Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Adidas Board Handled the Kanye West Fallout
Transcript
- Lucas: October 2022. Adidas cuts ties with Kanye West after weeks of antisemitic rants. The press release is three paragraphs. But behind that, the supervisory board had to decide whether to torch a partnership that was generating roughly 8 percent of the company's total revenue — about two billion dollars a year at its peak. Luna: And that decision wasn't just about values versus profit. It was also about what you do with a warehouse full of sneakers nobody can sell. Lucas: Exactly. The board knew the second they severed the deal, they'd be sitting on roughly one point three billion dollars in unsold Yeezy inventory. That's not a hypothetical — that's the number Adidas disclosed in early 2023. Finished goods, raw materials, work in progress, all bearing the Yeezy brand. Luna: So how did the board even get to that point? I mean, Kanye's erratic behavior wasn't new. He'd gone on antisemitic tirades before, and Adidas had stuck with him. Lucas: Right. And that's the governance question. The partnership agreement actually included a morality clause — standard stuff, you can terminate if the partner engages in conduct that damages the brand. But the board had to weigh activating that clause against the financial hit. And for years, the financial hit argument won. Lucas: Look at the timeline. In 2018, Kanye called slavery a choice. Adidas said they were 'evaluating' the relationship. Nothing changed. In 2020, he went on a rant about his children's school. Again, no action. The board's calculus was basically: Kanye is volatile, but Yeezy is a cash machine. Luna: So what finally tipped the scale in October 2022? Was it the public pressure, or did the board just decide the reputational risk had crossed a threshold? Lucas: It was both, but I'd argue the threshold shifted when the ADL and other Jewish organizations started calling for a boycott. And then Kanye showed up at Paris Fashion Week wearing a 'White Lives Matter' shirt. That was the moment the board realized the brand damage was no longer containable. Lucas: But here's the thing — the board didn't act immediately. Kanye's first major antisemitic tweet was October 8th. Adidas issued a statement on October 13th saying they were 'reviewing' the partnership. They didn't actually terminate until October 25th. That's over two weeks of deliberation. Luna: Which, in crisis terms, is actually pretty slow. I've seen boards make acquisition decisions faster than that. Lucas: Because the stakes were enormous. The board had to model the downside: if they cut Kanye, they lose the revenue, they write down the inventory, and they potentially face a lawsuit — Kanye did sue, by the way, though it was dismissed in 2023. If they don't cut him, they risk a consumer boycott and talent refusing to work with the brand. Luna: And there was also the CEO transition complicating things. Kasper Rørsted was still CEO during the crisis, but he'd already announced he was stepping down. Bjørn Gulden didn't take over until January 2023. So the board was managing the crisis with a lame-duck CEO. Lucas: That's a critical detail. Rørsted had been CEO since 2016, but by mid-2022 the board had decided a change was needed. So in the middle of the biggest brand crisis in Adidas history, the board had to rely on a CEO who was already on his way out. That's a governance nightmare. Lucas: And to their credit, Rørsted handled the termination competently. He personally called Kanye to inform him, then oversaw the initial inventory freeze. But the long-term strategy for the Yeezy inventory fell to Gulden. Luna: Gulden came in and basically said: 'We're not going to destroy the shoes. We're not going to dump them at a discount. We're going to sell them in stages and donate a portion of the proceeds to anti-hate organizations.' That was the board-approved plan, right? Lucas: Yes. And the board had to sign off on that because the inventory was a classified asset on the balance sheet. The first drop was in May 2023 — about 500 million euros worth of Yeezy sneakers. Adidas sold them at full price, donated a percentage to charities like the ADL, and turned what could have been a massive write-off into a recovery. Lucas: By the end of 2023, Adidas had sold through most of the Yeezy inventory, generating about 750 million euros in revenue from those sales. They took a hit on the remainder, but it was far less than the one point three billion they initially feared. Luna: So the board's decision to terminate quickly — even though it was slow in the moment — actually preserved more value than if they'd tried to phase Kanye out quietly. Because by cutting cleanly, they kept control of the narrative. Lucas: Exactly. And that's the lesson for a lot of boards. When a brand partnership becomes toxic, the worst option is to try to