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Why I'm Not Buying Nike

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This article is part of our Rising Star Portfolio series.

Several weeks ago, I outlined three promising stock ideas for the socially responsible Rising Star portfolio I'm managing for I ended up purchasing shares of one: Darden Restaurants (NYSE: DRI  ) , a bargain-priced stock of a surprisingly socially conscious company.

For a while, though, I was leaning toward purchasing Nike (NYSE: NKE  ) for the portfolio. Nike is making great strides in sustainable manufacturing and phasing out toxin use. However, Nike's recent response to the ongoing Penn State controversy has struck me as not only socially irresponsible, but even socially reprehensible.

Abuse of power
Nike has continued its sponsorship of Penn State's football team even after the mounting allegations of sexual abuse of minors lodged against former assistant football coach Jerry Sandusky. Not only has Nike failed to extricate itself from its relationship with Penn State, Nike has made another mind-boggling blunder.

Although Penn State has fired former head coach Joe Paterno for his failure to blow the whistle to authorities (which of course sounds a lot like he was more interested in protecting Sandusky and his own reputation than protecting children), Nike is retaining the following name for a day care facility: The Joe Paterno Child Development Center.

Granted, Nike is known for standing behind athletes after high-profile, newsworthy personal errors. Tiger Woods is a prime example. Although companies like Procter & Gamble (NYSE: PG  ) , PepsiCo (NYSE: PEP  ) , and Accenture (NYSE: ACN  ) dropped or significantly decreased their exposure to Tiger Woods after his philandering scandal in 2009, Nike stood firmly behind its sponsorship of Woods.

Tiger Woods' behavior was shameful and hurtful to his family, but by comparison, it doesn't hold a candle to the heinous nature of the Penn State scandal. Adults have options; a scorned spouse can leave, file for divorce, or, say, beat the daylights (and headlights) out of a car with a golf club (that last option isn't highly recommended).

However, children are our most vulnerable citizens; they have few options, they rely on adults for guidance, examples, and even survival, and they're still learning about life. When they're victimized, we should all be outraged.

Take a stand; just do it
Perhaps some can defend Nike, and point out that Penn State has been making its own amends, such as firing many of the university officials that contributed to a culture that protected its own at the expense of children's well-being. Penn State also recently announced plans to extract $1.5 million from its athletics program and redirect it to the Pennsylvania Coalition Against Rape and the National Sexual Violence Resource Center.

Still, Nike has copped out in a big way by standing firm (and, I reckon, hoping this will all blow over and leave it untarnished). So have many other companies that have held firm to sponsorship deals with Penn State, such as AT&T (NYSE: T  ) and PepsiCo (which already has a spot in my Rising Star portfolio). (Although about six sponsors reportedly pulled ads from ESPN broadcasts of Penn State games in mid-November, with the exception of, it wasn't clear which companies jumped.)

However, I'd argue that Nike's probably the worst offender, because its products directly tie in with athletes and, theoretically, athletic excellence. Our society makes heroes out of athletes, and in some way that relates strongly to Nike's brand, but the situation at Penn State was the ultimate in cowardice, regardless of athletic prowess.

I'm not going to sell PepsiCo, but let's just say that for now I'm terribly disappointed by this incident and the response, and the situation has dented the company's esteem for me. As for Nike, I'm no longer so impressed by its sustainability programs when its Penn State sponsorship and accolades to individuals like Joe Paterno imply that ethics don't matter.  

At some point, it's time to take a stand. And when children have been put at risk and victimized by the adults they should have been able to trust, I'd say it's time. Maybe Nike and PepsiCo are still thinking about it, but I'd like to think Nike and PepsiCo can do far better than this. There shouldn't have been much to think about when it comes to the sexual abuse of children.

Since PepsiCo is on thin ice with regard to my Rising Stars portfolio, you can add the company to My Watchlist to see if any future slip-ups perpetuate their fall from socially responsible grace. You can click here to add them today; the service is free of charge.

Alyce Lomax does not own shares of any of the companies mentioned in her personal portfolio. The Motley Fool owns shares of Darden Restaurants and PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo, Procter & Gamble, Accenture, and Nike. Motley Fool newsletter services have recommended creating a diagonal call position in Nike as well as in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 06, 2011, at 12:22 PM, DoctorLewis4 wrote:

    Love your articles and your point of view. Not sure if Nike can get out of that contract but that being said if Penn State wanted to start doing the right thing it would drop football for five years.

