Risk lessons from the World Cup scandal

As drama plays out on the soccer fields of Brazil during World Cup 2014, there’s drama aplenty off the field as well. International soccer’s governing body, FIFA (Fédération Internationale de Football Association, the international governing body of football/soccer), remains mired in controversy and scandal, most recently and notably about the decision to award World Cup 2022 to the tiny desert nation of Qatar.

The allegations of impropriety around Qatar’s winning bid have highlighted the risks of doing business around the world and with partners or confederations whose priorities, principles, and practices may differ from your own.

What follows are lessons about risk mitigation and avoidance gleaned from the current World Cup scandal, applicable for any organization or company looking to restore or retain public trust or reputation.

1. DON’T IGNORE THE OBVIOUS

It’s understandable that the idea of playing soccer in 100-plus degree heat–as would be the case in summer in Qatar–raises eyebrows about the decision/judgment if not suspicions.

“Any time you are dealing with a large, world-wide event such as the World Cup, you have to look at issues like terrorism, strikes, and kidnapping,” says Marlene Benoit, vice president of promotions and events leader at Lockton. “But Qatar has even more basic issues that underwriters will have to look at, including infrastructure, weather, and temperature. They may not cause a cancellation, but they could cause interruption.”

Any of those issues could cause an insurable event. “World Cup 2022 could be completely different than any other World Cup because of the severe lack of infrastructure and when in the year it is supposed to be held,” said Robert Barron, assistant vice president of Accident, Health, Sports & Contingency at Lockton.

James R.F. Berkeley, managing director, Ellice Consulting, said: “As someone with decision-making responsibility, you’re paid to apply good judgment,” which very well may have been lacking in the 2022 process.

2. PAY ATTENTION TO THE EXPERTS

A report compiled by Andre Prius, the South African police chief responsible for security when that country hosted the World Cup in 2010, assessed and compared Qatar and the other nine countries involved in bids for the 2018 and the 2022 World Cup tournaments. The report was given to FIFA 17 days before the decision to make Qatar the 2022 host nation.

“In view of the risks… Qatar is allocated a risk rating of high,” the document said. “I am of the view that it would be very difficult to deal with a major incident in such an environment without having to cancel the event.”

Added Lockton’s Benoit, “Risks related to politics and terror are looked at with a more sensitive eye based on location.”

That eye may have very well been closed when evaluating Qatar as a potential World Cup site. Cal Mathis, an expert in global security, points out that you have to look beyond the event itself when evaluating a location.

“There’s nightlife, traveling to and from the country, getting around the country – all of these things represent potential security concerns as well,” Mathis said.

3. WALK THE TALK

FIFA is no stranger to controversy or scandal. With that as background, Alexandra Wrage, president of anti-bribery non-profit TRACE, worked with the Independent Governance Committee of FIFA from November 2011 to April 2013, on a pro bono basis “to restore public confidence.”

“Companies will come to us and say, ‘We want a top-to-bottom review so we can go forward with best practices and confidence,’” she says. “It became clear fairly quickly that FIFA were willing to do some things and not others. The commitment to fundamental governance reorganization was just missing.”

Recognizing there is a reputational problem isn’t enough; and neither are “half-hearted” attempts to fix them.

4. TRANSPARENCY IS KEY

One of the reasons FIFA has drawn criticism is a lack of transparency around compensation, goals, and its inner workings.

One suggestion Wrage made was to add two independent members to the executive committee. FIFA’S counter-proposal: the two outsiders could sit in on some meetings, not all.

“Without transparency around issues like compensation, how can stakeholders judge whether you’ve met your targets?” Wrage asked.

In Switzerland, which has jurisdiction over FIFA, public companies have to expose compensation for senior executives. “It’s surprising that you have a nonprofit lagging in good governance,” she said.

5. USE INFLUENCE IF YOU HAVE IT

With an event like the World Cup, both sponsors and fans have clout. The question: do they want to use it?

Virgin American and CarMax announced they would sever their relationships with the NBA’s Los Angeles Clippers after reports surfaced that owner Donald Sterling made racist remarks.

“People will distance themselves from something that can have a backlash, but that hasn’t happened with FIFA,” observes Wrage. “Multi-year contracts can tie up sponsors from making a move, but fans can have immediate clout.”

Pointed out Jeffrey Alberts, who heads the white-collar defense and investigations practice at Pryor Cashman, “You can ask the tough questions if you’re a major sponsor. If you’re a minor one, not so much.”

6. MAKE SURE THERE’S ACCOUNTABILITY

You need to understand what fellow stakeholders have on the line. “A risk that may seem small initially can flare up and create major risks when there’s a lack of accountability,” says Berkeley of Ellice Consulting. “Without accountability, there’s no incentive to address those risks.”

According to Wrage, nonprofits are often perceived as having a high degree of accountability, but that’s not always the case because interested parties lack a clear financial stake.

“In corporations, you have shareholders who will take action,” she says. “For that reason, corporations tend to be held to a higher level of compliance, but that’s no reason to let FIFA, or the International Olympic Committee or any such organization off the hook.“

7. PEOPLE THINK WITH LOGIC; THEY ACT ON EMOTION

The decision to hold the World Cup in a desert country might necessitate rescheduling the event from its customary summer slot, which could wreak havoc on everything from media agreements to team’s regular schedules and athletes’ ability to play for a World Cup team. So what was behind such a decision?

“It clearly wasn’t a logical decision but an emotional one, based on a desire to highlight the expansion of [football] in the Middle East,” says Berkeley. “Common-sense realities of providing a superior customer experience for 250,000 people moving about in the heat would dictate against the choice.”

He said emotion will always enter into the decision-making process; the key to not letting it dictate the result is understanding what the real motivation is.

8. TRUST BUT VERIFY

Due diligence is of utmost importance when working with global partners, because “other countries will have different standards about the letter of the law and how it’s applied,” said Alberts. “You can reduce the risk of exposure and offense by putting the onus for verification on a third party, such as your lawyers.”

The process is as much about tone as it is about content, he said.

According to Berkeley, there is no such thing as too much due diligence. “It’s the inconsequential issues that will come back to bite you,” he said.

9. WEIGH RISK VS. REWARD

When there is a possibility of reputational risk, it must be weighed against the potential reward.

“Regardless of what kind of venture you’re involved in, the main focus at the top level should be keeping participants motivated while asking hard questions,” said Alberts.

In many cases, there could be enough distance between the appearance of scandal and the participants, peripheral partners, and sponsors so there is not inference of malfeasance and thus no actual harm, he added.

On the other hand, companies might not get the “bump” they anticipated. “The anticipated halo effect may be missing,” Alberts said.

10. EXPECT THE UNEXPECTED

No matter how careful and diligent the insured and insurer(s) are, there is always the possibility that something will happen with no way of controlling, predicting, or imagining.

Lockton’s Barron told the story of one client, a traveling stunt-riding show, that saw much of its set-up equipment ruined when a goat crossed the road and got caught in the wheels of the truck carrying the set-up equipment, causing a destructive fire.

“You work with people on risks like weather, communicable disease, satellite interruption, power failure,” he said. “In this case we also covered whether it would be too windy to ride, nonappearance by the performers. Then this minor collision with a goat had the potential to cause a serious insurable event.”

The show went on, with only one cancellation and one postponement. “It’s critical that you have a well-written, thorough policy, because you never know,” he cautioned.