Saturday, November 21, 2015

Nike: FIFA corruption scandal (2015)

Nike, Inc. Soccer collection logo

Nike’s controversial deal was called into question long before the 2015 FIFA corruption scandal. In 2000, the Brazilian Federal Accounting Office recognized unmatched amounts in the Brazilian Soccer Federation’s accounts that involved Nike’s payments to them. What caught the auditor’s attention was that Nike payed the Brazilian Soccer Federation through different bank accounts as opposed to the one bank account that the contract was based on. The relationships between the different accounts were not agreed upon in the contract or specific enough to display that Nike was not paying additional money through these different accounts. The Brazilian Parliament called into question why the deal was done through the third-party Brazilian marketing company Traffic that was spear-headed by Jose Hawilla, instead of Nike paying the Brazil National team directly. However, Nike has yet to be charged in the federal investigation as of now and the company has claimed they are in full cooperation with the federal government. Additionally, at this point, Nike is only technically linked to the FIFA corruption case by Jose Hawilla. Jose Hawilla was pleaded guilty to money laundering and fraud due to his role in paying off FIFA officials in bringing the World Cup to Brazil in 2014. Regardless of whether Nike acted ethically or not by paying the bonus in the first place, the business deal was signed by Nike’s co-founder Phillip Knight and Nike President Tom Clarke which inherently tied the highest executive officers of Nike to the deal. Therefore, although the deal may have been considered a “one-off” isolated incident, it has called into question Nike’s entire organizational ethical conduct. Nike is no stranger to business ethics controversies, with child-labor scandals during the 1990s placing the company in extremely hot water. This also brings into question Nike’s success in the soccer segment today, considering one of their defining business strategies in the market is shrouded in mystery and was possibly based on an entirely unethical foundation. Interestingly, Nike has reaped extreme benefits to this present day from this deal with the Brazilian National team. In a 1990s era defined by Adidas being the leader in soccer equipment and jersey sponsorship, at the 2014 World Cup, Nike sponsored ten national teams in the tournament as opposed to Adidas’ nine. Nike and Adidas have become the top two market competitors in the soccer industry, and without this deal that was signed in 1996 with the Brazilian National Team and the subsequent success in the soccer segment from the deal, Nike would not be as successful as they are today.

Mark Parker, CEO of Nike, Inc.

The major stakeholders involved in this specific controversy include Nike’s Upper-Management officials including Phillip Knight and Tom Clarke, the Brazilian Soccer Federation, the Traffic marketing group, Nike as an entire company, its customers, its peer sports apparel companies, and the community as a whole. Nike’s Upper-Management officials’ interests lie in protecting the company’s image and proving they are not responsible as perpetrators in the FIFA corruption scandal, and these officials were the key decision makers in the case because they were the people who decided to bribe Jose Hawilla in order to secure a jersey sponsorship with the Brazilian Soccer National Team. The Brazilian Soccer Federation is interested in separating themselves from Jose Hawilla and his crimes. Adidas and Nike’s competitors look to capitalize on Nike’s poor publicity by increasing their sales and labeling themselves as ethical companies. Nike’s customers want to have the company be cleared of any wrong-doing and know they are not supporting a company that has fueled corruption within FIFA. As a business entity, Nike aims to utilize damage control in order to sustain an ethical business reputation and limit the negative publicity the company receives. Each stakeholder is concerned with their own specific goals and agendas.

From an individualist perspective, Nike was acting ethically in securing a jersey sponsorship deal with the Brazilian Soccer Federation in order to reach Nike’s long-term goal of infiltrating the largely untapped global soccer market and maximizing profit. The risk of shifting the company’s focus to Brazil in the midst of the country’s World Cup victory enabled Nike to benefit its stakeholders by increasing its market share in its target soccer target segment and increase the company’s soccer segment profit margin. However, an individualist would argue that Nike was not acting in the long-term best interest of the company since they secured the deal by bribing Jose Hawilla, which goes against Friedman’s theory since bribes are unethical act. An individualist would argue that Nike knew there was a risk involved in when paying $40 million to a man the company knew not much about, and that if the information were to ever leak about the company’s fraudulent business deal, the stakeholders would be negatively affected. If Nike had inked the soccer jersey sponsorship with the Brazilian National Team without paying a potentially harmful bonus to the third-party marketing agency Traffic, Nike would have acted ethically as far as the guidelines of the individualism theory go. Through the lens of individualism, Nike acted unethically.

