Corporate governance: the Football Association and the Rugby Football UnionDaniel Stock
In this series of blogs, our principal focus has been on professional sports clubs and their shareholders, directors and supporters. However, governance traditionally comes from the top. Given the roles of the Football Association (the “FA”) and the Rugby Football Union (the “RFU”) as quasi-regulators of their respective sports, one would expect their corporate governance arrangements to be in line with best practice. They are, however, subject to strong criticism.
In this blog we discuss (i) the FA and RFU’s corporate governance arrangements; (ii) criticism levelled at them as organisations; and (iii) opportunities for reform.
The Football Association
The FA is the governing body of football in England. It acts as the regulator and promoter of English football, both at the professional and amateur level, and represents English football on the international stage. However, Hugh Robertson, the Minister for Sport, recently concluded that “football is the worst governed sport in this country, without a shadow of doubt”. With its illustrious history, why is the Football Association criticised by so many inside and outside of the game?
The Culture, Media and Sport Committee’s 2011 Report on Football Governance published on 29 July 2011 (the “CMSC Report”) blames the FA’s internal structures and poor corporate governance at least in part for its shortcomings. A notable example of this in practice is the FA’s decision to amend the contract of former manager, Fabio Cappello, before the 2010 World Cup which was done without the approval of the executive board or its remuneration committee.
The FA, a private company limited by shares, has a dual board structure: an executive board for the day-to-day management of the FA’s business (the “Board”) and a supervisory board which appoints and ratifies the decisions of the Board (the “Council”). The Board comprises 12 directors: a Chairman, a Chief Executive Officer, 4 national game directors, 4 professional game directors (2 from the Football League and 2 from the Premier League) and 2 independent non-executive directors. The Board also has a number of committees with the National Game Board (“NGB”) and the Professional Game Board (“PGB”) being the most prominent. The Council comprises 118 members, some of which are life / senior members and others which are representatives from the professional game, the semi-professional game, county associations and other football associations.
A major corporate governance issue highlighted in the CMSC Report is the conflicts embedded in the Board structure. The majority of the directors on the Board are representatives of the national and professional game (8 out of 12 board members). On the face of it, these representatives are conflicted in any decision that would affect their interests as either national or professional game representatives. For example, David Gill, a member of the Board, would have been conflicted in any discussion on financial governance given the leveraged buyout model at Manchester United where he was Chief Executive Officer until very recently. Premier League club directors on the Board would be conflicted in discussions, for example, on the minimum number of players in a first team squad that should be developed through a club’s academy given the number of player acquisitions in the Premier League.
Further, the national game is partly dependent on funding from the professional game. National game representatives are therefore less likely to challenge representatives from the professional game on issues which relate to the professional game. Lord Triesman compared the composition of the Board to having Ofcom “exclusively made up of Sky, ITN, the BBC and possibly ESPN”.
The FA has attempted to alleviate some of these issues by reconstructing the Board on two separate occasions. Following the FA Structural Review in 2005, the Board appointed an independent chairman and chief executive, and following the CMSC Report, the FA appointed two independent non-executive directors to the Board. Despite these changes, voting still remains in the hands of the national and professional game representatives with 8 of the 12 votes on the Board.
The follow-up to the CMSC Report published on 29 January 2013 (the “Follow Up Report”) recommended that the Board should be made up of 10 directors. This would be affected by reducing the number of professional game and national game directors from 8 to 4 and appointing 2 additional executive directors including a director of football development. A reconstruction of this kind is aimed at reducing the influence of professional and national game representatives, and putting the executive and non-executive directors in the majority (6:4) allowing the FA independently to set the strategy for football in England. However, it is unlikely that such proposals will succeed.
In addition, the CMSC Report is critical of both the NGB and PGB committees because they take power and policy formulation away from the Board and delegate it to those with vested interests. Further, delegation to the NGB and PGB leaves gaps on key issues such as youth development, the FA Cup and international football which are either considered partially by these committees or not at all. According to the CMSC, the proposals put forward by the national and professional leagues in response to the CMSC Report only reinforce and extend the status quo with “the regulator in effect ceding power to the regulated”.
