Reebok 2012 Annual Report Download - page 196

adidas Group
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2012 Annual Report
Group Management Report – Financial Review
174
2012
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03.5
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Risk and Opportunity Report
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Legal & compliance risks
Legal & compliance risks
Legal risks
As a global player, the adidas Group is exposed to various legal risks,
including contractual risks, liability risks related to non-contractual
subject matters (e.g. advertising claims) or the risk of claims and
litigation for infringement of third-party trademarks, patents and other
rights. To avoid contract breaches and prevent the Group from entering
into unfavourable contractual agreements, we continually monitor the
fulfilment of our contractual obligations and constantly involve internal
and external legal experts in all contractual matters. In addition, to
reduce the risk of infringing third-party intellectual property rights, we
carefully research new product technologies, designs and names to
identify and avoid potential conflicts with the rights of third parties. Our
Intellectual Property department drives enhancements in our patent
portfolio, and in the reviewing and analysis of third-party patents.
Despite the safeguarding measures we have in place, we view the
potential impact as major should these risks materialise and assess the
likelihood of materialising as possible.
Risks related to competition, trade and customs
regulations
Numerous laws and regulations regarding competition, trade and
customs affect the adidas Group’s business practices worldwide.
Non-compliance with regulations concerning fair competition, pricing,
advertising or product imports could lead to substantial financial
penalties and additional costs as well as negative media coverage and
therefore reputational damage. To pro-actively manage such risks, we
constantly seek expert legal advice and provide subject matter training
to our employees. In addition, our internal Legal department advises
the marketing departments to ensure appropriate and compliant brand
communication. Furthermore, we work closely with customs authorities
and governments worldwide to make sure we adhere to customs and
import regulations and obtain the required clearance of products to fulfil
sales demand.
As a result of the multitude of competition, trade and customs regulations
worldwide, we assess the potential impact on the Group, should these
risks materialise, as significant and the likelihood of materialising as
possible.
Social and environmental risks
We have a continuing responsibility to our employees, suppliers and the
environment. Malpractice in these areas, in particular human rights
violations, dubious employment practices as well as environmentally
harmful production processes can have a significant impact on the
reputation and operational efficiency of our Group and our suppliers.
To limit this risk, we have established Workplace Standards to which
suppliers must conform before and during business relationships with
the Group
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SEE SUSTAINABILITY, P. 117. Internal and external inspections of
supplier factories verified by extensive independent audits are conducted
regularly.
In the event of non-compliance with these standards, we develop joint
action plans and set deadlines for compliance. If these deadlines are not
met, business relations are terminated
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SEE SUSTAINABILITY, P. 117.
In order to minimise the environmental impact of producing and
distributing our products, the adidas Group developed a fully
comprehensive environmental strategy (Environmental Strategy 2015).
This strategy takes a holistic approach towards environmental issues
such as sustainable resource use, climate change mitigation, emissions
to water and air, waste treatment as well as hazardous substances. Part
of this strategy is also to extend our “Better Place” initiative to more
adidas athletic footwear and apparel products
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SEE SUSTAINABILITY, P. 117.
Although we believe that social and environmental malpractice may
occur only in isolated cases, we see increasing corporate social
responsibility obligations for the Group as legislative measures and
consumer expectations with regard to socially and environmentally
sound business practices and behaviour are becoming more demanding.
Due to this development we will, for example, have to cope with rising
costs in order to fulfil more challenging social and environmental
requirements. Therefore, the potential impact on the Group could be
major. However, as a consequence of the strategic initiatives we are
putting in place, we assess the likelihood as possible.
Risks related to product counterfeiting and imitation
As popular consumer brands which rely on technological and design
innovation as defining characteristics, the Group’s brands are frequent
targets for counterfeiting and imitation. To reduce the loss of sales and
the potential damage to brand reputation resulting from counterfeit
products, the adidas Group makes use of extensive legal protection
(generally through registration) and works closely with law enforcement
authorities, investigators and external legal counsel. Although we
have stepped up measures such as product security labelling with our
authorised suppliers, the development of these measures remains a
key priority on an ongoing basis. In 2012, around 13 million counterfeit
adidas Group products were seized worldwide.