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  • Writer's pictureDave Lee

When the Whistle Sounds from Afar – Adidas Investigating Corruption Claims in China

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Earlier this month, a Chinese social media post shared a letter that had just been sent to Adidas headquarters in Germany, alleging that a senior executive at the sportswear company received millions of euros in kickbacks from advertising partners, conspired to fake vendor performance records, and bullied colleagues.


It appears that Adidas was either unaware of, or did not act on, these allegations until after it received the letter. It has now retained external counsel to investigate the matter.


The news emerges just as Adidas is beginning to enjoy growth again in China, after several years of drastically lower sales amid a confluence of Covid restrictions, political blowback, and poor business decisions.


Following the drop in sales, Adidas shifted its business approach in the country by becoming less centralized – it employed strategy that it called “In China, for China,” which included granting more autonomy to the local management team, holding meetings in Chinese instead of English, and vastly increasing its share of locally designed products with the domestic audience in mind (as opposed to, say, FIFA World Cup jerseys).


While details about the allegations and Adidas’s oversight are still emerging, the case already illustrates the importance of upgrading risk assessments and conducting targeted diligence as circumstances evolve.


For instance, if there are fluctuations in the scale of vendor engagements – corresponding to changes in Adidas’s China marketing budget – care should be taken in reviewing year-on-year metrics so that any anomalies are properly identified and explained. If a partner is embroiled in corruption news – as was the case for advertising company GroupM – a robust review of the business relationship should be conducted, especially if other companies are cutting ties with that partner.


As strategic decisions and management become less centralized, organizations should be mindful of what impact this could have on risk oversight. Among the many questions Adidas’s headquarters may be asking itself is why the author(s) of the letter took to social media instead of relying solely on the company’s internal whistleblowing mechanism, and what that says about confidence in compliance culture. It may be a smart business move to foster autonomy, but for compliance matters, Adidas must still “lay down law from state to state.


Dave Lee

FCPA Compliance Consultant, TRACE

 

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