  • Report this Comment On December 06, 2011, at 3:19 PM, kbuch1 wrote:

    You're suggesting that the football players of Penn State should be punished for the acts of the individuals. Do you truly believe that? Do you really think that Nike should pull all of it's funding from the program and punish the entire football program, including the players who have had nothing to do with this?

    That seems extreme, and I would disagree strongly.

    I agree that Nike should rethink its stand on not renaming the building.

    But I do not believe that the school and students should be punished any more than they already have.

  • Report this Comment On December 06, 2011, at 3:23 PM, KeenSkeptic wrote:

    I'm certainly in favor of corporations considering social responsibility when making decisions, but I'm not sure that Nike dropping Penn State would really prove anything. The Nike association with Penn State isn't limited to the football team, and no student-athletes are implicated in the Sandusky atrocities. The criminals and enablers associated with the scandal are not the primary vehicle of promoting Nike apparel - it's the student-athletes. And Penn State is still a key player in collegiate athletics.

  • Report this Comment On December 06, 2011, at 5:29 PM, Wesss wrote:

    TMF is a professional stock advisory. I expect a little more analysis than just a daydream that Nike "extricate itself from its relationaship with Penn State".

    I'm no lawyer, but I don't remember "extricating" as an option from my contract law classes. And I assume there are very specific restrictions, costs, etc. involved in this contract. Nike has an obligation to shareholders ahead of a vague notion of "morals".

    And how is yanking the support out from under all the basketball, volleyball, track, and other athetes the right thing to do when everyone actually involved in the scandal has been fired? Whom, exactly are you hoping to punish?

    Leave the op-ed pieces out of my business advisory service, please.

  • Report this Comment On December 06, 2011, at 7:49 PM, 25investor wrote:

    So . . . no trial, no jury, just dump Penn State. The faster the better.

    That's socially responsible?

    You know the press has gotten things wrong before - remember Richard Jewell?

    If Penn State is found guilty then Nike may want to take some action - I say may because some of the other comments are correct in my view.

    However, I don't think you'd agree with hanging a man without a trial, but that what your advocating here.

  • Report this Comment On December 06, 2011, at 11:41 PM, 5forfighting wrote:

    Thanks for encouraging me to add to my Nike shares today.

  • Report this Comment On December 07, 2011, at 7:20 PM, TMFLomax wrote:

    Hi everyone,

    I'm reading your feedback with interest, and have definitely gotten a lot of feedback about the ramifications to Penn State in other forums -- I am getting the impression that my viewpoint on this is a minority view amongst a lot of investors.

    There's a discussion on this topic on my RSP dedicated discussion board here, too, with some additional points made (and taken):

    One of the things I want to do with this portfolio is to hear different angles and discussions on stocks' social responsibility, including hearing arguments as to why I might be wrong in coming to a particular conclusion. So thanks for offering up the defense of Nike's stance on this situation.



  • Report this Comment On December 07, 2011, at 7:55 PM, Alfistigeno wrote:

    Too judgmental. Too moralistic. Please read David Brooks' column in the N. Y. Times about the quick and harsh judgments of Paterno. People say that if they were in his position they know they would have reacted better. Wrong! Brooks cites lots of psychological research to show that most people are passive in a crisis. It's called the Bystander Effect.

    In hindsight there is much that was wrong, but don't be so righteous. My complaint is the passivity of the PSU Board. They knew for a long time that there was an investigation but did nothing. The team should not be punished.

  • Report this Comment On December 08, 2011, at 11:03 AM, chharper1 wrote:

    All I can say to this kind of thinking is WOW, you seriously must be kidding yourself and your readers.

    UGH. Knee-jerk, holier than thou, over-reaction and placing serious blame at the wrong feet and proposing the WRONG solutions.

  • Report this Comment On December 10, 2011, at 6:28 PM, MichaelDSimms wrote:

    I agree with many comments made here. Social responsibility is one thing. But Business is business, and should not be influenced by a single individual who has been accused, not convicted of a crime. You don't throw out the baby with the bath water.

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