David Owen ©ITG

"Oh shut up, silly woman," said the reptile with a grin
"You knew damn well I was a snake before you took me in"’

From The Snake by Al Wilson

My social media threads at the start of this week were full of the sarcastic indignation that is part of the medium’s stock-in-trade.

On this occasion the target was Adidas and its alleged decision, as first reported by the BBC, to terminate its sponsorship deal with the International Association of Athletics Federations (IAAF) four years early.

What appeared to have got my fellow keyboard warriors’ goat was that the German sports shoe manufacturer should reportedly have ended its IAAF partnership while maintaining ties with football’s FIFA, another sports governing body with, shall we say, profound governance issues.

This was far more likely to be a decision motivated by money, the horrified implication was, than by ethics/morality.

To which my reply is: well, yes, of course such a decision would be motivated by money.

But, while you might wish that the group had steered a different course, this is no reason for opprobrium. It simply reflects how companies are supposed to work.

Adidas has reportedly ended its sponsorship deal with the IAAF four years early because of the negative publicity it has attracted because of doping documented in the WADA Indepdent Commission report ©Getty Images
Adidas has reportedly ended its sponsorship deal with the IAAF four years early because of the negative publicity it has attracted because of doping documented in the WADA Indepdent Commission report ©Getty Images

Here’s the thing: publicly-traded companies exist to generate value for their owners – the shareholders.

They can do this either by managing the group’s affairs in such a way as to cause the share price to appreciate, or by generating a profit big enough for them to be able to pay shareholders a regular cash dividend; preferably both.

You can debate the time-frame: should directors try for a big profit in the short term even at the cost of greater risk, or be content with a smaller return that is more easily sustainable?

But that really is the long and the short of it.

If a publicly-traded company expends money on sponsoring, say, a sports body, it should be because management thinks this expenditure will generate a return: it will enable the company to boost its sales by more than the cost of the sponsorship and/or to sell its products at a higher price, boosting its profit margin.

This is exactly the same principle as applies with traditional advertising spend.

It is also the optic through which it makes most sense to view corporate social responsibility (CSR) spending: in this case management may well be thinking that the improved reputation that they hope the company will acquire as a result will enable them to boost profit.

I am not saying this is right; it is simply the nature of the beast.

It therefore follows that if you expect publicly-traded companies to take decisions according to some moral code that ignores the bottom-line, you will inevitably end up disappointed.

You might as well expect compassion from a tiger or intelligence from a sheep.

There has been no suggestion that Adidas will end its relationsip with FIFA, despite the scandals which have rocked the organisation, leading to the suspension of President Sepp Blatter ©Getty Images
There has been no suggestion that Adidas will end its relationsip with FIFA, despite the scandals which have rocked the organisation, leading to the suspension of President Sepp Blatter ©Getty Images

This is why, in the Olympic context, I always dismissed the United States’ old argument that because American companies were so prominent among the International Olympic Committee (IOC)’s worldwide TOP sponsors, it somehow entitled the country to a bumper share of IOC revenues.

US-based TOP sponsors, like those headquartered elsewhere, must presumably have made the judgement that belonging to the programme would ultimately benefit their bottom-line.

If this were demonstrably not the case, they could expect vociferous complaints from their shareholders.

There are exceptions to this simple primer on the likely motivations underpinning corporate behaviour.

If a company is wholly or majority state-owned, then the Government of that state, particularly if democratically-elected, might legitimately take the view that if a sponsorship will add to the greater glory of the state, then it is worthwhile.

The market ideally will incorporate this balance of power in corporate decision-making into such companies’ share prices, if they are listed.

Clearly too, if a company is privately-owned by a lone individual or a small group, then, well, it is their asset; there is nothing beyond the law of the land to stop them embarking on whatever course they choose, for whatever reason, be it in the field of sports sponsorship, potted plant policy, or anything else.

If I started this piece with a quotation from the Al Wilson song, The Snake, it is not because I wish to liken Adidas to the legless reptile.

It is because I see it as one of the supreme artistic expressions of the nature of the beast.

If you pick up a snake, then don’t be surprised if it tries to bite you, however saintly your intentions; if your favourite sport forms a partnership with a publicly-traded company, then don’t be surprised if the profit motive informs its decision-making.