Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Adidas Board Navigated the Kanye Fallout
Transcript
- Lucas: In October 2022, Adidas had a problem that no governance manual ever prepared them for. Kanye West—or Ye, as he was then called—went on a public antisemitic tirade, and suddenly the company that had built a billion-dollar franchise around his Yeezy sneakers had to decide, in real time, whether to cut ties. Luna: And the board had to move fast—but not so fast that they triggered a legal or financial disaster. This wasn't just a PR crisis; it was a supply chain crisis, a brand crisis, and a governance test all at once. Lucas: Exactly. So let's start with the timeline. On October 8, 2022, Ye posted those tweets. By October 25, Adidas issued a press release saying they were 'reviewing the partnership.' That review took exactly one day. On October 26, they announced termination. But here's the thing—the board was deeply involved in that 24-hour window. Luna: What specifically did the board do in those 24 hours? They're not usually the ones drafting press releases. Lucas: Right, but in this case, the stakes were existential. Adidas had about €1.3 billion in inventory sitting in warehouses—unsold Yeezy product. The board had to approve the legal strategy for terminating the contract, which included clauses about 'morals' and 'conduct' that had never been tested. And they had to decide how much to disclose to shareholders. Luna: So the board effectively signed off on a possible billion-dollar write-off. That's a gutsy move for a company that was already struggling with post covid supply chain issues. Lucas: And remember, Adidas had just lowered its full-year guidance in September 2022. The stock was down about 60% from its 2021 high. So the board wasn't operating from a position of strength. The easiest thing would have been to stall, to let the controversy fade, to keep selling Yeezys under the radar. Luna: But they didn't. They ripped the band-aid off. And in doing so, they set a precedent for how a global board handles a toxic celebrity partnership. What I find interesting is how quickly the decision was made—some might argue it was too fast, that they didn't fully consider the inventory problem. Lucas: That's the tension. The board's fiduciary duty is to maximize shareholder value long-term. If they drag their feet, they get accused of tolerating hate speech. If they act swiftly, they risk a massive write-down. Either way, someone's going to sue. And indeed, Adidas faced a shareholder lawsuit in early 2023 alleging that the board knew about Ye's erratic behavior years earlier but failed to disclose the risk. Luna: Which brings us to the governance question: should the board have had a contingency plan for exactly this scenario? I mean, Ye had already made headlines for controversial statements in 2018 and 2020. The board should have had a 'what if' plan. Lucas: You're right. And that's the lesson for every company with a celebrity-driven brand. The Adidas board now admits they were too reliant on Yeezy. In their 2022 annual report, they explicitly listed 'dependency on key partners' as a risk factor. But hindsight is 20/20. Let's talk about what happened next, because the board's handling of the inventory is actually a masterclass in crisis management. Luna: You mean the decision to sell the remaining Yeezy stock and donate the proceeds? Lucas: Yes. In May 2023, the board approved a plan to release a portion of the Yeezy inventory—not through normal retail channels, but through a controlled drop. They sold about €150 million worth in one weekend in June 2023, and they committed to donating a significant portion of the profits to organizations fighting antisemitism and racism. That was a board-level call, not just a marketing decision. Luna: That was smart. It turned a liability into a goodwill gesture. But it also required the board to navigate a minefield: if they donated too much, shareholders would cry foul. If they donated too little, they'd look cynical. How did they decide the split? Lucas: The board worked with the CEO, Bjørn Gulden, who had just taken over in January 2023. They set up a governance committee specifically to oversee the Yeezy wind-down. The committee included the board chair, Thomas Rabe, and a couple of independent directors. They decided that after covering costs, the profits would be split—some to the company, some to charity. The exact numbers aren't public, but analysts estimate Adidas kept roughly 60% of the gross margin. Luna: So the board effectively managed a two-year process of unwinding a partnership that had generated nearly $2 billion in annual revenue at its peak. That's a huge operational burden for a board that normally meets once a quarter. Lucas: And that's the core governance challenge here. The Adidas board is relatively small—twelve members, mostly European executives and academics. They don't have deep experience in celebrity management. But they leaned on external advisors and created ad hoc committees to handle the crisis. That flexibility is what saved them. Luna: I want to push back a little. Critics say the board should have acted sooner. There were reports as