Fallout From Heineken Dogfighting Scandal

If you don't associate Heineken (PK: HINKY) with dogfighting, then you haven't browsed the Internet in the past few days.

An image that appears to show banners for the Dutch brewer's beer prominently displayed at a bloody dogfight has gone viral. Enraged animal activists have responded with online petitions, angry blog posts, complaints on Heineken's Facebook page, and global threats to boycott the brand.

The image shows two dogs fighting inside a caged arena while a videographer films the event and a large audience watches. Heineken banners are prominently displayed around the perimeter of the fight.

Questionable sporting event

Heineken banners dominate the dogfighting ring.

This is the second strike for a brand that drew the ire of animal lovers worldwide in 2008 for its sponsorship of bullfights in Portugal. Though bullfighting may be viewed as a questionable sport, far fewer people can even stomach the idea of calling dogfighting a sport. But some can. The Humane Society of the United States estimates that there are at least 40,000 dogfighters in America.

Dogfighting is illegal in all 50 states but is still acceptable in some parts of the world. It's hard to understand why. The so-called blood sport pits two dogs against each other in a ring. The dogs literally bite and rip the flesh off one another as onlookers cheer, scream, and place bets on which dog will win, according to the Michigan State University College of Law.

Heineken had described the bullfighting promotion -- which included the use of a local brand's logo on posters and banners in the Campo Pequeno bullring in Lisbon throughout the 2008 season -- as "part of the company's business." But it was not surprising when the world's No. 3 brewer quickly disassociated itself from the dogfight. Yesterday, it said on its international Website that it was "shocked and disappointed" by the image, and that it "is not and would never knowingly be associated with illegal activities, including those involving cruelty to animals."

Heineken called the image "a gross misrepresentation of our brand," and it warned that its legal team was investigating the matter.

Today, the same day it released quarterly earnings, Heineken updated the statement to include details about an activity it called a violation of "company and brand rules and -- more important -- against our company values." It confirmed that the image was real (not a Photoshop fake, as some supporters initially suggested). A nightclub in Mongolia "hosted a dog fight of which we had no knowledge and were not involved in any way," the brewer said. "The venue owner has verbally confirmed that Heineken banners are visible in the pictures because the previous evening the club had been decorated for a promotional event and he had failed to remove the banners once it was over. This event was in no way related to the dog fight."

The whole incident raises important issues for public companies, including the importance of monitoring and responding to social media postings, as well as the risks of doing business in emerging economies, where cultural norms and standards may differ from those in the US or Western Europe.

Despite the bad publicity from the dogfighting, today Heineken reaffirmed its focus on high-growth markets like China. It reported a rise in first-quarter net profits due to the growing popularity of its beers in all regions except Western Europe. Revenue surpassed analysts' expectations, largely because robust volume growth in emerging markets eclipsed a slight decrease in Western Europe.

Heineken has built its position in the Asia-Pacific region through Asia Pacific Breweries (APB), a Singapore joint venture with Fraser & Neave. APB operates breweries in more than a dozen countries, including Mongolia, Thailand, China, and New Zealand. In February 2010, it acquired breweries in Indonesia and New Caledonia.

Last year, APB reported 15% volume growth in Mongolia's "robust beer market." That market "grew on the back" of the country's economic growth.

As companies expand their global footprint, maybe they should take the steps to protect their brand and reputation in the process. It seems that responsible public companies that respect their business, as well as their shareholders, could capitalize on new markets without offending their customer base.

The viral dogfighting image is one of about a dozen photos posted on a Mongolian news site about a 2010 dogfighting tournament that took place in a nightclub in Ulaanbaatar, the capital of Mongolia. The bar appears to be Elite, a popular spot for meetings and events. You can see what appears to be the same venue in the following video. The lighting distorts the images, but you can see what appear to be the same Heineken banners, as well as green bottles of beer in the refrigerated case in the background.

The fact that this nightclub is also used for dogfighting may have surprised executives in Holland. But it can hardly have come as a surprise to the local distributors or anyone associated with the brewery in Mongolia. Someone from the home office should have made it clear what kinds of events and activities Heineken felt comfortable sponsoring -- directly or indirectly.

Give Heineken thumbs up for responding to the global outcry. But question the management (or lack of it) that allowed the incident to occur in the first place.