs as inputs. With the Considered materials sustainability
indexes, designers could quickly and easily evaluate the environmental impact of prospective
designs. Confident that the new tools would help spawn yet unimagined innovations in shoe design,
Jones and her team put in place a timeline for applying Considered to all footwear.
With the publication of the FY 2005–2006 CR report in May 2007, a shift in thinking was evident.
The report described corporate responsibility as “a catalyst for growth and innovation” and set out
targets, not only for implementing the Considered Design ethos, but also for improving working
conditions in the supply chain, minimizing Nike’s environmental footprint, and increasing access to
sport for disadvantaged youth. In the report, Parker emphasized the limits of incremental progress:
“If real change is to occur in our supply chain and contract factories, in the communities in which we
operate and in the broader world we influence, then small steps will always fall short of our
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Governance and Sustainability at Nike (A) 313-146
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potential. Big goals are needed to realize big achievements. So we’ve set a series of strategic business
targets for ourselves that are aggressive but achievable by FY11.” (These targets are shown in Exhibit
8.) (In 2008, Nike issued a China-focused supplement to the FY 2005–2006 CR report.)
Toward Sustainable Business & Innovation
As the corporate responsibility agenda evolved, Jones began to explore a new name for the group.
“Some of these things can feel cosmetic, but actually symbols and narrative are profoundly important
in how you shift paradigms and mental models,” she noted. Over the course of a year, Jones and
Parker discussed various possibilities, eventually settling on the language of “sustainability and
innovation.” For both Jones and Parker, who had publicly declared sustainability to be “our
generation’s defining issue,” the phrase conveyed inspiration and challenge while capturing the
essence of how they thought about Nike. They began using the narrative of “innovation and
creativity for a better world,” a message that Parker included in his 2007 letter to shareholders.
Project Rewire
Even with extensive monitoring and oversight, labor issues, particularly excessive overtime and
code of conduct violations at contract factories, continued to arise. What Jones called “a searing
experience” in the late summer of 2008 brought the matter to a head and caused the CR group to
rethink its approach to embedding corporate responsibility in the business. Through news reports out
of Australia, Nike learned that one of its long-time contract factories in Malaysia was housing its
workers, largely migrants from China, Bangladesh, India, Indonesia, Myanmar, Nepal, and Vietnam,
in deplorable facilities, garnishing their wages to pay for work permits and “recruitment fees,” and
withholding their passports to prevent them from leaving. Within days, Nike representatives met
with factory management and demanded redress for the workers, including reimbursement of
withheld wages and transfer to new dormitories within 30 days.
In addition to seeking redress for the workers and instituting a global policy on migrant workers,
Nike also launched an effort to unearth the root causes of the incident, including reviews of all 34 of
its contract factories in Malaysia and its own internal business practices. The investigation revealed
that some root causes lay in societal factors such as weak law enforcement and poor education, and
some lay in the industry. The probe also found that Nike’s own systems were a contributing factor.
The leadership team decided that it was time to build greater accountability for adherence to Nike’s
manufacturing and sourcing standards into the company’s core business processes. A cross-
functional team overseen by Parker, Blair, Sprunk, Jones, and others initiated a project to “rewire” the
organization accordingly, in part by adding sustainability factors to the metrics used to evaluate the
performance of executives responsible for sourcing decisions. Sprunk elaborated: “The idea [of
Project Rewire] was to tie the impact of the decision making with the decision makers so that we
weren’t having kind of a compliance arm versus a business arm; we just have a business arm doing
the best thing for our profits, for our shareholders, for our consumers, for the world.”
Restructuring
While the team was working on Project Rewire, the world was hit by the financial crisis of 2008,
and consumers clamped down on spending. With Nike’s revenues, profits, and futures orders all
slowing in early 2009, the leadership team decided to launch a full review of the business. Project
Rewire was soon folded into the much larger business review. The result of the review was a $195
million restructuring aimed at getting closer to the consumer, driving innovation more quickly to
market, capitalizing on expected growth in emerging markets, and establishing a more scalable cost
structure. Nike reduced management layers, cut its workforce by 5%, consolidated the supply chain,
and reorganized from a matrix defined by product type (footwear, apparel, and equipment) and
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10
geographic regions to one defined by sports categories (running, training, basketball, and so on) and
revised geographies. The new structure, part of what Nike called its “category offense,” enabled a
much closer relationship with key consumer groups and recognized emerging markets and greater
China as their own regions.
The restructuring provided an opportunity to wire sustainability into the business in a new way.
The 130-person CR group, reorganized and rechristened “Sustainable Business & Innovation (SB&I),”
set about building an expanded set of capabilities. Dual reporting lines were established between
SB&I and the business functions as well as between SB&I and operating activities such as product
development and the supply chain. For example, the SB&I team under Jones included finance
personnel, while the finance function under Blair also included personnel with “dotted line”
reporting into SB&I. Similarly, the head of Considered within SB&I reported both to Jones and to the
vice president for innovation. Jones, as head of SB&I, was brought into the NET, and Sprunk, as head
of Nike’s “product engine,” began attending meetings of the board CR committee. Sprunk had held
various positions in finance and general management, including an eight-year stint as head of global
footwear, before being named vice president of merchandising and product in 2009. In this role, he
oversaw a wide range of functions—from product innovation and design to manufacturing and
sourcing. Sprunk’s heightened involvement with the SB&I function meant that he could not only help
implement the sustainability agenda but could also help provide the finance function with better cost
projections as a result. (See Exhibit 11 for an organization chart showing the SB&I structure.)
The restructuring also established an internal audit program to provide independent oversight of
the system of contract factory audits against Nike’s health, safety, and environmental standards. This
shift in oversight from the CR group to the audit department within the finance function allowed the
SB&I group to focus more on forward-looking activities—”playing offense,” in Nike lingo—such as
planning, driving improved sustainability performance, and spurring innovation. It also brought the
rigor of traditional auditing and control to bear on sustainability auditing—thus also strengthening
the “defense”—and put the audit and finance teams more in touch with the sustainability discussion.
Sustainable audit began reporting directly to the CFO and the board’s audit committee rather than to
the CR committee, though key results were shared with the CR committee as well. According to Blair,
restructuring brought sustainability issues “directly into my space of strategy and finance as we’re
looking at new investments, new business models, that we need to be setting up.”
To build new innovation capabilities, the SB&I group set up the Sustainable Business & Innovation
Lab, an internal strategic partnerships group charged with hunting externally for technologies and
collaborations with potential to drive sustainable value. A complement to the core R&D functions and
the “innovation kitchen,” the SB&I Lab brought private equity and venture capital expertise inside the
company for the first time. The lab focused on two key areas: closed loop materials and
manufacturing; and revenue sources decoupled from scarce resources, primarily digital services.
Jones’s brainchild, the lab was part of SB&I, but was also “sponsored” by Blair as CFO, with a dotted
line reporting relationship to the vice president of strategy. “I view the [sponsorship] role as keeping
the organization focused on some of these longer-term opportunities that might not hit the priority list
for someone in the day-to-day firefight,” said Blair, noting that the small, early-stage type of projects
pursued by the lab could easily get squeezed out of the process in a large-scale enterprise deploying a
public company financial model. A senior management group including the heads of innovation,
logistics, IT, and other functional areas helped define the lab’s strategy, but approval of strategic
investments was by Nike’s sustainable investment management committee, made up of Blair, Jones,
and the heads of corporate strategy and development, with ultimate oversight by Parker.
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Evolving Role of the Board CR Committee
Although the reorganization touched all of the board’s committees, it affected the CR committee
directly. With both Sprunk and Jones attending all meetings, the committee became more engaged
with sustainability developments in the core business functions and also with the company’s
innovation efforts. Jones worked with Sprunk as well as with Parker and Conway in developing
meeting agendas. At each of the committee’s two-hour meetings, the first hour was devoted to a
review of the company’s progress toward its sustainability targets, a review of the contract factories’
performance against standards, and a discussion of any problematic labor or environmental incidents
in the supply chain. The second hour typically examined some particular SB&I strategy or activity as
well as some particular business strategy or function. Under the new structure, top executives
typically appeared before the committee at least once every 18 months. They were expected to
explain how their business strategies aligned with SB&I strategies and to show how that alignment
was reflected in the accountability metrics of the teams they led. “Having board members sitting
across from a business leader and talking about what the business leader is undertaking to do—that
puts a little backbone into the conversation,” observed Blair.
