Seeking Shelter

Nike

About Nike Case 4.1: The Legal Niceties

Putting the Shoes in the Shoe Business

In 1964, when Phil Knight decided to start importing Tiger shoes from Japan, he could

have set himself up as a sole proprietorship—an approach that offers several advantages:

He’d be the only owner, he’d have complete control over the business, and he’d get to

keep all the profits. So why didn’t he take this path? Because he knew he’d stand a better

chance if he went into business with his former running coach, Bill Bowerman. Knight

himself had a good business sense and a strong financial background, but he wasn’t an

expert on shoes. Bowerman was relatively unfamiliar with business, but knew a lot about

shoes. It was a good combination for the shoe business, and so Knight and Bowerman

shook hands, put up $500 apiece, and declared themselves partners. Dividing up their

responsibilities was easy: While Knight handled finances and daily operations,

Bowerman designed and tested the shoes, encouraged runners to wear them, and

promoted them among fellow coaches.

“Remember the Man”

What would Nike be like today if Knight had decided on a sole proprietorship instead of

a partnership? For one thing, it might never have gotten off the ground. Bowerman’s

contributions weren’t exactly negligible:

• He came up with innovative shoe designs.

• He invented the waffle outsole (using his wife’s waffle iron).

• He started the national jogging and running boom with a 1967 book.

• He understood the needs of athletes and insisted that the company meet them.

To many people, including Phil Knight, who refers to him as “the man,” no one was more

important to Nike than Bill Bowerman. To this day, new employees at Nike get a book of

motivational maxims, the last of which is “Remember the man.”

Seeking Shelter

In 1967, three years after launching their partnership, Knight and Bowerman incorporated

Blue Ribbon Sports as a private (or closely held) corporation. The initial stockholders,

like the initial partners, were Knight and Bowerman, who weren’t allowed to sell stock to

the general public. Why did they make this move at this time? Primarily to shelter their

personal assets from the risks entailed by the business. Now, for example, if the company

borrowed money that it couldn’t pay back, creditors couldn’t hold Knight or Bowerman

personally liable for its debts. As the company grew, the corporate form also helped

attract individual investors and money they needed to expand.

1Selling Shares

Blue Ribbon Sports became Nike in 1972. Sales continued to climb, but although the

business was clearly a success by 1980, there was still one nagging problem: It was

perpetually short of the cash that it needed to stay afloat and continue expanding. The

solution was taking the company public—selling shares of stock to the general public as a

means of bringing in the capital. Nike shares became available to the public in December

1980, and the company was soon cured of its cash deficiency. On the downside, the once

young and edgy, fly-by-the-seat-of-your-pants company now has to listen to and satisfy

several thousand shareholders. In a later chapter, we’ll see how the corporate form has

served Nike and its shareholders.

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