MBA MODULE OF GOVERNANCE AND SUSTAINABILITY Article 1 FIFA’s Corporate Sponsors Abet Soccer’s Corruption Kavitha A. Davidson The hammer finally came down on FIFA, the world governing body of soccer that has been long been viewed as a morass of corruption. And it came from an unlikely place: the U.S. Department of Justice. Early Wednesday morning, DOJ indicted 14 defendants on 47 counts including racketeering, wire fraud and money laundering. These include nine high-ranking FIFA officials and five sports-marketing executives accused of engaging in a system of bribery and back-door dealings to secure tournaments and marketing rights. It came as no surprise that the corruption allegedly reached as far as the World Cup bidding process. According to Attorney General Loretta Lynch, who is leading the investigation, the conspiracy stretches back to 1991 and involves “two generations of soccer officials,” including current FIFA vice president Jeffrey Webb, who is also the head of the North American soccer confederation, Concacaf. The most glaring omission? FIFA president Sepp Blatter. Blatter is the head of the beast, and any real effort to reform FIFA and rid the association of its dirty dealings will be impossible with him around. There’s little sign that will happen any time soon. Blatter is still pretty sure to win re-election in a vote scheduled to take place Friday, despite the fact that 80 percent of soccer fans want to see him gone. But don’t fret: Throughout Wednesday’s announcements, DOJ has been careful to stress that its investigation is still underway. “I want to be clear: This is the beginning of our effort — not the end,” acting U.S. attorney Kelly Currie said in a press conference. It’s a common tactic in prosecuting white-collar crimes to parlay charges against high-ranking officials into testimony against even higher ones. That’s partly how we ended up here; DOJ’s investigation used the convictions and guilty pleas, sealed until now, of several officials to gain testimony against the 14 indicted. Perhaps the most important of these was Chuck Blazer, a former Concacaf general secretary who also owed the IRS millions in unpaid taxes. Don’t be surprised if some of the 14 defendants start talking to shave some time off the maximum 20-year sentence that racketeering carries. FIFA’s response has been characteristically inert: The election will go on, and the association has stated that the investigation will have no effect on the 2018 World Cup in Russia and the 2022 tournament in Qatar. The association has actually tried to portray itself as the victim in all of this, stating in its media release and press conference that “FIFA is the injured party.” It’s not exactly news that FIFA is wholly incapable of policing itself; it was, after all, the organization’s whitewashing of the report on corruption it commissioned from former U.S. attorney Michael Garcia that inspired the FBI to step up its investigation. You might be wondering what exactly compelled the U.S., not a soccer powerhouse in itself, to go after FIFA in the first place. My colleague Noah Feldman breaks down the legal arguments, noting that the U.S. is essentially treating it as a criminal enterprise. It also makes some sense that a country with less emotional attachment to soccer would face fewer complications from its public and politicians in cracking down on the sport. (Think about how NFL officials pull on the heartstrings of football-loving citizens to get millions in stadium subsidies and stave off challenges to the league’s monopolistic practices.) And as DOJ officials stated in Wednesday’s press conference, the conspiracy partly took place on U.S. soil, involved U.S. soccer officials and used U.S. banks and wire services to facilitate the illegal transactions. (DOJ has said that it will further look into the financial institutions to see “if they were cognizant” of their role in the bribery schemes.) The U.S. is a member of Concacaf, who’s Miami headquarters were raided Wednesday as well. Several current and former members of the federation (and its South American sister organization) were indicted, including at least one U.S. citizen and one U.S. sports marketing executive. FIFA, an enterprise worth billions, has plenty of legitimate resources to fight off the corruption allegations — some $400 million a year from sponsorship alone. So, as the U.S. government follows the money allegedly coming in through illegitimate channels, fans should follow the money FIFA gets from the corporate sponsors, which enables its unsavoury business as usual. The deaths of thousands of migrant workers building World Cup stadiums and other rampant labor abuse have done little to move soccer’s giant marketing partners — including Visa, Coca-Cola and McDonald’s — so perhaps an international criminal investigation might do the trick. Adidas released a statement to Business Insider that, frankly, could have been written by FIFA itself, encouraging the association to maintain the same “standards of ethics and compliance” the shoe maker expects of itself. (Turns out, those standards might not actually be all that high.) The silence from the other sponsors says as much as Adidas’ statement doesn’t: That the business of sponsoring global soccer still outweighs the bad press from FIFA’s shenanigans. These companies are making a bet that the global fervor for the Beautiful Game is enough to withstand a legal fight with the American government. That may be true — soccer is probably too big to fail — but FIFA might not be, at least not against its own corrupting power. According to a Transparency International poll of 35,000 people from 30 different countries, 69.2 percent of soccer fans have no faith in FIFA. In the last year, some big-name sponsors have started to take notice, with Emirates, Johnson & Johnson and Sony ending partnerships with Blatter’s group. Shouldn’t Adidas, Budweiser, Coca-Cola, Hyundai-Kia, McDonald’s and Visa consider doing the same? Some companies found the gumption the speak up against the NFL, at least Adrian Peterson’s child abuse case proved too much for even football-loving Americans to stomach, and forced many corporate sponsors, including Budweiser, McDonald’s and Visa, to publicly denounce the NFL. We should expect the same standard when it comes to FIFA. And it’s up to us, the consumers, to make sure that while the government attempts to prevent it from benefiting from dirty money through American channels, it also can’t benefit from “clean” money from U.S. companies. http://www.bloombergview.com/articles/2015-05-27/fifa-s-corporate-sponsors-abet-soccer-s-corruption Article 2 FIFA Sponsors Sent Scrambling Robert Tuchman, June 2, 2015 A year ago, sports fans all over the country were appalled over racist comments made by then-L.A. Clippers owner Donald Sterling. His comments were so unspeakable that sponsors