The debate about Nike’s CEO breaks out into the public

In recent months, rumors about Nike CEO John Donahoe’s ouster from his position in 2020 have evolved from whispered speculation to open discussion as pressure grows on the brand to put an end to a historic crisis.

Analysts at Bernstein wondered in an email to clients earlier this month whether a management change was “likely.” Stephanie Link, chief investment strategist at Hightower Advisors, told CNBC: “I think for the stock to work, there has to be some sort of management change.”

Nike is trying to change the mood around the brand. After the successful Olympics, the sporting goods giant got its marketing back on track and hammered home its new “winning isn’t for everyone” ethos as several Nike-sponsored teams and athletes won gold in Paris. And last week, Williams trading analyst Sam Poser upgraded the company to “buy” from “sell,” citing as catalysts the reaction of major retailers to Nike’s rehiring of veteran Tom Peddie and efforts to limit distribution of oversaturated sneaker lines like the Air Force One.

But a growing number of investors and analysts believe that changes at the top are necessary for a turnaround to have an impact. Executive shake-ups are on the way. There has been a spate of CEO changes recently, with Starbucks, Victoria’s Secret and Estée Lauder all making surprise moves in recent weeks. Analysts are now joining the public debate over Donahoe’s tenure at Nike, fuelled by suggestions that the sportswear giant, whose shares have fallen 21 percent since January, could be the next target of activist investors.

Nike has been building positive momentum recently by publicly admitting some of its shortcomings and beginning to address them. (Shares are up 14 percent in the past month.) But it remains to be seen whether things can turn around at Nike quickly enough to convince investors and the company itself that Donahoe is the right boss. He continues to enjoy Nike’s backing, and the likelihood of activist investors pressuring the brand to fire him is slim, since co-founder Phil Knight controls the company’s board and voting stock.

But Nike is still at the beginning of a long-term transformation that won’t happen overnight. And the longer it takes to see results, the more pressure Donahoe will face.

“A change at the top would certainly boost morale on campus and send a clear signal to the stock market and the industry that change is coming,” said Matt Powell, a sportswear industry analyst.

What is behind the rumors about a change in leadership at Nike?

Earlier this month, Pershing Square Capital, led by well-known activist investor Bill Ackman, announced that it owned three million Nike Class B shares worth $299 million. The move fueled analyst speculation that Nike could be in the crosshairs of activist investors demanding a change in leadership.

Calls for Donahoe’s firing have intensified as Nike’s troubles have mounted. In June, the company forecast a mid-single-digit decline for the year to May 2025 after reporting just 1 percent growth in the last fiscal year. If that forecast comes to fruition, it would be the company’s worst performance in 26 years.

Critics have squarely placed the blame on Nike management under Donahoe, citing missteps such as a lack of product innovation, too much reliance on retro sneakers, uninspired marketing, and a too-radical shift to direct-to-consumer sales (though some of the issues that hampered the brand, like the shift to DTC, predate Donahoe’s tenure). For years, Nike showed little urgency to address these problems.

“When a new CEO comes in, you usually feel the impact of their work within a year,” says Jessica Ramirez, senior research analyst at Jane Hali and Associates. “Donahoe was hired four years ago, and we haven’t seen any brand evolution at all in that time.”

How likely is a short-term change in leadership at Nike?

Donahoe appears to be counting on the all-important support of Phil Knight, who publicly expressed his “unwavering confidence and full support” for the CEO in June.

Although Knight retired from Nike’s board in 2016, he still controls the company through his company, Swoosh LLC, which owns 77.5 percent of Nike’s Class A stock. Knight himself owns another eight percent, according to Nike’s annual meeting notice filed in July. Another 11.7 percent of Class A stock is owned by his son, Travis Knight, meaning the family controls over 97 percent of the company’s voting stock.

Holders of Class B stock only have the right to elect 25 percent of Nike’s board, according to the filing, allowing Knight to assemble a board loyal to him. That board currently includes his son, Travis, and Chairman and former CEO Mark Parker, a close ally of Knight’s and a 45-year veteran of Nike.

The best thing an activist investor could do would be to “come in and stir up trouble, go to the press and make the board uncomfortable,” Powell said. “Ultimately, because of the structure of the company, nothing is going to happen unless Phil Knight wants it to.”

However, circumstances can change quickly. Even Starbucks’ former CEO had the company’s support until he no longer had it.

Who could succeed John Donahoe?

Analysts speculate that possible candidates to succeed Donahoe could be the recently resigned Deckers CEO Dave Powers or Foot Locker CEO Mary Dillon, who already works closely with Nike.

A major criticism of Donahoe’s leadership, however, was the fact that – unlike his predecessor Parker, who started as a Nike shoe designer in the 1970s – he was both an outsider at Nike and had no product experience. The only other outsider to lead the company was William Perez, who was named CEO in late 2004 and resigned in January 2006 after disagreements with Knight. Experts believe Nike will try to address one or both of these issues should it hire a successor in the future.

Bernstein said a possible internal candidate – such as Heidi O’Neil – was an option, but would be viewed less favorably by investors “given the obvious need to disrupt Nike.”

“It’s always better if the candidate has a product background,” Ramirez said, pointing to the role Adidas CEO Bjørn Gulden was able to play in the brand’s faster-than-expected turnaround after his hiring in January 2023.

Powell stressed that a change in leadership will not magically solve Nike’s problems and that the solution will likely take several quarters.

Until Nike makes a different decision, Donahoe remains the person they trust to turn the brand around. The clock is ticking.