With Conway’s retirement scheduled for September 2011, Knight and Parker asked Phyllis Wise, a
member of the CR committee since joining the Nike board in late 2009, to take on the role of
committee chair. At the time of her appointment to the board, Wise was interim president of the
University of Washington where she had led the establishment of the College of the Environment. A
biologist by training, Wise described her first CR committee meeting as “a great christening by fire.”
Two Nike subcontractors in Honduras had closed their doors and dismissed some 1,800 workers
without notice and without paying $2 million in severance owed. Nike had no legal responsibility for
contractors’ financial obligations to their workers, and had stated publicly it would not cover the
severance payments. But pressure was mounting from universities and student groups across the
U.S. for Nike to make good on the contractors’ obligations. The discussion, led by Conway, was
intense, and the group brainstormed ways to assist the workers without setting a precedent for Nike
to pay every time a contractor defaulted on its obligations. After the meeting, recalled Sprunk, he and
Jones decided to look for a new approach. The upshot was an innovative arrangement whereby the
Honduran government made the severance payments and Nike created a $1.5 million Workers’ Relief
Fund to provide vocational training and finance health coverage for the laid-off workers.
DyeCoo Investment
As a newcomer, Wise had been surprised by Nike’s definition of corporate responsibility. She had
assumed the committee would focus mostly on labor conditions in the factories—the issues most
talked about on university campuses—and was struck by the amount of time spent on innovation,
product development, materials, and sustainability issues more generally. As a case in point, she
cited the committee’s discussion of Nike’s minority investment in DyeCoo Textile Systems, a small
Netherlands-based start-up that had developed a waterless process for dyeing polyester. (The process
used recycled carbon dioxide (CO2)—hence the name DyeCoo.)
Brought to the sustainable investment management committee by the innovation team and the
SB&I lab, the opportunity was viewed as attractive on several dimensions. Although the technology
was not yet cost-competitive with traditional dyeing methods, it was seen as having huge potential
for saving on water, energy, and chemical effluent discharges into the water supply (since the process
eliminated the need to heat water or dry the fabric). In contrast to conventional dyeing techniques,
which used 12 to 18 gallons of water per pound of fabric, DyeCoo’s technology used no water at all.
Rough calculations suggested that waterless dyeing across the entire polyester industry could save a
trillion gallons per year—the annual water usage of Los Angeles, Miami, and Chicago combined.7 In –
addition, the technology cut dyeing times in half and yielded a better-quality product. With plans to
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313-146 Governance and Sustainability at Nike (A)
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sell machines to textile mills and dye houses, DyeCoo was researching use of the technology on other
fabrics such as cotton and other natural fibers.
The sustainable investment management committee, recalled Sprunk, considered the possibility of
a wholesale acquisition that would allow Nike to develop the technology as a proprietary asset (like
Flyknit) versus treating it as “pre-competitive,” a term used at Nike to refer to innovations it shared
with the industry such as its technology for water-based adhesives, created to eliminate the need for
workers to wear protective masks. As soon as Nike knew the adhesive worked, Sprunk explained,
“we shared it with the industry because our competitive advantage isn’t in how the shoes are
bonded. [It] is in how they’re engineered, how they’re designed, how they perform. So [sharing] that,
to me, was good for the workers . . . good for everybody.”
The sustainable investment management committee decided to make a strategic minority
investment in DyeCoo with the aim of helping the young company develop and commercialize the
technology for widespread use across the industry. How much Nike would pay to accelerate the
purchase of the machines by its dye houses, over what time frame, and with which partners,
remained open questions. On learning about the proposed investment at its meeting in November
2011, the CR committee was enthusiastic and encouraging—but only after understanding the pros
and cons of the deal, including the decision to take a minority stake. Nike announced its investment
in DyeCoo on February 7, 2012, the week before the February board meeting.
The Next Generation of Sustainability Targets
A new round of sustainability targets was a natural next step in wiring sustainability into the
business. For nearly a decade, Nike had been announcing targets and reporting on progress in areas
such as labor conditions in the supply chain, energy and the environment, and community
engagement. The most recent set of targets, set out in the FY 2007–2009 CR report, had primarily
covered the time period through FY 2011, and had largely been achieved. It was expected that the
next report, scheduled for release in early May 2012, would include an update on progress toward
those targets along with an announcement of the next round. What was new, however, was the effort
to translate those targets into specific measurable goals for business and functional units throughout
the organization so as to link Nike’s sustainability strategy explicitly with its business growth
strategy. Moreover, what the new targets should be—what areas, how ambitious, what metrics, what
time frame, what resources, how transparent—was an open question.
The Planning Process
The SB&I team shared its plans for developing the next round of targets with the board CR
committee in June 2011 and embarked on a planning process loosely modeled on the process for
setting financial targets. “We tend to run a top-down, bottom-up, and then final adjustment sort of
planning process,” explained Blair. “What that means is we set a top-down direction for our
organization . . . People then develop bottom-up plans where they make their various resource
allocations. And then we look at what comes out and make sure that we’re comfortable with where
we ultimately landed.” The overall starting point, Blair elaborated, was, “What do we think the world
will look like in a decade? What are the key issues that are going to affect us as a company?”
Under the leadership of SB&I director of business integration, Agata Ramallo Garcia, a six-person
team began an inventory of the company’s social and environmental impacts with an eye to the most
significant opportunities to create value. The team tapped subject matter experts from different business
and sustainability areas as they sought to identify key impacts, associated risks to the company, and
mitigation efforts already under way. Both energy and logistics experts examined the use of energy in
Nike’s distribution systems; similarly, both water and manufacturing experts reviewed the use of water
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Governance and Sustainability at Nike (A) 313-146
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in the manufacturing processes. The SB&I team also reviewed Nike’s previous experience with targets
in the various sustainability areas, explored best practices and relevant research, and consulted with a
range of external stakeholders. Based on this work, the team concluded that, in the next round, there
should be fewer targets, no more than seven to nine, and that in many cases quantitative targets should
be expressed in per-unit rather than absolute amounts to better align with plans for business growth.
The team also decided that the targets should focus on areas with the greatest potential impact, where
Nike could effect and measure change, and take into account consumer and other stakeholder
audiences as well as sustainability ratings agencies.
Greenpeace Campaign
In July, the SB&I team’s work took an unexpected turn. Greenpeace launched a high-profile
campaign charging Nike, adidas, Puma, Li Ning, and other well-known apparel companies with not
doing enough to prevent their suppliers, particularly textile dye and finishing houses, from releasing
hazardous substances into the water supply via wastewater discharges. The NGO issued a report
titled “Dirty Laundry,” focusing on two textile facilities run by the Youngor Group in China, a
country where, according to the report, pollutants affected up to 70% of rivers, lakes, and reservoirs.
The textile industry, which accounted for over 7% of China’s trade volume and some 20% of its water
pollution, was said to be a significant contributor.8 Greenpeace alleged that wastewater from one of
the plants contained as many as 53 organic toxins as well as man-made chemicals, including
nonylphenol, a known hormone disruptor that was restricted in many countries but legal in China.
The report acknowledged that neither of the facilities was a dye house for Nike but nonetheless called
on Nike to help, given Nike’s connections with other Youngor facilities, its presence in China, and its
role as a leading brand. Arguing that wastewater treatment plants could not remove many toxic
chemicals, Greenpeace pitted Nike, adidas, and Puma against each other in a race to “detox our
sportswear, detox our water, and ultimately, detox our future.” As part of its “Detox Challenge,”
Greenpeace handed out custom-designed “detox” tattoos, orchestrated and posted videos of “detox
striptease” flash mobs in front of adidas and Nike stores, and placed naked, detox-tattooed
mannequins in strategic locations from Bangkok to Basel to Buenos Aires. Through these efforts and
more, Greenpeace called on brands to target zero discharge of toxic chemicals in the entire lifecycle
and supply chain of their products.