from every corner of the business world either dropped or suspended their partnerships with the team. The current FIFA corruption scandal, however, is proving to be a very different animal. So far not a single sponsor has dropped its deal with the world’s governing soccer organization. Additionally, sponsors are surely to be excited with Tuesday’s news from Zurich that FIFA President Sepp Blatter has resigned from the organization. Blatter oversaw FIFA for 17 years neglecting the widespread corruption that was going on. Considering Sterling lost his sponsors and his team as a result of his long-established bigotry, it is interesting that FIFA has yet to lose a dime over its own current scandal. And now with Blatter’s resignation FIFA sponsors will be feeling much better then when FIFA officials were first arrested last week. In the four years leading up to the wildly successful 2014 World Cup in Brazil, FIFA pulled in a massive $5.72 billion in sponsorship deals and media rights. Part of that is TV deals, but a large portion came (and continues to come) from marketing and sponsorships in all its various forms. In 2014 alone, FIFA official marketing sponsors (the ones whose names appear on team jerseys) shelled out $190 million, while another $171 million came in from sponsors interested only in World Cup-specific deals. Add in several more hundreds of millions of dollars for television ads and it is easy to see why FIFA is one of the most profitable sports governing bodies in the world. Despite the current scandal, interestingly enough, FIFA’s success does not seem likely to go away anytime soon. The World Cup is the most popular sporting event in the world and advertisers and sponsors do not want to lose the opportunity to reach millions of consumers globally. Considering that the 2014 World Cup was the most-viewed and highest-rated World Cup in history, it is clear that viewership is too strong to justify severing ties with FIFA in this instance. Just in the U.S., the 2014 World Cup Final between Germany and Argentina averaged over 17 million viewers, while another 1.8 million tuned in to watch on ESPN’s “WatchESPN” online streaming platform. And that is just in the U.S., where soccer is nowhere near the most popular sport. With the kind of reach that the World Cup has in countries where soccer is the primary form of sports entertainment, it is no wonder that sponsors are wary to sever their relationships with FIFA and lose out on visibility during the World Cup. In a lot of ways, they need FIFA a lot more than FIFA needs them. If Emirates, for example, drops out of their sponsorship deal with Arsenal FC (member of the English Premier League), some other business would swoop right in and pay just as much money for the same appearance on the team’s jerseys. http://www.forbes.com/sites/roberttuchman/2015/06/02/fifa-sponsors-sent-scrambling Consider the following sentences from the above articles: “the business of sponsoring global soccer still outweighs the bad press from FIFA’s shenanigans” (Article 1) “it is no wonder that sponsors are wary to serve their relationships with FIFA and lose out on visibility during the World Cup” (Article 2) QUESTION ONE related to the article 1 and Article 2 (20) Analyse the ethical issues and dilemmas faced by sponsors of global soccer from the utilitarian, rights and justice perspectives. QUESTION TWO (20) You are the company secretary for Confused Limited, a non-listed widely held company. The board has requested you to advise the directors regarding restructuring of the Audit Committee because it presently consists of only the managing director and the chairman of the board. The Chairman was, until two years previously, a salaried employee of the company. The Board wants to appoint to the committee Mr Fatcat, who is a substantial shareholder of and a supplier to the company and Ms Simper, the wife of the managing Director, because she is very well qualified auditor. Furthermore, Confused Ltd has a number of subsidiary companies and the Board is concerned about the costs involved in appointing Audit committees for each of its subsidiaries. The board also wants to know which reports the Audit Committee must include in the Annual Financial Statements. Required: Prepare a Memorandum to the Board in which you discuss all of the issues raised by the Board and your recommendations. Also include your opinions as to the advantages and disadvantages of recommendations in terms of good governance practice. QUESTION THREE (30) Read the following and answer the questions that follow: Green Strategy concerns those activities that are focused on both sustaining the earth’s environment and developing the business opportunities that will arise from such additional activities. Sustainability is underpinning principle. No one should be any doubt about the need for fundamental change the part of all organisations in both public and private sector with regard to green strategy and sustainability. To quote from the international Institute for Sustainable Development
“The tectonic changes that we face in the coming decades, including population increases, environmental degradation and socio-economic expectations, require bold thinking and new approaches…” A 2011 survey of 3000 business executives found that organisations that fully embrace sustainability as a key strategic issue were able to successfully implement profitable pre-emptive strategies in new socially and ecologically positioned market space. The survey also found that organisations that were only casually adopting sustainability as a strategic initiative were unable to compete effectively in this new market space. In identifying and developing the sustainable purpose of the organisation, stakeholders represent an important starting point; a stakeholder analysis with regard to green strategy is an essential element in developing the sustainable purpose of the organisation. Source: Lynch R (2015) Strategic Management 7th edition. Pearson 3.1 Discuss the issues organisations need to consider when contemplating a green strategy. (10) 3.2 Explain what a stakeholder is and critically discuss the Stakeholder Theory of the modern corporation. (10) 3.3 Compare and contrast the green strategies needed by the following two types of organisations: a branded breakfast cereal manufacturer and a large retail bank. (10) QUESTION FOUR (15) According to Dessler (2011:504) one way of managing ethics in a company is through a corporate governance framework. With reference to this statement, discuss corporate governance as a way to manage ethics in an organisation. QUESTION FIVE (15) Friedman stated that the sole responsibility of management is to maximise profits for the owners of a business With reference to this, discuss the two opposing views of business and society with regard to responsibility and accountability.