A guide to the UK’s new Code for Sports Governance

Published 13 March 2017 By: Erin Stephens

Gold medalist holding a UK flag behind him

The author of this piece, Erin Stephens, is the Principal In-House Solicitor at Sport England

 

In May 2016, Sport England released its new strategy entitled: “Towards an Active Nation”.[1]

The new strategy marks a clear shift in focus for Sport England. No longer is it about promoting sport for sports sake and increasing participation. Now, the challenge is focused squarely on moving the “inactive” (those who undertake less than 30 minutes of activity per week) to “active” (who undertake at least 150 minutes of activity per week), with a particular focus on underrepresented groups.[2]

This represents quite a task. No other country has managed to shift the inactive to active and sustain the change.[3] Those who have had moderate success include Canada, Finland, and the Netherlands. To try to achieve this, Sport England will still be working with the national governing bodies, as the core sports market is still incredibly important. But it will also be forging relationships with a number of new organisations, including charities and other third sector bodies who have experience and expertise in reaching target audiences who are outside the reach of sport’s national governing bodies. 

The focus in the future will be on the benefits that sport and physical activity can bring to people and to society. The strategy is built around a set of five outcomes that are set out in the Government’s new sport strategy: Sporting Future - A New Strategy for an Active Nation[4] (Sporting Future) published in December 2015. They are:

  1. Physical wellbeing;

  2. Mental wellbeing;

  3. Individual development;

  4. Social and community development;

  5. Economic development. 

Sporting Future set a requirement[5] for Sport England[6] and UK Sport[7] to agree a new Governance Code for sport in the UK.

In October 2016, after consulting on key elements of governance with over 300 sport and non-sport stakeholders over the summer, Sport England and UK Sport launched a new set of gold standards of governance. These are standards that must be met by organisations seeking public funding from Sport England and UK Sport for sport and physical activity from April 2017.  

The standards are set out in a document entitled “A Code for Sports Governance” (the Code).[8]  This article examines the background to the Code and why good governance is so important, and then explains the Code’s main provisions. Specifically, it examines: 

  • Why is good governance in sport so important?

  • What difference will good governance make?

  • The journey to the Code for Sports Governance

  • Towards an Active Nation:

    • The Charter of Sports Governance

    • The Code for Sports Governance

  • What are the new requirements under the Code? 

    • Tier 1 requirements

    • Tier 2 requirements

    • Tier 3 requirements

  • Key Principles:

    • Structure

    • People

    • Communication

    • Standards and conduct

    • Policies and processes

  • What it is hoped the Code will do for the sports sector

  • Author’s comment

 

Governance in sport - why is it so important? 

Sport plays an important role in national life. The Active People Survey of December 2016 showed that 15.97 million people over the age of 16 are now playing sport weekly.[9] At the 2016 Rio Olympics, Team Great Britain and Northern Ireland became the first nation in history to win more medals after having hosted a Games. There is substantial public investment into sport. Over £1bn of public funding is being invested by the Sports Councils over a four-year funding cycle. In 2010, sport and sport-related activity generated a Gross Value Added (GVA) of £20.3 billion to England’s economy – 1.9% of the total – placing sport within the top 15 industry sectors in England.[10]

However, the business of sport has changed rapidly in recent years, presenting new opportunities and threats. Sport organisations now work in a more complex, high-profile environment. So why exactly is governance important?

Governance is the system by which organisations are directed and managed. It influences how the objectives of the organisation are set and achieved, spells out the rules and procedures for making organisational decisions and determines the means of optimising and monitoring performance, including how risk is monitored and assessed.

It is recognised by organisations, governments and sporting associations and bodies that effective sports governance requires leadership, integrity and good judgment. Effective governance will ensure more effective decision making with the organisation demonstrating transparency, accountability and responsibility in the activities undertaken and resources expended.

It is commonly accepted that governance structures have a significant impact on the performance of sporting organisations. Poor governance has a variety of causes. The majority are not malevolent, but include director/committee inexperience, undisclosed conflicts of interest, failure to effectively manage risk, inadequate or inappropriate internal financial controls, and general poor internal business systems and reporting.

Governance concerns generally cover three key issues:

  1. How an organisation develops strategic goals and direction;

  2. How the board/committee of an organisation monitors the performance of the organisation to ensure it achieves these strategic goals, has effective systems in place and complies with its legal and regulatory obligations; and

  3. Ensuring that the board/committee acts in the best interest of its members be it shareholders or club members

 

What difference will good governance make? 

Ineffective governance practices not only impact on the sport/organisation where they are present, but also undermine confidence in the sports industry as a whole.

This has been evident with the recent issues in football, athletics and cycling; alleged national-sponsored doping programmes; and alleged bribery with the awarding of major sporting events. These are examples of what poor governance can lead to with lack of transparency at the top level in decision-making and accountability, and how poor governance can become instilled in business systems and processes. Think about how long it will take to rebuild confidence in certain country’s international sports associations, their athletes and some sports as a result of these high-profile scandals.