Before publishing its report, Greenpeace had written to Nike with a series of questions about its
products and factories. Practiced in such dialogues with NGOs, the Nike team responded, describing
Nike’s relationships with facilities in China and its long-standing efforts to address water and toxicity
issues in its supply chain. Less than a week after the report appeared, Nike issued a public response,
again outlining its existing efforts and offering to partner with Greenpeace, other NGOs, and other
companies to promote improved water management in China and to work toward improving
chemical inputs and processes in the footwear and apparel industry. A Nike working group flew to
Amsterdam to meet with Greenpeace and to share details of Nike’s water efforts in person. On
August 17, Nike became the second (after Puma) to announce its commitment to zero discharge of
hazardous chemicals by 2020, pledging to develop a detailed action plan within two months. Then in
November 2011, together with other targeted companies, Nike reaffirmed its commitment to the goal
of “zero discharge of hazardous chemicals for all products across all pathways in our supply chain by
2020” and put forth a “roadmap” outlining specific steps the companies would take to reach that
goal. Nike also announced its own set of near-term actions, internally dubbed “Road to Zero,”
including continued expansion of the Nike Water Program, which then covered 500 of Nike’s 900
suppliers; public release of the Nike Materials Sustainability Index; continued chemical management
training for vendors; and pilot studies on data exchange, materials traceability, and chemical
screening tools. (See Exhibit 12 for the Joint Roadmap.)
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Although Nike was already in the process of establishing new target areas, the Greenpeace
campaign kicked the effort into high gear, especially in the area of toxic discharges. A working group
of subject matter experts from business, manufacturing, and SB&I was assembled to determine what
resources would be needed to reach the goal of zero discharge of toxic chemicals. The group
prepared a comprehensive inventory of Nike’s activities to identify where in the supply chain and
manufacturing processes toxics were used, where the company might be at risk, and what was
already being done that might get the company closer to the goal. “We’ve been working on toxics for
a while,” noted Sprunk. “We know what’s bad for the earth, and we’ve been trying to get them out of
our product for a long time.” The Greenpeace campaign, however, had condensed the timetable
sharply. With the state of play clearly defined, the group began building a strategic model to weigh
different allocations of resources against various time horizons for realizing the goal.
New Sustainability Targets
Meanwhile, the SB&I business integration team was continuing its work on other potential target
areas. At the annual Corporate Strategy Review session in October 2011, the team shared with
executives from across the company the ultimate vision of “decoupling profitable growth from scarce
resources” and outlined the four “pillars” of the emerging sustainability strategy: creating sustainable
materials that enhance athletes’ performance, developing sustainable sourcing and manufacturing
models, catalyzing a market shift toward sustainable consumption, and developing revenues from
digital services. With buy-in from executives at the session, the team focused in on the areas most
amenable to measurable targets and, in December, presented a “first draft” to the members of the
Committee for Sustainable Innovation (CSI), an executive-level committee established in 2011 to
oversee Nike’s innovation agenda. Ten target areas were proposed: water, waste, toxics, climate
change and energy, labor, community investment, product design, materials, manufacturing, and
innovation. Although the categories were familiar, explained Ramallo Garcia, they were now
grounded in a deeper body of research, including the scenario-planning work. Moreover, while Nike
had previously undertaken a number of water-related efforts, it had not set specific targets for
reducing water use across the supply chain.
With input from the CSI, the SB&I team sharpened the distinction between targets aimed at
optimizing for today and those aimed at driving innovations for the future. “I see them as parallel
tracks that need to happen,” said Jones, “but the innovation work has a different taste to it; it has
different investment strategies, different capabilities; it needs a different way of coming to scale.”
Moving to the next stage of the process, the integration team set to work defining quantifiable sub-
targets for different parts of the organization. The team again tapped relevant experts as it sought to
chart a path from current to proposed levels, ensure fit with the business plan, anticipate changes in
law and regulation, gauge what resources would be needed, and make the business case for each
target. By February, the SB&I team had a pretty good idea of what it planned to take to the business
and functional heads across the company who would eventually have to sign off on the targets and
time frames for their own areas of responsibility.
At the February CR committee meeting, Sprunk and Jones presented the methodology for setting
the new round of targets and shared progress on defining the targets themselves. The preliminary
optimization targets included the elimination of hazardous discharges across the supply chain by
2020, as well as per-unit reductions of 10%–25% in water use, CO2 emissions, and waste by 2015.
Other targets focused on expanding the use of environmentally preferred materials in manufacturing
footwear and apparel, and requiring contractors to meet certain labor and environmental standards.
The CR committee, recalled Ramallo Garcia, “pressure tested the targets, the work, the process, and
the level of accountability.” The committee probed the choice of target areas and the rationale for the
proposed amounts; the trade-offs between targets, and between targets and other cost areas; whether
the targets were ambitious enough or realistic enough; the number of metrics; whether broader
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Governance and Sustainability at Nike (A) 313-146
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statements of goals and intent would be preferable to specific metrics, particularly in the area of
innovation; and whether the process had taken into account all relevant factors. As chair, Wise
looked for balance between the targets and the business model and for assurance that the targets
were both innovative and financially sensible in the long term. Above all, she was interested in
knowing “the pros and cons” the team had discussed before making its decisions.
Final Adjustment
With the CR committee’s input, the SB&I team continued its consultations with business and
functional heads across the company to ensure that everyone was on board with the targets and had
a realistic plan for achieving them. Each target area had an executive-level sponsor who ultimately
had to sign off on the target dates and amounts. Before doing so, sponsors needed approvals from
key people on their teams. For example, Sprunk, as vice president of merchandising and product, had
to get an okay from the vice president of apparel and footwear for certain targets before signing off
himself. For sign-offs at the corporate level, explained Ramallo Garcia, “[It’s] basically going line by
line, understanding all of the implications of every target and making sure that we have the solutions,
people, systems, data, plans . . . and making sure that everything is in place that needs to be in place.”
The consultation process revealed that achieving zero discharge of hazardous chemicals globally
and across all brands by 2020 would be considerably more complex and challenging than previously
estimated, as there was no simple or readily available solution. It would require innovations that
would take time to test and prove. And innovation would require investment—not just of financial
resources, but of time, talent, and other resources as well. Theoretically, those resources could come
from anywhere—the marketing budget, research and development—but, cautioned Sprunk, “if you
were trying to wrestle trade-offs across the whole organization, you’d go crazy.” Sprunk saw little
room to maneuver on the obvious fronts: “I don’t think I can absorb all that cost in the cost of our
products; I can’t push it to the factories—their profit margins we’re pretty familiar with . . . Can we
ask the consumer for those dollars in the price of our product? What if they don’t care if harmful
chemicals have ended up in wastewater during production?”
One possibility was to contain the trade-off within the water-related target areas. Dialing back the
target for water use, however, was not particularly appealing in view of what had been learned from
the scenario-planning exercises. On the other hand, there was nothing sacred about the preliminary
targets, which were entirely voluntary. The problem, explained Sprunk, is that “We all want both. We
need both. They’re both important. We have constituencies where it’s very, very important to do
both. And longer term for the company we need to solve this problem because water is not going to
be free forever.” But, he continued, “Is spending [this amount of money] appropriate for the
shareholders to get to the goal of zero toxins? And if you don’t think it is, what do we say to
Greenpeace? Is the trade-off to say, ‘You know what? We’re going to do our best, and we’re going to
dedicate some money, but we think it’s only this much money, and we probably won’t make it, and
we know we’re open to criticism, so criticize us, but we owe our shareholders a fair return on their
investment in Nike stock’?” At the same time, the Road to Zero represented a very definite
commitment; it was not, as Sprunk pointed out, a “road to less” or a “road to a little.”
Sprunk recognized potential tensions between the business lens and the SB&I lens, but felt that
“those two lenses are pretty easily matched up in our company. Part of that’s because Hannah and I
talk all the time.” Still, he acknowledged that he and Jones brought different perspectives to the table:
“I expect that when I sit down with Hannah those targets are going to be as aspirational as possible.
She expects that I’m going to come in with a target I’m as confident as possible that I can deliver on.”
Both Jones and Sprunk knew it was their job to reconcile those perspectives and make sure that
“we’ve committed as a company [to] aspirational yet achievable goals that we can track and measure
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313-146 Governance and Sustainability at Nike (A)
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progress towards.” At the February CR committee meeting they had jointly presented a set of
preliminary targets that they were no longer sure was feasible. The next board meeting, where they
were expected to present their final targets, was just a few weeks away. Before then, they would need
to come up with a resolution that they, Parker, Blair, and others on the Nike leadership team could
sign up for.