manage it halfway. You either commit to the relationship and ride out the controversy, or you sever it and take the short-term pain. The middle ground — saying 'we're reviewing' for weeks — that just intensifies the pressure. Luna: What about the board composition? Did Adidas have the right people in the room to make this call? Their supervisory board at the time included some heavy hitters — former Puma CEO Jochen Zeitz, a few ex bcg partners. But was there anyone with specific expertise in managing influencer risk? Lucas: Not really. And that's a gap. Most boards have audit committees, compensation committees, nomination committees. Very few have a 'celebrity partner risk' committee. But after Yeezy, you're seeing more brands build that into their governance. Nike has a dedicated brand risk function. Puma now requires board-level sign-off on any partnership exceeding a certain revenue threshold. Lucas: There's also the question of whether the board should have seen this coming earlier. Kanye had demonstrated a pattern. The board had the morality clause. They could have put in place early warning triggers — if the partner makes a public statement that generates negative media coverage above a certain threshold, the board is automatically looped in. Luna: But they didn't. And I think that's partly because the revenue was just too good. Yeezy was reportedly generating about a billion and a half in annual revenue at its peak, with margins that were significantly higher than the Adidas core business. When a single product line is that profitable, it's hard for a board to see it as a risk rather than an asset. Lucas: And that's the core governance tension. Boards are supposed to be the risk oversight body. But in practice, they often get captured by the upside. The same dynamic we saw at Nike with Tiger Woods — though that recovery was smoother — or at Gap with Kanye earlier in his career, before he moved to Adidas. Lucas: I think one of the smartest things the Adidas board did after the crisis was commission a post-mortem. They brought in an outside law firm to review the decision-making process. The result wasn't made public, but the board did implement a new 'brand partnership risk framework' — which basically means any partnership above a certain size now requires quarterly board-level review. Luna: Which is a practical change. But it also signals something important: the board admitted that their previous oversight wasn't adequate. Lucas: Right. And that's rare. Most boards don't like to publicly acknowledge they could have done better. But Adidas was facing shareholder lawsuits — one from a pension fund in Ohio — so they needed to show they were taking corrective action. Lucas: By the way, if these conversations have moved your work forward in some small way — given you a framework for thinking about a board decision, or helped you articulate a governance issue — a couple of dollars a month is genuinely what keeps these going. Luna: It's true. We keep the show ad-free because we don't run any sponsors. That's entirely listener-supported. And it's small amounts that add up. Lucas: Right. So if you've gotten something out of the episodes, you can find us at buy me a coffee dot com slash fexingo. That's all lowercase. And it truly makes a difference. Luna: Yeah. Now, back to Adidas — one thing I wanted to ask about the staged liquidation: did the board worry that selling Yeezy inventory at full price would look like they were profiting off the controversy? Lucas: They absolutely did. And that's why they paired the sales with donations. The first drop included a pledge to donate 15 million euros to organizations fighting antisemitism and racism. That wasn't just PR — it gave the board cover to recover value without appearing to endorse Kanye. Lucas: The alternative was to destroy the inventory. But that would have been a massive environmental waste and a total write-off. The board calculated that a controlled, charitable-linked sale was the least bad option. And given that the first drop sold out in hours, they were right. Luna: It also set a precedent. Now, when any brand faces a similar situation, they have a template. You don't just torch the inventory. You find a way to extract value while signaling your values. Lucas: Exactly. And that's the long-term governance lesson from the Adidas board: crisis decisions aren't just about the immediate problem. They create precedents that shape how the entire industry responds. The Yeezy playbook will be referenced for years. Lucas: So if you're a board member listening to this, the question to ask yourself is: do you have a plan for what happens when your biggest brand partner becomes the story? Because the odds are, at some point, they will. Luna: And if the answer is no, maybe it's time to draft one. Before the crisis, not during. Lucas: Right. That is, in a nutshell, the board's job.