FIFA, The Fédération Internationale de Football Association

A utilitarianist would argue that Nike acted unethically in this case because they were not concerned with maximizing the happiness in as many people as they possibly could. By only bribing one person, the company was only looking to better themselves as a company and not provide happiness to others. Although some of the major stakeholders that were involved in the case largely benefitted from signing the business deal after bribing Jose Hawilla, other key stakeholder’s happiness was not maximized. More specifically, having Nike’s customers be put through the anguish in having to see Nike be linked to a global corruption scandal did not produce happiness for the company’s customers. In addition, Nike’s employees and executives did not have their collective happiness maximized because a few representatives within the company made a decision that only maximized happiness in the company’s sport marketing and soccer fields. A utilitarian would have attempted to maximize happiness across as many functional areas across the company as possible, and would have eliminated paying the bribe to secure the jersey sponsorship because the potential cost of having the unethical business practice be exposed outweighed the benefit of securing the deal at the time of its completion.

In this particular case of Nike, the company satisfies most of the aforementioned Kantian principles, in theory. Through Nike’s decision to bribe Hawilla in the midst of penning a deal with the Brazilian Soccer Federation, from a Kantianism viewpoint, the company was not hurting their consumer’s rationality to make decisions, nor was Nike disrespecting their consumer’s autonomy or their individual needs and differences. However, Nike failed to recognize and adhere to two major Kantian principles which would cause Nike’s actions to be deemed unethical from a Kantianism perspective. A Kantian would claim that Nike’s actions in this particular business case were unethical because Nike was neither acting rationally, nor were they guided and motivated by their Good Will. Nike considered themselves exempt from commonly adhered to business practices and honesty in the form of a bribe. Other companies must adhere to basic honesty principles when negotiating and making business transactions, and Nike acted in a conniving and malicious manner by disregarding the rules. Also of note is that Nike’s actions did not come from the company’s Good Will. This is evident from examining the company’s motivation by using the Formula of Universal Law. The Formula of Universal Law “prohibits people from making exceptions of themselves” and “forbids all forms of deceit” (Salazar) within the theory of Kantianism. Therefore, Nike acted against Kantianism and its principles because the company made an exception of themselves by making a business deal on the basis of a corrupt bonus to a third-party middleman in the deal. If Nike had simply closed deal the without the bribe, the deal would have been deemed ethical based on Kantian principles.

Virtue Theory
Gianna Infantino, president of FIFA

Based on the Virtue Theory, Nike failed to act ethically. Nike surely partly satisfied the courage component of the Virtue Theory by seeking a new business venture in a new part of the globe by targeting a jersey sponsorship with the then-reigning champions of FIFA in 1996, through the Brazilian National Soccer Team. By placing the company’s proverbial feet in uncharted territory, Nike acted courageously and shrewdly by strategically targeting a new market in a segment that was entirely new to the company that has positioned the company to be one of the major players in the soccer industry to this day. However, by definition, Nike’s executive officials failed to stand up for the ethically correct ideas and actions in this circumstance because they corruptly bribed a Brazilian official. Additionally, the virtues of honesty, justice and temperance were infringed upon because Nike based a key business deal on faulty soil. In their business negotiations with the Brazilian Soccer Federation, there was a disrespect for honesty as an entire company since they utilized a bribe in order to persuade Jose Hawilla to push for the Brazilians to accept the jersey sponsorship. Justice was not properly represented by Nike as well because the company did not use fair business practices when negotiating the deal. Finally, Nike failed to adhere to the virtue of temperance because the company lacked any self-control because they acted impulsively in order to entice the Brazilians to accept their proposed deal. Nike could have satisfied the four virtues of the Virtue Theory by effectively negotiating and persuading the Brazilians without the help of a corrupt monetary bribe. In evaluating Nike’s actions based on these four business virtues of the Virtue Theory, Nike acted unethically.

Justified Ethics Evaluation
What is especially interesting in this case is that Nike has been exposed for their corruption all the way back in 1996, from the ongoing FIFA corruption scandal which has started in 2015. This points to the fact that if Jose Hawilla had not been connected to the FIFA scandal for buying votes in the FIFA elections, Nike could have steered cleared from any negative publicity and their shady actions may have never been investigated. In conducting more research, it has become apparent that Nike may not even be federally tried for paying Hawilla the $40 million bonus, which is good news for Nike. However, Nike still acted unethically even though they may very well come out of the entire situation unscathed. In doing more research about this case, it is also apparent that Nike has not had to deal with negative public opinion surrounding the company during the investigation, and this results from the FIFA corruption investigative committee wanting confidentiality in their ongoing investigation. I applaud how Nike was able to spot a potential market that would help the company succeed exponentially in the long run- although Nike should be held morally and legally responsible for their corrupt actions. Nike could have completely avoided this situation by acting ethically by effectively persuading the Brazilian Soccer Federation without using illegal monetary compensation.


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