Reebok 2011 Annual Report Download - page 157

adidas Group
2011 Annual Report
GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
153
2011
03.4 Risk and Opportunity Report Strategic and operational risks Compliance-related risks
To mitigate these risks, our IT organisation proactively engages in
system preventive maintenance, service continuity planning and
adherence to applicable IT policies. Data security is managed by
restricting user access based on job description and adhering to
data protection regulations. Additional security measures such as
anti-virus software and firewalls are designed to further protect
our systems and critical information. We perform multiple backups
at alternating data centre locations for the Group’s core enterprise
resource planning system (ERP) on a daily basis. In addition, for the
ERP system, our contingency solution allows us to quickly switch to a
remote site if necessary – without any loss of data. System security,
controls and reliability are reviewed and tested by the Internal Audit
department.
IT project risks are further mitigated by utilising a proven project
methodology for all IT projects that includes tight cost control and
regular risk reviews for all major projects. The IT organisation’s
strategic direction and five-year plan is aligned with the adidas
Group’s overall Route 2015 strategic business plan. New quality
reviews for major projects have been implemented to ensure that the
progress, quality and costs of those projects are regularly evaluated by
members of senior management.
As a result of an increased frequency of IT-related criminal activities
worldwide, we now believe the risk of a major IT default is possible.
Such a default could result in a significant potential financial impact.
Compliance-related 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. We have further strengthened our Intellectual
Property department resources to drive enhancements in our patent
portfolio, and in the reviewing and analysis of third-party patents.
Despite the safeguarding measures in place, we now assess the
likelihood of legal risks as likely. If legal risks materialise, the financial
impact for our Group could be significant.
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 environ-
mentally 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 relation-
ships with the Group SEE SUSTAINABILITY, P. 107 . Internal 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 and further
improvement. If these deadlines are not met, business relations are
terminated SEE SUSTAINABILITY, P. 107 .
In order to minimise the environmental impact of producing and
distributing our products, the adidas Group developed a fully compre-
hensive 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 SEE SUSTAINABILITY, P. 107 .
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 environmen-
tally 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 environ-
mental requirements. However, as a consequence of the strategic
initiatives we are putting in place, the likelihood of occurrence and
the potential financial impact from social and environmental risks are
now assessed as likely and moderate, respectively.