Jones and Sprunk considered the options. They were reluctant to modify their preliminary targets,
but they weren’t about to set targets without clear solutions and the resources to back them up.
“Whoa,” said Sprunk, leaning back in his chair, “How do you solve these problems? These are big
problems, and there’s no right answer.”
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313-146 -17-
Exhibit 1a Nike, Inc. Income Statement, FY 2001–2011
For the Fiscal Year Ended May 31,
CAGR
2001–2011
CAGR
2006–2011
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Revenues (in US$ millions) 8% 7% 20,862 19,014 19,176 18,627 16,326 14,955 13,740 12,253 10,697 9,893 9,489
Year-on-year change 10% -1% 3% 14% 9% 9% 12% 15% 8% 4% 5%
Cost of sales 7% 6% 11,354 10,214 10,572 10,240 9,165 8,368 7,624 7,001 6,314 6,005 5,785
Year-on-year change 11% -3% 3% 12% 10% 10% 9% 11% 5% 4% 7%
Gross margin 10% 8% 9,508 8,800 8,604 8,387 7,161 6,587 6,116 5,252 4,383 3,888 3,704
% of revenues 46% 46% 45% 45% 44% 44% 45% 43% 41% 39% 39%
Year-on-year change 8% 2% 3% 17% 9% 8% 16% 20% 13% 5% 3%
Total selling and administrative expense 10% 8% 6,693 6,326 6,150 5,954 5,029 4,478 4,222 3,702 3,154 2,836 2,690
% of revenues 32% 33% 32% 32% 31% 30% 31% 30% 29% 29% 28%
Year-on-year change 6% 3% 3% 18% 12% 6% 14% 17% 11% 5% 3%
Demand creation expense 9% 7% 2,448 2,356 2,352 2,308 1,912 1,740 1,601 1,378 1,167 1,028 998
Operating overhead expense 10% 9% 4,245 3,970 3,798 3,646 3,117 2,738 2,621 2,324 1,987 1,808 1,692
Restructuring charges 195
Goodwill impairment 199
Intangible and other asset impairment 202
Income before income taxesa 12% 6% 2,844 2,517 1,957 2,503 2,200 2,142 1,860 1,450 1,123 1,017 921
Year-on-year change 13% 29% -22% 14% 3% 15% 28% 29% 10% 10% 0%
Net income 14% 9% 2,133 1,907 1,487 1,883 1,492 1,392 1,212 946 474 663 590
Year-on-year change 12% 28% -21% 26% 7% 15% 28% 99% -29% 12% 2%
Diluted earnings per shareb $4.39 $3.86 $3.03 $3.74 $2.93 $2.64 $2.24 $1.75 $0.89 $1.22 $1.08
Return on equity 22% 21% 18% 25% 22% 23% 23% 22% 19% 18% 18%
Return on invested capital 22% 21% 18% 25% 22% 23% 23% 22% 18% 15% 14%
Source: Compiled by casewriter from Nike website, http://investors.nikeinc.com/Investors/Financial-Reports-and-Filings/Investor-Tool-Kit/default.aspx; and Nike FY07-09 CR Report,
http://nikeinc.com/pages/reporting-governance, both accessed January 2013; and Nike, Inc. regulatory filings. Certain prior year amounts have been reclassified to conform to fiscal year 2012
presentation, and adjusted to reflect changes in rounding conventions and 2007 stock split.
a For the years 2002–2004, reflects income before income taxes and cumulative effect of accounting change.
b For the years 2002–2004, reflects diluted earnings per share after accounting change.
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313-146 -18-
Exhibit 1b Nike, Inc. Balance Sheet Data, FY 2001–2011
For the Fiscal Year Ended May 31, 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
ASSETS (in US$ millions)a
Current Assets
Cash and equivalents 1,955 3,079 2,291 2,134 1,857 954 1,388 828 634 576 304
Short-term investments 2,583 2,067 1,164 642 990 1,349 437 401 – – –
Accounts receivable 3,138 2,650 2,884 2,795 2,495 2,383 2,262 2,120 2,084 1,804 1,621
Inventories 2,715 2,041 2,357 2,438 2,122 2,077 1,811 1,650 1,515 1,374 1,424
Deferred income taxes 312 249 272 227 220 203 110 165 222 141 113
Prepaid expenses and other current assets 594 873 766 603 393 380 343 365 332 260 163
Total current assets 11,297 10,959 9,734 8,839 8,077 7,346 6,351 5,529 4,787 4,155 3,625
Property, plant and equipment, net 2,115 1,932 1,958 1,891 1,678 1,658 1,606 1,612 1,621 1,615 1,619
Identifiable intangible assets and goodwill, net 487 467 467 743 410 406 406 366 118 206 397
Goodwill 205 188 194 449 131 131 135 135 66 233 –
Deferred income taxes and other assets 894 873 897 521 392 329 296 267 229 231 179
Total assets 14,998 14,419 13,250 12,443 10,688 9,870 8,794 7,909 6,821 6,440 5,820
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt 200 7 32 6 31 255 6 7 206 55 5
Notes payable 187 139 343 178 101 43 70 146 75 425 855
Accounts payable 1,469 1,255 1,032 1,288 1,040 952 775 781 573 505 433
Accrued liabilities 1,985 1,904 1,784 1,762 1,303 1,276 1,053 979 1,036 765 472
Income taxes payable 117 59 86 88 109 86 95 118 131 83 22
Total current liabilities 3,958 3,364 3,277 3,322 2,584 2,612 1,999 2,031 2,021 1,833 1,787
Long-term debt 276 446 437 441 410 411 687 682 552 626 436
Deferred income taxes and other liabilities 921 855 843 855 669 562 463 413 256 142 102
Redeemable preferred stock 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Shareholders’ Equity
Common stock at stated value
Class A convertible – 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2
Class B 3.0 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.6 2.6 2.6
Capital in excess of stated value 3,944 3,441 2,871 2,498 1,960 1,447 1,183 888 589 539 459
Unearned stock compensation – – – – – – (11.4) (5.5) (0.6) (5.1) (9.9)
Accumulated other comprehensive income 95 215 368 251 177 122 73 (86) (240) (192) (152)
Retained earnings 5,801 6,095 5,451 5,073 4,885 4,713 4,397 3,983 3,640 3,494 3,195
Total shareholders’ equity 9,843 9,754 8,693 7,825 7,025 6,285 5,644 4,782 3,991 3,839 3,495
Total liabilities and shareholders’ equity 14,998 14,419 13,250 12,443 10,688 9,870 8,794 7,909 6,821 6,440 5,820
Source: Compiled by casewriter from Nike website, http://investors.nikeinc.com/Investors/Financial-Reports-and-Filings/Investor-Tool-Kit/default.aspx, accessed August 2012; and Nike, Inc.
regulatory filings. Certain prior year amounts have been reclassified to conform to fiscal year 2012 presentation, and adjusted to reflect changes in rounding conventions and 2007 stock split.
a Except for share data.
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Governance and Sustainability at Nike (A) 313-146
19
Exhibit 2a Nike, Inc. Revenues by Product Category within Geographic Region, FY 2009–2011
Exhibit 2b Nike, Inc. Revenues by Geographic Region within Product Category, FY 2009–2011
Source: Compiled by casewriter from Nike, Inc. regulatory filings, http://investors.nikeinc.com/Investors/Financial Reports-
and-Filings/SEC-Filings/default.aspx, accessed January 2013.
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customerse[email protected] or 800-988-0886 for additional copies.
313-146 -20-
Exhibit 3 Global Footwear and Apparel Industry Market Share Data
Global Market Share
Athletic Footweara (2011)
Global Market Share
Athletic Apparelb (2011)
Worldwide Revenuesc
(2011/2012)
.
Source: Compiled by casewriter from Sporting Goods
Intelligence, SGI Market Facts—Athletic Footwear and
Apparel 2012.
Source: Compiled by casewriter from Sporting Goods
Intelligence, SGI Market Facts—Athletic Footwear and
Apparel 2012.
Source: Compiled by casewriter from Dow Jones/Statista,
accessed January 2013.
Nike, Inc.
