A heck of a crisis has kicked up at Adidas in China. Apparent whistleblowers informed the apparel company that executives there had engaged in embezzlement, kick-back schemes and more. The company, while not saying much at this stage, immediately launched an investigation with external legal counsel and wisely publicized that.

Chinese state media reported the allegations last week. U.S. and other outlets put out their articles beginning on Sunday and Monday this week (shares fell on the news). The German company received an anonymous letter June 7 “indicating potential compliance violations in China,” Claudia Lange, its head of media relations, told CNN. “Adidas is currently intensively investigating this matter together with external legal counsel,” she said and declined to comment further.

Other media, including Reuters and The Wall Street Journal, included another company comment: “Adidas takes allegations of possible compliance violations very seriously and is clearly committed to complying with legal and internal regulations and ethical standards in all markets where we operate.”

Celebrity Agencies

The letter, claiming to be written by “employees of Adidas China,” accused executives of embezzling “millions of euros,” of taking kickbacks from ad and celebrity agencies and of engaging in nepotism and workplace bullying. Much of the news reporting has focused on the importance of the Chinese market to the company and also on its wide use of celebrity endorsers there.

So, Adidas finds itself in a difficult position at a difficult time for its business in China. It’s still recovering from the COVID-19 lockdowns, is facing local competition and is mired in human-rights issues over its position not to use cotton from Xinjiang, where the government is accused of (but has denied) using forced labor.

Investigation Results

Adidas is right at this point not to comment beyond announcing the probe. It will have to cope with the public wanting to know more about what’s going on. Obviously, it should be ready to reveal the investigation results and to release the report. Confidence in the company must be restored.

While it seems this is a case of internal bad actors, questions will be raised about whether there’s a wider problem in the China operation and, of course, about internal controls. If criminal charges are to be brought, whether against individuals or the company, Adidas must be prepared to communicate about that.

Photo Credit: Sorbis/Shutterstock

Sign up for our free weekly newsletter on crisis communications. Each week we highlight a crisis story in the news or a survey or study with an eye toward the type of best practices and strategies you can put to work each day. Click here to subscribe.