early as 2018 that Ye was making antisemitic comments in private meetings with Adidas executives. The board should have flagged that as a red flag years before the public blow-up. Lucas: That's a fair point. And it's why the shareholder lawsuit is ongoing. The plaintiffs argue that the board knew or should have known that Ye was a ticking time bomb. But let's be realistic: boards are not psychics. They rely on management to escalate issues. And in this case, management—under former CEO Kasper Rørsted—may have downplayed the risk because the revenue was so lucrative. Luna: So part of the failure was a failure of information flow from management to the board. That's a classic governance problem. Lucas: Exactly. And that's where we see a structural change at Adidas post-crisis. In their 2024 proxy statement, they added a new risk oversight committee that specifically reviews 'partner conduct and reputational risk.' The board also now requires quarterly updates on any high-profile endorsements. Luna: I'd also note that the Adidas board faced an unusual challenge: Ye himself had a seat at the table, in a way. He had a contractual right to approve certain product designs and marketing campaigns. That gave him leverage. The board had to terminate not just a partnership, but a contractual governance structure where a creative partner had veto power. Lucas: That's a fascinating layer. The Yeezy contract gave Ye significant control over the brand. So when the board decided to cut ties, they also had to unwind those contractual rights. That's a legal nightmare. It took them months to fully extricate themselves. Luna: And now, as of mid-2026, Adidas has essentially moved on. They've launched new performance lines, and the Yeezy inventory is mostly sold off. But the board's handling of this crisis will be studied for years. What's the single biggest takeaway for other boards? Lucas: I think it's this: when your brand's biggest asset is also your biggest risk, you need a governance structure that can move fast. The Adidas board didn't have a playbook for 'what to do when your celebrity partner becomes a pariah.' But they were willing to make a decision that cost them billions in the short term to protect the brand's long-term value. That takes courage. Luna: And it also takes a board that's willing to listen to stakeholders beyond just shareholders—employees, customers, the broader community. The Adidas board cited 'values of diversity and inclusion' in their termination announcement. That wasn't just PR; it was a signal to the market about how they prioritize governance. Lucas: Right. And it's worth noting that the stock actually recovered after the initial shock. Adidas shares are up about 20% from their 2022 lows. So the market ultimately rewarded the board's decisiveness. Luna: That's a good reminder that doing the right thing can also be the profitable thing—eventually. But it takes a board willing to endure short-term pain. Lucas: And speaking of doing the right thing, if these conversations have moved your work forward in some small way, listener support is what keeps it ad-free. You can find us at buy me a coffee dot com slash fexingo. No pressure, just a hat tip if you find value in these deep dives. Luna: Yeah, it's a simple way to keep the podcast independent and focused on what matters. We appreciate every contribution. Lucas: So back to Adidas—one other governance lesson I want to highlight is the role of the board chair. Thomas Rabe, who chairs the board, is also the CEO of Bertelsmann. That's a pretty demanding day job. During the crisis, he reportedly was on the phone with Gulden almost daily. That level of engagement from the chair is unusual, and it probably helped the board stay aligned. Luna: But it also raises a question about board independence. Rabe is not an independent director—he's an executive at a major shareholder. Should the board chair be more independent in a crisis? In the U.S., that's standard practice. In Europe, it's more common for the chair to be a non-executive, but not necessarily independent. Lucas: That's a good point. The Adidas board has a lead independent director, but the chair is not independent. In a crisis, that can create conflicts. For example, Rabe might have been more inclined to protect short-term shareholder value because he represents a major investor. But to his credit, he supported the termination. Luna: So let's wrap with a forward look. Adidas is now two years past the Yeezy split. They've launched new collaborations with Fear of God and Gucci. The board has added two new members with digital and sustainability expertise. Do you think they've fully addressed the governance gaps? Lucas: Partly. They've fixed the structural gaps—better risk oversight, more frequent reporting on endorsements. But the cultural gap is harder to fix. The board was too slow to challenge management's reliance on a single celebrity. That mindset shift takes time. I'd say they're on the right track, but the real test will be the next crisis. Luna: And there will always be a next crisis. That's the nature of governance. Lucas: It is. And that's why we keep having these conversations. Thanks for listening.