Author: Paul Johns, CMO at Ethixbase

 

World Cup 2022 Highlights Hidden Risks in Third-Party Relationships

 

After a four-year cycle in which the world has undergone an overwhelming transformation, it’s time to anticipate another FIFA World Cup. Held this year in the coastal Middle East nation of Qatar, there are a number of concerns unique to the upcoming tournament that are serving up risk management challenges to leaders of any business that participates. Combining these glaring ESG risks with a new emphasis on supply chain visibility and greater transparency of third-party relationships creates a new risk landscape that leaders must navigate to avoid harm to public perception, regulatory action, and loss of revenue.

 

Considering supply chain intangibles

 

For experts in the field, supply chain management has traditionally been all about making sure components get where they need to be on time and within applicable regulations so the flow of products matches the ebb and flow of demand. While that’s still the core of supply chain operations, there is a growing need to uplevel basic management into a system based on governance. 

A governance-based approach is significantly more “hands-on” when it comes to your third-party network. It’s critical to ensure the companies you partner with align with your ESG stance to mitigate that risk.

Intangible supply chain risks are those that come from the actions and ad spending of third parties that are outside your control yet may pose a significant risk to your company’s reputation should they be revealed. Strong governance is the only way to maintain the greatest visibility into these potential risks, and many organizations will find that governance tested as we head into Qatar’s highly controversial 2022 World Cup. 

 

Qatar’s ESG quandary

 

In 2010, Qatar became the first Middle Eastern country to win the World Cup bid. In the following years, the nation has followed the worldwide trend toward ESG concerns, and a report produced by Oxford Business Group in 2022 states that it’s one of the most important topics on the Qatari business agenda. The country has made strides–and you’ll find hundreds of reports talking up the nation’s quickening march toward environmental sustainability–but there is notable silence on the issues of corruption and human rights that have plagued the nation from the start. 

The U.S. Department of Justice accused the World Cup organizers of bribery in securing the initial votes for hosting rights, which the organizers continue to deny. LGBT+ and women’s rights are also of significant concern, with homosexuality being explicitly illegal and women experiencing widespread discrimination. 

Most shocking is the continued accusations of labor rights violations ranging from months of unpaid wages to sub-human working conditions. A 2021 report estimated that more than 6,500 migrant workers died in Qatar since the country won the bid. 

 

Making sense of ethical stances

 

The World Cup is one of the biggest global advertising opportunities, with brands pouring millions into multiple mediums. But with ESG at the forefront and continued furor over rights violations leading to multiple boycotting campaigns across Germany, Spain, and France, there’s no denying that ad spending is viewed as a form of tacit approval complete with guilt by association.

FIFA has issued a statement to all 32 competing teams, insisting that the sport should not be “dragged” into political or ideological battles and that participants have no place “handing out moral lessons”. Despite the warning, multiple teams are planning subdued forms of protest. 

It’s one thing for FIFA to declare moral neutrality, but what about other companies large and small that spend money on this contentious event? Many protestors argue that all financial support–including money spent on ads–is indirectly propping up the regime responsible for rights abuses. 

 

Untangling the risk of third-party intangibles

 

If your company is openly dedicated to compliance with labor laws, does it make sense for your biggest supplier to be benefitting from ad spending in such an abuses-prone country? With the growing swell of protests, it’s more than possible activists could target that third party. Depending on the impact of the boycott and the company’s prominence in your third-party network, you could easily find yourself exposed to revenue and reputation loss simply by association.

One such situation nearly occurred for the U.S. fast food chain Shake Shack. The restaurant uses the popular Martin’s Potato Rolls and was boycotted widely after activists found the company’s former president and executive chair made donations to a right-wing candidate for Governor of Pennsylvania. Shake Shack was forced to make a statement on the matter and decided not to make any sort of the change in their bun sourcing. While the protest died down quickly and had little impact, in the long run, the result could have been much more devastating.

On the global stage of the World Cup, with tensions and stakes higher than ever, the impacts of third-party spending will be significantly greater. It’s time to evolve governance for greater visibility–and fast.

 

A tipping point approaches

 

As the World Cup unfolds, we are likely to witness tensions come to a head regarding many of Qatar’s stances and actions on human rights. The way these tensions will ripple through the third-party networks of companies involved remains to be fully seen–but there is good reason to believe many organizations will suffer reputational damage of varying severity. Now is the time to take stock of your supply chain governance initiatives and evaluate risk related to intangibles like ad spending so you can shore up defense against unexpected, incidental harm caused by third parties.

 

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