Further, the CMSC Report considers the Council “not fit for purpose” in its current form. This is partly due to structural weakness relating to its composition. The Council is made up of 118 members from across the football community. Many members have served on the Council for over 20 years. On publication of the CMSC’s Report, there were only two female and two non-white members. Two thirds of the Council are over 64. The Council only meet five times a year and members do not always receive background papers and written reports in advance of such meetings.
The CMSC Report recommended that Council improve inclusivity, reduce length of tenure to a maximum of ten years and review the format of its meetings. It also found that there was a large degree of overlap between the role of the Council and the shareholder body, and recommended that the Council should absorb the shareholder role. These recommendations have been rejected by the professional and national game.
This is not the end of the matter as far as the CMSC is concerned. The Follow Up Report states that, if “clear progress” is not made in all the areas it has highlighted, “the Government will introduce legislation as soon as practicable”. Further, an additional appendix to the Follow-Up Report in the form of a letter from Hugh Robertson published in May 2013 explains that the Minister has been given drafting authority by the Parliamentary Counsel to start working on a draft Bill and supporting documentation "should football fail to deliver". This may not be looked on favourably by FIFA which has strict regulations preventing the interference of governments in football matters. We await the football community’s anticipated response to the Follow-Up Report. The FA has until January 2014 to gets its house in order.
The Rugby Football Union
The Rugby Football Union, an industrial and provident society, is the national governing body for rugby union in England. It has sole responsibility for the administration and regulation of the game in England. Its internal structure mirrors that of the FA with (i) a board of directors with powers to manage the RFU; (ii) a council which is able to initiate and veto certain decisions (the “RFU Council”); and (iii) shareholders who meet and vote at the RFU’s general meetings.
Corporate governance at the RFU has been under the spotlight in recent years. In 2011, the board of directors of the RFU terminated the contract of its Chief Executive, John Steele, after only 9 months in office. In a review of the circumstances surrounding Mr. Steele’s appointment and departure, it was asserted that “governance at the top of the union is broken”.
The RFU Council subsequently commissioned an independent review of its governance arrangements which was published in November 2011. The 167-page report assessed the existing corporate governance structures of the RFU and benchmarked them against best practice and guidance from the UK Corporate Governance Code. It made 150 recommendations in order to assist the RFU in reforming its internal structure.
A list of 35 uncontroversial recommendations has already been approved relating to the publication of information, auditing and risk, codes of conduct, and policy formulation on confidentiality, conflicts of interest and the media. The RFU has rejected recommendations relating to the changing of the RFU membership from clubs to individuals and the phasing out of entitlement to allocation of Twickenham tickets.
The RFU has also set up advisory groups to analyse the other recommendations proposed. They go to the operational efficiency of the board and the RFU Council. They include the restructuring of the board from 15 members to 11 members, 3 of which would be independent non-executive directors (the board currently has 2), and the reduction of RFU Council member numbers from 60 to between 40 and 44. Other recommendations relate to the composition, power and functions of the Council, the powers of the board, the role of the Chairman and President, and term limits. Recommendations are to be put forward to RFU’s shareholders in autumn of 2013.
However, it is unclear whether these recommendations are going to be implemented and, if so, in what form. Even if there are modifications, good corporate governance in itself is not the panacea for governing bodies. Although it can serve to facilitate more effective and prudent management and provide a degree of accountability, it is still constrained by the strategy and the quality of its decision makers. As the RFU Report states,
“Better corporate governance cannot solve the more fundamental problems faced by organisations without a shared vision of success. Developing and refining that vision – or “great hope held in common” – is the essence of strategic leadership, for which the board of directors is ultimately responsible”.
The RFU will need to do both: reform its organisation and develop a real vision and strategy.
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About the Author
Daniel is a corporate lawyer at Dentons and is a member of the firm's Sports group. Daniel has acted on the acquisition of major football clubs in the United Kingdom and advises on all aspects of corporate finance transactions, including cross-border mergers and acquisitions (share and business sales), company/business ownership matters, joint ventures and investment funds.