36.90%
adidas
Group
21.00%
Puma
5.10%
ASICS
5.10%
New
Balance
4.00%
Other
27.90%
Nike,Inc.
10.30%
adidas
Group
11.50%
Puma
2.10%
VF
Corp.
4.30%
Billabong
2.50%
Gildan
2.50%
Hanes
Brands
2.10%
Other
64.70% 0
5
10
15
20
25
30
U
.S
.$
b
iil
lio
n
s
a Adidas Group includes adidas, Reebok, and TMaG brands. “Other,” with less than 2% share each, includes Skechers, VF Corp. (including Vans, The North Face, and Reef), Crocs, Collective Brands,
Anta, Olympikus, Li Ning, Mizuno, Alpargatas, Fila, Quiksilver, Xtep, Peak, Brooks, K-Swiss, Foot-Joy, Under Armour, Lotto ASG (including Avia, Ryka, Nevados, Tumtec, and AND1), and Sole
Technology.
b Adidas Group includes adidas, Reebok, and TMaG brands. VF Corp. includes outdoor and Imagewear. HanesBrands includes outerwear only, not socks or underwear. “Other,” with less than 2% share
each, includes Columbia, Quiksilver, Under Armour, Descente, Broder Bros., Russell, Mizuno, Anta, Li Ning, Goldwin, Asics, Fila, Speedo, Delta Apparel, Xtep, Peak, China Dongxiang, and Timberland.
c Jarden includes Jarden outdoor solutions segment (including Marmot, Coleman, and K2); VF Corp. includes outdoor and action sports and sportswear segments (including The North Face, Timberland,
Vans, Reef, Smartwool, and Nautica).
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Governance and Sustainability at Nike (A) 313-146
21
Exhibit 4 Major Nike, Inc. Shareholders
Beneficial Owner Common Stock
Class Aa
(not publicly traded)
89,989,448 shares
outstanding
Common Stock
Class Bb
(publicly traded)
376,982,556 shares
outstanding
Common Stock
Totalc
(Class A + Class B)
466,972,004 shares
outstanding
Preferred
Stockd
shares
held
% of
class
shares
held
% of
class
shares
held
% of
total
shares
held
% of
class
Philip H. Knight and related parties
Philip H. Knight 67,097,005 74.6 7,740 < 0.1 67,104,745 14.4 – –
Knight’s spousee 130,448 0.1 130,448 <0.1 – –
Four grantor annuity trusts to
benefit Knight’s childrene 19,604,019 21.8 – – 19,604,019 4.2 – –
Knight Foundatione – – 796,145 0.2 796,145 0.2 – –
LP in which a company owned by
Knight was a limited partnere – – 1,294,403 0.3 1,294,403 0.3 – –
LP in which Knight was a
limited partner e – – 6,243,804 1.7 6,243,804 1.3 – –
Other officers and non-independent directors
Donald W. Blair – – 507,723 0.1 507,723 0.1 – –
Charles Denson – – 1,029,425 0.3 1,029,425 0.3 – –
Mark G. Parker – – 1,189,464 0.3 1,189,464 0.3 – –
John R. Thompson, Jr. – – 35,601 < 0.1 35,601 < 0.1 – –
Trevor A. Edwards – – 512,289 < 0.1 512,289 < 0.1 – –
Gary M. DeStefano – – 88,808 < 0.1 88,808 < 0.1 – –
Independent Directors
John G. Connors – – 44,460 < 0.1 44,460 < 0.1 – –
Jill K. Conway – – 41,462 < 0.1 41,462 < 0.1 – –
Timothy D. Cook – – 20,000 < 0.1 20,000 < 0.1 – –
Ralph D. DeNunzio – – 217,752 < 0.1 217,752 < 0.1 – –
Alan B. Graf, Jr. – – 62,000 < 0.1 62,000 < 0.1 – –
Douglas G. Houser – – 190,232 < 0.1 190,232 < 0.1 – –
John C. Lechleiter – – 10,500 < 0.1 10,500 < 0.1 – –
Johnathan A. Rodgers – – 22,000 < 0.1 22,000 < 0.1 – –
Orin C. Smith – – 48,700 < 0.1 48,700 < 0.1 – –
Phyllis M. Wise – – 5,000 < 0.1 5,000 < 0.1 – –
All directors and executive officers
(26 total) 67,097,005 74.6 4,975,389 1.3 72,072,394 15.4 – –
Institutional investors
FMR LLC, Boston, MA – – 20,951,837 5.5 20,951,837 5.5 – –
BlackRock, Inc., New York, NY – – 18,932,752 5.0 18,932,752 5.0 – –
Other – – – – – –
Sojitz Corporation, Portland, OR – – – – – – 300,000 100
Source: Compiled by casewriter from July 26, 2011, Nike, Inc. proxy statement, sec.gov/edgar, accessed May 2013, reflecting
numbers as of July 15, 2011, except for information provided in filings by FMR LLC and BlackRock, Inc.
a Class A shares voted for nine members of the board of directors; at the September 19, 2011, shareholder meeting Class A
shareholders elected Elizabeth Comstock, John Connors, Timothy Cook, Douglas Houser, Phil Knight, Mark Parker, Johnathan
Rodgers, Orin Smith, and John Thompson.
b Class B shares voted for three members of the board of directors; at the September 19, 2011, shareholder meeting they elected
Alan Graf, John Lechleiter, and Phyllis Wise.
c Because Class A Stock is convertible into Class B Stock on a share-for-share basis, the SEC considers each beneficial owner of
Class A Stock to be a beneficial owner of the same number of shares of Class B Stock. Therefore, in its reporting, Nike assumes
that a beneficial owner of Class A Stock has converted all shares of Class A Stock into Class B Stock. Nike’s reported
shareholding thus reflects substantial duplication for individuals and groups that hold both Class A and Class B shares. For the
sake of clarity, this exhibit represents beneficial ownership of Class A and Class B separately.
d Preferred Stock does not have general voting rights except as provided by law, and under certain circumstances as provided
in the Company’s Restated Articles of Incorporation, as amended.
e Knight has disclaimed ownership of all such shares.
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313-146 Governance and Sustainability at Nike (A)
22
Exhibit 5a Change in Stock Price, Nike, Inc. v. S&P 500, IPO through February 2012
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
p
ri
ce
a
s
p
e
rc
e
n
ta
ge
o
f
1
9
8
0
b
as
e
lin
e
Nike
S&P 500
p
ri
ce
a
s
p
e
rc
e
n
ta
ge
o
f
1
2
/0
2
/1
9
8
0
b
a
se
li
n
e
Source: Thomson Reuters Datastream.
Exhibit 5b Nike, Inc. Stock Price and Financial Ratios, FY 2001–2011a
For the Fiscal Ye
Ended May 31,
ar
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year-end
stock price
20.55 26.88 28.00 35.58 41.10 40.16 56.75 68.37 57.05 72.38 84.45
Market
capitalization
11,040 14,303 14,759 18,725 21,462 20,565 28,472 33,577 27,698 35,032 39,523
Financial ratios:
return on
equity
17.80% 18.20% 18.9% 21.6% 23.2% 23.3% 22.4% 25.4% 18.0% 20.7% 21.8%
return on
assets
10.10% 10.90% 11.2% 12.8% 14.5% 14.9% 14.5% 16.3% 11.6% 13.8% 14.5%
inventory
turns
4.0 4.3 4.4 4.4 4.4 4.3 4.4 4.5 4.4 4.6 4.8
current ratio 2.0 2.3 2.4 2.7 3.2 2.8 3.1 2.7 3.0 3.3 2.9
price/earnings
ratio (diluted)
19.0 21.8 20.2 20.3 18.3 15.2 19.4 18.3 18.8 18.8 19.2
Source: Compiled by casewriter from Nike website, http://investors.nikeinc.com/Investors/Financial-Reports-and-
Filings/Investor-ToolKit/default.aspx, accessed January 2013; and Nike, Inc. regulatory filings.
a All share and per share information has been restated to reflect the two-for-one stock split effected in the form of a 100%
common stock dividend distributed on April 2, 2007. For those years affected by a cumulative effect of change in accounting,
applicable financial ratios have been calculated using income before cumulative effect of accounting change.
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customerse[email protected] or 800-988-0886 for additional copies.
