Nike Rides Out its #MeToo Moment

Despite allegations of inappropriate behaviour at the company, the brand seems relatively untarnished

In the late 1990s, its image was tarnished by reports of abusive labour practices in its factories in Asia. Then-chief executive Phil Knight lamented that the brand had “become synonymous with slave wages, forced overtime, and arbitrary abuse.”

In 2015, it became entangled in a probe into corruption at FIFA.

Yet the company also has learned how to bounce back. Nike is now accredited by the Fair Labour Association, and considered a leader in sustainable labour practices. So, it isn’t so surprising that the company has gotten ahead of its latest scandal—alleged inappropriate behaviour by male employees, which resulted last week in the resignations of Trevor Edwards, Nike’s second-ranking executive, and Jayme Martin, one of his top lieutenants.

That came as the result of an internal investigation conducted by the company. It is a not-inconsequential loss of talent: Mr. Edwards was considered the heir apparent to Chief Executive Mark Parker. And, coming amidst the #MeToo reckoning with sexual harassment, the allegations could have done serious damage: Nike’s value lies in its brand, which has been built in great part around the empowerment of female athletes.

Yet when the company reported third-quarter earnings on Thursday, the stock bounced in after-hours trading. That is a reflection of a strong quarter: Nike reported earnings of 68 cents a share, beating analysts’ estimates by 15 cents, and grew revenue by 7%. It also said the quarter marked a turn in its North America business, which has suffered, promising that the next quarter will show a reversal of that trend.

But the bounce also owes something to Nike’s proactive handling of its latest unpleasant news. In the call with analysts, the allegations were the first thing Mr. Parker mentioned, acknowledging “behavioural issues that are inconsistent with Nike’s values of inclusivity, respect and empowerment.” The announcement of alleged inappropriate behaviour came from Nike itself, not an external media investigation or an employee exposé gone viral on social media.

When a company takes this kind of thing seriously and acts quickly, people are more willing to attribute it to a bad egg rather than blame the company as a whole, says Simeon Siegel, a retail analyst at Nomura Securities.

The incident also shows how rapidly firms are adapting to the #MeToo movement, learning from the bad examples of others that it is better not to sweep such allegations under the rug.

With so much at stake, Nike had to handle the latest incident deftly, and appears to be doing so. Part of its strategy to reverse its domestic sales decline and deliver that promised return to growth is to engage more directly with consumers. It will need its female fans now more than ever.