In The Leader’s Guide to Radical Management, Stephen Denning argues that organisations are governed by narrative, the deeper story about who the organisation believes it is and what it exists to do.

Nike’s collaboration with Michael Jordan in the 1980s established more than a product line. It defined identity. Nike positioned itself as the challenger brand, aligned with individual performance over institutional constraint. That posture became embedded in how the company saw itself.

Nike did not own factories. Its production model was foundationally outsourced. Instead, it focused on design, innovation and brand while contracting manufacturing across Asia.

When poor labour conditions in supplier factories gained public attention in the 1990s, Nike’s initial framing reflected its structure. Responsibility was defined contractually. Compliance rested with suppliers, not with Nike.

That framing was consistent with the internal narrative and the operating model. Over time, it became increasingly inconsistent with the company’s public identity.

The result was prolonged narrative dissonance.

Public criticism intensified. Universities reconsidered licensing agreements. Activists sustained pressure. By 1998, revenues had declined, stock performance had weakened and approximately 1,600 employees were laid off amid broader financial pressures, including the Asian financial crisis.

The issue could no longer be treated as business as usual.

In May 1998, CEO Phil Knight publicly acknowledged that Nike products had become associated with poor labour conditions and committed to reform. That acknowledgement marked narrative expansion.

But narrative expansion requires structural change.

Over time, Nike formalised corporate responsibility functions, strengthened supplier codes of conduct, introduced systematic factory auditing, increased transparency and, in 2005, published its factory list. It engaged with NGOs and participated in broader industry standard setting around labour conditions.

The manufacturing model remained outsourced, but the scope of responsibility expanded. Governance redesign reduced the narrative dissonance and reputational recovery followed gradually.

Denning’s central claim is that organisational behaviour follows the governing story.  Narrative defines scope by setting the boundaries of what the system notices and treats as relevant. It determines which risks are monitored, which behaviours are rewarded and which trade-offs are considered acceptable.

When identity evolves but governance does not, dissonance accumulates. Markets eventually notice.

Realignment is rarely swift. In Nike’s case, structural realignment unfolded over more than a decade. The brand recovered and strengthened, but only after structural changes aligned governance with identity.

A level checks alignment before construction continues. Leadership requires the same discipline.

The question is not whether your organisation can articulate values. It is whether your systems, incentives and oversight reflect them.

A Question For You:

Is there narrative dissonance in your organisation? What signals suggest that identity and governance are misaligned?

A Small Step:

Identify one value your organisation promotes publicly. Do the budgets, reporting lines and performance metrics reinforce that value?

References:

1. Denning, S. (2010). The leader’s guide to radical management: Reinventing the workplace for the 21st century. Jossey-Bass.
2. Ferrell, O. C., Jackson, J., & Sawayda, J. (2014). Nike: Managing ethical missteps—Sweatshops to leadership in employment practices. Center for Ethical Organizational Cultures, Auburn University.
3. Locke, R. M., Qin, F., & Brause, A. (2007). Does monitoring improve labor standards? Lessons from Nike. Industrial and Labor Relations Review, 61(1), 3–31.
4. Nike, Inc. (1998). Annual report.
5. Nike, Inc. (2005). Corporate responsibility report.