313-146 -23-
Exhibit 6 Composition of Nike, Inc. Board, with Committee Assignments, FY 2001–2012
1 = Executive Committee
2 = Audit Committee
3 = Finance Committee
4 = Compensation Committee
(Personnel Committee in FY01 and FY02)
5 = Corporate Responsibility Committee
6 = Nominating and Corporate Governance Committee
7 = Compensation Plan Subcommittee
Board = member of the board, but no committee membership
Shading = service on CR committee at any time FY01–FY12
Bold number = committee chair
For the Fiscal Year Ended May 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Thomas E. Clarke 1 1 1 1
Elizabeth J. Comstock Board 3, 4
John G. Connors 2 2, 3 2, 3 2, 3 2, 3 2, 3 2, 3 2, 3
Jill K. Conway 4, 5 4, 5 5, 6 5, 6 4, 5, 6 5, 6 5, 6 5, 6 5, 6 5, 6 5, 6
Timothy D. Cook 4 4 4 4, 6 4, 6 4, 6 4, 6
Ralph D. DeNunzio 3, 4 3, 4 3, 4, 6 3, 4, 6 3, 4, 6 3, 4, 6 3, 4, 6 3, 4, 6 3, 4, 6 3, 4, 6 3, 4, 6
Richard K. Donahue 5 5 5, 6 5, 6
Alan B. Graf, Jr. 2 2 2 2 2 2 2 2 2 2, 6
Delbert J. Hayes 2, 3 2, 3 3 3 2, 3
Douglas G. Houser 1, 2 1, 2 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6 1, 5, 6
Jeanne P. Jackson Board 4 2, 4 5 4, 5 4, 5 4, 5
John E. Jaqua 4, 7 4, 7 4, 7 4
Philip H. Knight 1 1 1 1 1 1 1 1 1 1 1 1
John C. Lechleiter 4, 5 4, 5 4, 5 4, 5
Mark G. Parker 1 1 1 1 1 1 1
William D. Perez 1
Charles W. Robinson 3 3 2, 3 2, 3
Johnathan A. Rodgers 5 5 4, 5 4, 5 4, 5 4, 5
Orin C. Smith 2, 3 2, 3 2, 3 2, 3 2, 3 2, 3 2, 3 2, 3
A. Michael Spence 2, 4, 5, 7 2, 4, 5, 7 2, 4, 7
John R. Thompson, Jr. 4 4 4, 5 4, 5 4, 5 4, 5 4, 5 5 5 5 5 5
Phyllis M. Wise 5 5 5, 6
Source: Compiled by casewriter from Nike, Inc. regulatory filings, http://investors.nikeinc.com/Investors/Financial Reports-and-Filings/SEC-Filings/default.aspx, accessed January 2013.
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313-146 Governance and Sustainability at Nike (A)
24
Exhibit 7 Nike, Inc. Executive Team, Calendar Year 2012
The Nike, Inc. Executive Team (“NET”) was responsible for directing Nike’s mid- and long-term strategy, and
also managed the sustainability reporting process. In calendar year 2012, NET members included the following.
Hans van Alebeek
Vice President, Global Operations & Technology
David Ayre
Vice President, Global Human Resources
Don Blair
Vice President & CFO
Charlie Denson
President, Nike Brand
Gary DeStefano
President, Global Operations
Trevor Edwards
Vice President, Global Brand & Category Management
Jeanne Jackson
President, Direct to Consumer
Hannah Jones
Vice President, Sustainable Business & Innovation
Hilary Krane
Vice President, General Counsel and Corporate Affairs
Mark Parker
President & CEO, Nike, Inc.
Eric Sprunk
Vice President, Merchandising & Product
Roger Wyatt
President & CEO, Nike Affiliates
Source: Adapted from casewriter interviews and Nike website, http://nikeinc.com/pages/executives, accessed April 2013.
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313-146 -25-
Exhibit 8 Selected Nike, Inc. Corporate Responsibility/Sustainability Goals Publicly Announced, 2001–2010 (as of announcement date)
The targets shown in the table below were drawn from Nike’s Corporate Responsibility Reports and reflect only those activities for which Nike announced quantifiable targets.
Activities for which no quantified objectives were announced, such as Nike’s Water Program launched in 2001 or employee diversity efforts, are not shown. The category headings
used in the table are based on casewriter analysis and do not in all cases match the categorizations used in Nike’s own materials or show business progress against goals.
FY01 CR Report
(published October 2001)
FY04 CR Report
(published April 2005)
FY05–06 CR Report
(published May 2007)
FY07–09 CR Report
(published January 2010)
Contract Factory Labor
Inspection and
Transparency
Every factory accurately reflected in database,
inspected on schedule, making continuous
improvements; results available to public.
Child Labor Every footwear worker at least 18.
Every apparel or equipment worker at least 16
or at local age limit if higher.
Wages Every worker paid at least legal minimum
wage; no training wage or other exemptions.
Measure income against basic expenses to
understand worker well-being.
Training Fully operational management, environment,
safety, health (MESH) system in place at
every footwear factory.
HR management training implemented in
all focus contract factories by FY11 end.
Freedom of association education program
implemented in all focus contract factories
by FY11 end.
Lean manufacturing training rolled out in
all focus contract factories by FY11 end.
HR management training implemented in
all focus contract factories by FY11 end.
Freedom of association education program
implemented in all focus contract factories
by FY11 end.
Overtime Eliminate excessive overtime in contract
factories by FY11 end.
Reduce Nike-caused excessive overtime
in contract factories by FY11 end.
Interviewing Survey all workers in focus factories on
empowerment/satisfaction by FY11 end.
Survey statistically relevant sample of
employees in all focus factories by FY11.
Collaboration Share auditing and capacity building with
30% of supply chain by FY11 end.
Promote multi-brand collaboration on
improving working conditions in supply
chain; cover 30% of factories by FY11 end.
Energy and Climate
Overall Calculate baseline emission of greenhouse
gasses, establish goals for reduction.
Facilities and
Travel
Reduce combined CO2 emissions from
owned facilities and business travel by
13% from 1998 baseline by 2005.
Nike brand facilities and business travel
climate neutral by FY11.
Nike, Inc. facilities and business travel
climate neutral by FY15.
Nike brand facilities and business travel
climate neutral by FY11.
Nike, Inc. facilities climate neutral by FY15.
Manufacturing Announce footwear manufacturing CO2
emissions goals by January 2008.
Announce footwear manufacturing CO2
emissions goals by January 2008.
Logistics Reduce inbound logistics footprint by 30%,
2003 to FY20.
Create outbound logistics emissions model
by January 2008.
30% absolute reduction in CO2 emissions
from inbound logistics, 2003 to FY20.
Paper Benchmark all paper uses by 2001.
Implement procurement policies consistent
with FSC standards.
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313-146 -26-
FY01 CR Report
(published October 2001)
FY04 CR Report
(published April 2005)
FY05-06 CR Report
(published May 2007)
FY07-09 CR Report
(published January 2010)
Product Design and Materials
Closed Loop Take full responsibility for products at all
stages of lifecycle, including the end of a
product’s useful life by 2020.
Environmentally Preferred Materials (EPMs) and Considered Designa
Footwear Increase use of EPMs by 22% from 2007
through FY11.
100% of footwear to reach Considered
baseline standards by FY11 end.
Increase use of EPMs by 22% from 2007
through FY11.
100% of footwear newly developed out of
WHQ to reach Considered baseline by
FY11 end.
Apparel All cotton apparel to contain at least 3%
organic cotton by 2010.
All cotton-containing apparel to contain at
least 5% organic cotton by 2010.
Announce EPM target in FY09.
100% of apparel to reach Considered
baseline standards by FY15.
Increase use of EPMs to 20% by FY15.
100% of apparel newly developed out of
WHQ, EHQ and Hong Kong to meet
Considered baseline by FY15.
Equipment Announce EPM target in FY10.
100% of product to reach Considered
baseline standards by FY20.
Announce EPM target in FY10.
100% of top-volume retail equipment newly
developed out of WHQ to reach
Considered baseline by FY20.
Chemistry/Toxics
Elimination of
toxic
substances
Eliminate all substances known or
suspected to be harmful by 2020,
beginning with product creation and
extending throughout the supply chain.
Polyvinyl
chloride (PVC)
Be PVC-free in footwear and non-screen
print apparel by end of CY02. Seek phase-
out from other products.
