A whistleblower report alleging serious compliance violations in Adidas’ China offices has led to an investigation by one of the world’s biggest athletic apparel brands.
Adidas is Investigating
German athletic apparel and footwear company Adidas has launched an investigation after a whistleblower complained about “compliance violations” among company executives in China.
Going Public in China
The complaints first went public last week via Chinese state media Jiemian, which reported news of an unsigned letter from Adidas employees claiming that local executives had embezzled “millions of euros” through Adidas China.
Adidas Confirms It
In response to the mass media attention and criticism that ensued, Adidas then confirmed that it had received the anonymous letter on June 7 and that an investigation was underway, supported by legal counsel.
Intensive Investigation and Legal Counsel
“Adidas is currently intensively investigating this matter together with external legal counsel,” Head of Adidas Media Relations Claudia Lange said in an email.
Taking It Seriously
The company confirmed the investigation in a separate statement, explaining that it took all allegations of compliance violations “very seriously,” reiterating its commitment to “complying with legal and internal regulations and ethical standards in all markets where we operate.”
Sent to Company Headquarters
Jiemian sent the letter to the company’s headquarters in Herzogenaurach, Germany, before allowing it to be shared online.
Shares Fall
The whistleblower group had already promised to take the letter to media and law enforcement if their allegations were not directly addressed. Adidas share prices have fallen by 3.7% since the letter was circulated.
Employees and Managers Named
The original whistleblower’s letter, which appeared briefly on Chinese social media, named specific employees and managers working on an executive level at Adidas China who took substantial kickbacks from advertising and celebrity agencies as a form of bribery.
Hundreds of Millions in Promo Money
According to the letter, Adidas China has an enormous promotional budget of $268 million per year, and millions of dollars from this fund had been directly embezzled by executive-level managers.
Millions in Bribes
Whistleblowers, who described themselves as “employees of Adidas China,” also named one specific senior manager who they claimed had received “millions in cash from suppliers, and physical items such as real estate.”
Accusations of Nepotism and Bullying
One senior manager was also directly accused of nepotism and workplace bullying by isolating certain employees and bullying them into leaving the company. She allegedly also favored employees who followed her instructions and offered them promotions over others.
A Blow to Adidas’ China
The allegations are a major blow to Adidas, which has spent the last few years struggling to revitalize its performance in the Chinese markets since it suffered a major downturn in 2020 and 2021.
Lockdowns and Cotton Pledges
This was due to the extensive Covid-19 lockdowns in China due to the pandemic which quelled consumer spending. The company was also affected by Chinese consumer backlash after it pledged to no longer use Xinjiang cotton due to claims that cotton manufacturers were using forced labor in the Xinjiang region.
Chinese Consumer Boycott
The pledge led to boycotts across China and also affected H&M, Nike (Adidas’ largest competitor in the region), and other Western brands that made similar pledges.
15% of Global Sales
Historically, the “Greater China” region, which is composed of mainland China, Hong Kong, and Taiwan, makes up 15% of the company’s global sales.
Executive-Level Shake Up
Performance in greater China was so negatively affected that it contributed to the departure of CEO Kasper Rørsted, who was replaced by his successor Bjørn Gulden last year.
New Head of Business
During this executive-level overhaul, Adidas also appointed Adrian Siu, the former CEO of the popular Chinese lingerie brand Cosmo Lady as head of business in the China arm of the company.
Hiring the Alleged Perpetrators
Siu was brought in to boost sales as part of the recovery effort, and he also hired one of the managers who was implicated in the whistleblower letter.
How Will Adidas Respond?
Adidas’ market recovery in the country may depend heavily on how the company responds to these new allegations and the outcome of the investigation.
No One Suspended Yet
As of yet no employees named in the letter or otherwise have been suspended or placed on leave due to the allegations or ongoing investigation.
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