A company’s board of directors is often a big consideration when investment decisions are being made. In fact, there is at least one investment fund that focuses solely on utilizing metrics centered on effective governance in seeking to realize returns and gains from publicly traded companies.
So how does the world’s top ranking athletic products firm fare in the realm of good governance? Is the company’s board as nimble and high quality as the shoes they sell? Let’s find out.
Nike’s board of directors has 13 members. Slightly on the high side given that the average for companies of comparable size is 11. Nevertheless there are some advantages of having a considerable board. These include having a greater pool of experience and ideas to bring to the table and hopefully the opportunity for more diversity.
According to Nike’s corporate governance guidelines the company has a director retirement age of 72. In general older and more experienced directors bring wisdom, maturity, judgment and probably the time availability to abundantly serve the board if they are retired. In Nike’s case however this needs to be carefully balanced with the fact that the main target market for athletic footwear and sporting goods tends to be on the young side. The average age of Nike’s board is currently 63 years and there is only one board member younger than 50. Clearly the next few years will involve change of the composition of the Nike board as aging board members slowly step down. They would be wise to start thinking about who the replacements are going to be and hopefully they already have a qualified bench (to apply a sports analogy) identified.
In terms of expertise and experience the Nike board is strong in the area of technology. The board features representation from Microsoft and Tom Cook, COO of Apple brings not only technology but a strong operations background as well. The operations competency should also be there from John Lechleiter, Chairman and CEO of Eli Lilly and Company and possible even from Alan Graf, EVP and CFO of FedEx.
What Nike now needs is expertise in manufacturing or even more desirably, contract manufacturing. All of their footwear comes from contracted manufacturing facilities. Most of these facilities are in Vietnam, China, Indonesia, Thailand, and India. Apparel also comes from contracted manufacturing facilities in a startling 33 countries with the majority being from China, Thailand, Indonesia, Malaysia, Vietnam, Sri Lanka, Turkey, Cambodia, El Salvador, Mexico, and Taiwan. The complexity of this is astounding and the company has no such expertise, save for Tim Cook, at the board level.
Speaking of these foreign countries, another interesting fact is that more than 60% of NIKE’s revenue comes from international sales, and yet there isn’t a single board member with expertise in international marketing and branding. In fact, the company would do well to bring on a first-class marketing expert regardless of their geographical proficiency.
Nike considers themselves a consumer products company and accordingly has satisfactory consumer products expertise. Once again Tim Cook provides this insight as does Orin Smith formerly of Starbucks and currently on the Disney board. John Connors came from Microsoft and to stretch it slightly Jill Conway sits on the Colgate-Palmolive board and Johnnathan Rodgers sits on Proctor & Gamble’s board.
Clearly Nike has been doing very well. The company had 2010 revenues of $19.1 billion and has 690 NIKE owned retail stores worldwide and another 23,000 retail accounts in the US. They are very progressive in their environmentalism and their Foundation remarkably focuses almost solely on adolescent girls.
However, like all companies Nike faces a business world that is frenetically changing. Singularly they face new competition in the form of a much larger Adidas after its 2006 acquisition of Reebok. Continuously evaluating and improving their board of directors is just good smart business. It will also give investors a boost of confidence and will help the company stay ahead of the game (another sports analogy)!