Evaluate business processes in FY06 and
develop strategy for creating tracking
method.
Work with ink suppliers and printers to
determine whether/how to
reduce/eliminate all PVCs.
Volatile organic
compounds
(VOCs)b
Eliminate 90% of VOCs by 2001 from
1995 baseline; phase out completely in the
future.
Footwear: Maintain VOC grams/pair at
95% reduction from 1998 baseline.
Equipment: Announce target in FY09.
Footwear: Maintain VOC grams/pair at
95% reduction from baseline.
SF6c Replace SF6 with benign gas in every
Nike Air product by Fall 2003.
Use benign gas across product range by
2006.
Waste
Overall Eliminate concept of waste in design,
materials, energy, and any resource that
cannot be readily recycled, renewed, or
absorbed back in to nature by 2020.
Footwear Operate product take-back business to
create profitable secondary market
(Reuse-A-Shoe).
Reduce waste in production by 17% from
FY07 through FY11 (155 grams waste/pair
in 2011).
Reduce waste in production by 17% from
FY06 to FY11 (157 grams waste/pair in
2011).
Apparel Announce target in FY09. Set target in FY09.
Packaging Continuous improvement in bulk amount,
bio-degradability, recyclability,
sustainability.
Develop package reduction goals for:
Footwear in FY05
Apparel in FY06
30% reduction of packaging and point-of-
purchase waste by FY11 end.
30% reduction of packaging and point-of-
purchase waste by FY11 end.
Water
Develop apparel supply chain strategy
with other brands and retailers within FY.
Continue to work with supply chain on
impact of water use for production.
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313-146 -27-
FY01 CR Report
(published October 2001)
FY04 CR Report
(published April 2005)
FY05-06 CR Report
(published May 2007)
FY07-09 CR Report
(published January 2010)
Community
Charitable
Giving and
Community
Programs
Through Nike Foundation, 3% of prior FY
pre-tax earnings to community programs
(in cash, kind, and product)
Through Nike Foundation, 3% of prior FY
pre-tax earnings to community programs
(in cash, kind, and product and in-kind
services)
Invest additional $315 million into
programs worldwide by 2011 end.
Invest additional $315 million into
programs worldwide by 2011 end
(beginning FY07).
Program
evaluation
Assess current programs for impact,
conduct gap analysis for underserved
regions, determine success with people—
not product-based indicators.
Host youth forums and provide grants for
youth to turn voice into action.
Develop system to facilitate and support
employee giving and volunteering,
equitably, around the world.
Set targets and metrics for programs for
excluded youth around the world by
January, 2008.
Employees and Diversity
HR Diversity Create a global HR scorecard by FY05-06
Suppliers Develop metrics for supplier diversity.
Achieve minimum 25% minority- and
women-owned business enterprises
(MWBEs) in each solicitation of bids Nike
sourcing team distributes.
Convert 10-15% of participating MWBEs
into live contracted vendors.
Develop and deliver internal training for
buyers outside procurement department to
promote inclusion of qualified MWBEs in
bidding cycle.
Include new vendor MWBE status and
certification verification in master log.
Source: Compiled by casewriter from Nike CR Reports for FY01, FY04, FY05–06, FY07–09, and Nike press releases, http://nikeinc.com/pages/reporting-governance, accessed January 2013.
a Environmentally preferred materials defined as “materials that significantly reduce the environmental impact of a product through better chemistry, lower resource intensity, less waste, and/or
recyclability” (http://nikeinc.com/pages/materials).
b VOCs are sometimes referred to in Nike materials as “petroleum-based solvents.”
c SF6 is a greenhouse gas that was used as the “air” in Nike Air products.
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313-146 -28-
Exhibit 9 Nike, Inc. Corporate Responsibility Committee Membership, FY 2001–2012
▲= chair, CR committee ○ = member of board, but not of CR committee
For the Fiscal Year Ended May 31, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Board Member
Jill K. Conway, visiting scholar, MIT
Program in Science, Technology and
Society, former professor of history and
President of Smith College
▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲
Richard K. Donahue, vice chairman of the
board, partner – Donahue & Donahue,
Attorneys PC (Chelmsford, MA law firm)
• • • •
Douglas G. Houser, partner, Bullivant,
Houser, Bailey (Portland, OR law firm)
○ ○ • • • • • • • • • •
Jeanne P. Jackson, founder & CEO, MSP
Capital, Newport Coast, California
○ ○ ○ • • • •
John C. Lechleiter, chairman of the board,
president, and CEO of Eli Lilly and Company
• • • •
Johnathan A. Rodgers, retired president
and CEO, TV One, LLC
• • • • • •
A. Michael Spence, former dean, Graduate
School of Business, Stanford University
• • ○
John R. Thompson, Jr., former head coach
of the Georgetown University men’s
basketball team, former head coach of the
1988 United States Olympic basketball team
○ ○ • • • • • • • • • •
Phyllis M. Wise, vice president and
chancellor, University of Illinois at Urbana-
Champaign, former professor and executive
vice president and provost of the University
of Washington
• • ▲
Source: Compiled by casewriter from Nike, Inc. regulatory filings, http://investors.nikeinc.com/Investors/Financial Reports-and-Filings/SEC-Filings/default.aspx, accessed January 2013.
• = member, board CR committee
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Governance and Sustainability at Nike (A) 313-146
29
Exhibit 10 Selected Nike Water-Related Initiatives, 2001–2012
This chart shows key initiatives related to water use, hazardous materials, and waste in the supply chain
launched by Nike, Inc. during the period 2001–2012.
Initiative Launch
Date
Highlights
Nike Water
Program
2001 Designed to promote efficient water use and reduction of pollutants by contract
manufacturers
In 2001, included some 55 textile dyeing and finishing vendors, and focused on
water quality and effluent discharge.
By 2007, included 325 vendors, 22% were in China. Total annual wastewater
discharge by participants was 34 billion gallons, 40% was in China.
By 2012, covered 500 of Nike’s 900 vendors, tracking over 60 billion gallons
annually (about one tenth for Nike products).
Nike required participants to meet both legal requirements and Nike standards
for water quality using the H2O*Insight Water Tool
Participants supplied data on water use and discharge, including permits,
water-quality tests, processes used, and materials produced
Participants who did not meet legal requirements were required to submit plans
for improvement, including timelines outlining expected progress
Nike field teams provided evaluation and training on leak detection, reuse of
grey water, and other conservation techniques
In 2011 H2O*Insight Water Tool made publicly available
Restricted
Substances
List (RSL)
2001 List of chemicals not permitted to be present in any finished Nike product
Enforced by audited, third-party testing of finished products
Per Nike, list “based on the most stringent worldwide legislation,” including
“additional substances that Nike has voluntarily decided to restrict”
Abbreviated list made publicly available on Nike website
List shared with all materials vendors
Sustainable Chemistry Guidance introduced in 2010
Complement to RSL
Identified preferred materials and alternatives
Considered
Index and
Materials
Analysis
Tool
2006 Designers used Considered Index to evaluate waste and materials impacts of
their design choices, including water and chemical use
Set targets for products meeting Considered Index baseline standards
Met 2011 Considered targets.
Foundation for development of apparel, footwear, sustainability, and materials
sustainability indexes
Shared with the industry and Sustainable Apparel Coalition
Green
Chemistry
Program
2006 Sought to educate participants at all levels of its supply chain to promote
innovative alternatives to use of hazardous chemicals
Introduction of Nike Environmentally Preferred Rubber (EPR)
Reduced hazardous chemical use by over 95%
Made EPR patent available to industry using GreenXchange
Switch from solvent-based to water-based adhesives (predates formal launch)
Source: “Nike, Inc.’s Response to Greenpeace Report,” press release, July 18, 2011, http://nikeinc.com/news/nike-inc%E2
%80%99s-response-to-greenpeace-report; and Nike CR reports, http://nikeinc.com/pages/reporting-governance,
accessed January 2013.
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customerse[email protected] or 800-988-0886 for additional copies.
313-146 Governance and Sustainability at Nike (A)
30
Exhibit 11 Sustainable Business & Innovation (SB&I) and Nike, Inc. Organization Chart, 2012
Source: Adapted from http://www.nikeresponsibility.com/report/content/chapter/our-sustainability-strategy#info
graphic138, accessed January 2013.
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customerse[email protected] or 800-988-0886 for additional copies.
Governance and Sustainability at Nike (A) 313-146
31
Exhibit 12 Summary of Projects—“Joint Roadmap: Toward Zero Discharge of Hazardous
Chemicals” (signed November 2011 by Nike, Inc., Adidas Group, C&A, H&M, Li Ning, and Puma)
The table below summarizes the major actions to be taken based on this roadmap and their relative impact on
the issues of inventory, disclosure, elimination, and verification.
Categorization of
Roadmap Element
Roadmap Element
In
v
e
n
to
ry
D
is
cl
o
su
re
E
li
m
in
a
ti
o
n
V
e
ri
fi
ca
ti
o
n
Supply
Chain
Coverage
Benchmark study whether 9 classes of chemicals not in discharge to water or
sludge using on-site visits and audits, inventories, and analytics where appropriate.
Pilot
Develop action plan to address phase-out of any 9 chemical classes found in
benchmark study.
100%
Communication to suppliers to source APEO/NPE-free preparations, initiate
project to identify “positive list” of APEO/NPE-free detergents.
100%
Conduct follow-up study at selection of facilities that have converted to
APEO/NPE-free detergents to identify remaining sources.
Pilot
Confirm, or set timelines for the elimination of products that are associated with
PFOA and PFOS by replacing C8 fluorinated water repellent chemistry with
alternative technologies including short-chain fluorochemical water repellents
approved by global regulators.
100%
Develop a comprehensive, generic inventory of chemicals used in textile
manufacturing. 100%
Identify and agree to a cross-industry screening tool for chemical hazards. 100%
Establish a plan to evaluate the chemical inventory by intrinsic hazard and
establish a sector wide list of hazardous chemicals.
100%
Expand our current efforts of prescribing alternative (greener) chemistries to be
used on our products.
100%
Develop a joint generic audit approach for environmental performance (including
chemicals management).
100%
Develop a shared dye house and printer audit protocol with a competent third
party.
100%
Within legal confines, develop a program to incentivize suppliers to fulfill the dye
house and printer audit protocol.
100%
Continue expansion of individual/collective RSLs and MRSLs. 100%
Develop shared approach with 3rd party for dye house and printer audit. 100%
Collaborate on joint training efforts and knowledge transfer and deliver a joint
training program in one or more countries. 100%
Convene cross sector group to explore the best ways to encourage sector wide
supplier chemical disclosure and deliver a study based on data collection from a
select group of facilities.
Pilot
Explore platform options for suppliers to disclose their chemical inventory under
the assumption that disclosing their inventory will have a positive effect.
Pilot
Scale of Impact: Low: Medium: High:
Source: “Joint Roadmap: Toward Zero Discharge of Hazardous Chemicals,” November 14, 2011, tozero.com/joint-roadmap.
php, accessed January 2013.
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313-146 Governance and Sustainability at Nike (A)
32
Endnotes
1 Market share data in this paragraph is drawn from Sporting Goods Intelligence, SGI Market Facts—Athletic Footwear & Apparel
2012 (2012).
2 This paragraph and other information on Nike’s origins is drawn from David C. Rikert and Roland Christensen, “NIKE (A)
Condensed,” HBS No. 391-238 (rev. October 13, 1998) (Boston: Harvard Business School Publishing, 1991). Ownership
structure after IPO compiled by casewriter from Nike, Inc., December 2, 1980 prospectus for 2,377,000 Shares of Class B
Common Stock.
3 Ibid.
4 Information on retail stores calculated from information in Nike press releases and annual reports; retail store numbers
adjusted by casewriters to reflect Nike’s sale of Cole Haan, announced in May 2013 and completed in February 2013.
See http://investors.nikeinc.com/default.aspx?SectionId=5cc5ecae-6c48-4521-a1ad-
480e593e4835&LanguageId=1&PressReleaseId=925edcdc-8937-4d31-a0fd-edf222fed4c1;
http://investors.nikeinc.com/default.aspx?SectionId=5cc5ecae-6c48-4521-a1ad-
480e593e4835&LanguageId=1&PressReleaseId=614bd751-2ad0-44b4-a78d-8b54bfa9e67c;
http://investors.nikeinc.com/files/doc_financials/AnnualReports/2010/docs/NIKE_2010_10-K.pdf;
http://investors.nikeinc.com/files/doc_financials/AnnualReports/2011/docs/Nike_2011_10-K.pdf; and
http://investors.nikeinc.com/files/doc_financials/AnnualReports/2012/docs/nike-2012-form-10K.pdf,
all accessed January 2013.
5 Ellen McGirt, “How Nike’s CEO Shook Up the Shoe Industry,” Fast Company, September 2010,
http://www.fastcompany.com/1676902/how-nikes-ceo-shook-shoe-industry.
6 See http://www.un.org/waterforlifedecade/scarcity.shtml; U.N Water Statistics: Graphs & Maps,
http://www.unwater.org/statistics_use.html; and http://unesdoc.unesco.org/images/0021/002171/217175E.pdf, all
accessed January 2013.
7 Casewriter calculation of amount based on industry analyst estimates of expected polyester production of 39 billion tonnes
for 2015, estimated water use 100–150 liters of water per kilogram of textile material, and U.S. Environmental Protection
Agency estimates of municipal water consumption. Sources: http://nikeinc.com/press-release/news/nike-inc-announces-
strategic-partnership-to-scale-waterless-dyeing-technology; https://www.ceres.org/roadmap-assessment/key-
findings/performance/operations/water-management#18;
http://www.prweb.com/releases/polyester_filament_yarn/polyester_staple_fiber/
prweb8121171.htm; and http://www.epa.gov/watersense/pubs/fixleak.html, all accessed January 2013.
8 Textile industry and pollution data reflects years 2003–2007. See World Bank Development Indicators, World DataBank, The
World Bank Group, and World Bank via CEIC, accessed February 2013.
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customerse[email protected] or 800-988-0886 for additional copies.
- Structure Bookmarks
- Governance and Sustainability at Nike (A)
- Company Background
- Origins and Growth
- Business Model
- Innovation and Sustainability
- The Origins of Corporate Responsibility at Nike
- Creating a Board-Level Corporate Responsibility Committee
- Integrating Corporate Responsibility into Operations
- A Systems Perspective
- Charting a Path Forward
- Building New Capabilities
- Toward Sustainable Business & Innovation
- Project Rewire
- Restructuring
- Evolving Role of the Board CR Committee
- DyeCoo Investment
- The Next Generation of Sustainability Targets
- The Planning Process
- Greenpeace Campaign
- New Sustainability Targets
- Final Adjustment
- Exhibit 1aNike, Inc. Income Statement, FY 2001–2011
- Exhibit 1bNike, Inc. Balance Sheet Data, FY 2001–2011
- Exhibit 2aNike, Inc. Revenues by Product Category within Geographic Region, FY 2009–2011
- Exhibit 2bNike, Inc. Revenues by Geographic Region within Product Category, FY 2009–2011
- Exhibit 3 Global Footwear and Apparel Industry Market Share Data
- Exhibit 4Major Nike, Inc. Shareholders
- Exhibit 5aChange in Stock Price, Nike, Inc. v. S&P 500, IPO through February 2012
- Exhibit 5bNike, Inc. Stock Price and Financial Ratios, FY 2001–2011a
- Exhibit 6 Composition of Nike, Inc. Board, with Committee Assignments, FY 2001–2012
- Exhibit 7 Nike, Inc. Executive Team, Calendar Year 2012
- Exhibit 8Selected Nike, Inc. Corporate Responsibility/Sustainability Goals Publicly Announced, 2001–2010 (as of announcement date)
- Exhibit 9Nike, Inc. Corporate Responsibility Committee Membership, FY 2001–2012
- Exhibit 10Selected Nike Water-Related Initiatives, 2001–2012
- Exhibit 11Sustainable Business & Innovation (SB&I) and Nike, Inc. Organization Chart, 2012
- Exhibit 12Summary of Projects—“Joint Roadmap: Toward Zero Discharge of Hazardous Chemicals” (signed November 2011 by Nike, Inc., Adidas Group, C&A, H&M, Li Ning, and Puma)
- Endnotes