Governance issues aren’t isolated to international organisations, but are also seen domestically where basic minimum standards of governance on independence, conflicts of interest and terms limits are not being applied. This directly affects the value for money for public investment into sport, undermines sports’ credibility and allows an environment to flourish where others profit from morally questionable or illegal activities which prevent athletes from competing on a fair and level playing field.

 

The UK’s new Code for Sports Governance

The journey to create the Code started with the UK Government’s new sport strategy, Sporting Future.[11] Integrity of sport was an instrumental principle following the allegations within international federations such as FIFA and International Association of Athletics Federations (IAAF), of deep rooted corruption and poor governance. The Government wanted to play a leading role in changing this landscape with the establishment of a new governance code for sport that would be rigorously enforced in the UK and set a new standard internationally.

There are examples of governance standards of organisations within the sport sector that fall below those required of any public limited company or charitable organisation. The Government thought it unacceptable that any organisation receiving public money should still have governance standards that fall short of existing standards such as those contained within the UK Corporate Governance Code.[12]

Promoting good governance doesn’t only play a key role in tackling corruption, it also helps create a more resilient sport sector with bodies that are more organisationally and financially sustainable.

 

Towards an Active Nation

These governance requirements were embodied in Sport England’s new strategy paper, “Towards An Active Nation”.[13] 

The Charter for Sports Governance 

Under UK Sport and Sport England’s existing governance requirements[14] the UK sport sector has shown measurable and sustainable improvement in governance, with many sports achieving the existing standards over the 2013-17 funding cycle. Indeed, many organisations have shown a desire and commitment to own their own governance and ensure that it is fit for purpose.

However, the general feeling was that the existing standards good be further improved. In early 2016, to coincide with the Prime Minister’s anti-corruption summit in May, Sport England and UK Sport published a Charter for Sports Governance[15] (Charter), which outlined some of the key elements that would form the basis of a new governance regime entitled “A Code for Sports Governance”.

The Code

The Code builds on the good work laid out in the Charter and existing governance standards. It is new, and there are areas which will challenge the status quo, but the aim is to work with organisations to give them the help to become even better and more effective.

The Code sets out levels of transparency, accountability and financial integrity. The Code has three tiers that will apply as of 1 April 2017 to any organisation seeking funding from Sport England and UK Sport. It applies regardless of size and sector, so includes national governing bodies of sport, clubs, charities and Local Authorities.

It is important to note that the Code has been designed to be proportionate[16], expecting the highest standards of good governance from those organisations requesting the largest public investments including:

  • Increased skills and diversity in decision making, with a target of at least 30% gender diversity on boards;

  • Greater transparency, for example publishing more information on the structure, strategy and financial position of the organisation; and

  • Constitutional arrangements that give boards the prime role in decision-making

The Code is a significant piece of work which it is hoped will benefit the sport sector in the following ways:

  • Well governed organisations perform better.

  • It will lead to stronger, better-balanced, and highly skilled boards running organisations.

  • It will ensure that there is appropriate transparency about their work.

  • It will show the rest of the world that we are prepared to lead by example on governance.

 

What are the new key requirements under the Code?

As above, the Code implements new standards of governance on a tiered basis, dependent upon the amount of public investment that the organisation is seeking.

Tier 1

Tier 1 is the “lowest” level. Its requirements are similar to the requirements for Sport England’s current small grants programme. There are seven basic requirements of each institution, including being properly constituted (which means having appropriate documents which set out why the organisation exits, the areas of work it is involved with, how it makes decisions and other rules clarifying how it operates),[17] and having sound financial processes (such as two signatories on a bank account).[18]

The Code is now also asking organisations who fall into Tier 1, which could include sports clubs and associations, to limit the time that members can spend on the committee to ideally nine years. If they are member based, it asks them to make their accounts available to their members. It now also asks them:

In deciding who sits on its governing committee the organisation considers the skills and diversity required of its committee members.[19]

Having an inclusive approach - meaning organisations are accessible to all parts of the community - is an important part of promoting diversity, a key element of the Code.

Tier 2

The difference between Tier 1 and Tier 3 is significant. Tier 1 contains seven mandatory requirements, whereas Tier 3 contains over 50.

Investments will be placed in Tier 2 where Sport England and UK Sport require organisations to go further than the requirements in Tier 1, but not as far as full compliance with Tier 3. This could be because of resources, or because the investment is significant bit made on a one-off, rather than longer-term, basis. It could also be because the investment signals the start of a new strategic relationship with Sport England or UK Sport where the parameters are still being established.[20]

Investments at Tier 2 are likely to be in the region of £250,000 to £1m but this is not a fixed range. If a Tier 2 investment becomes on-going and a firmer relationship with that organisation develops, we may move the organisation into Tier 3 and support them to achieve any new requirements.

Tier 3 

Tier 3 is the top level of mandatory requirements in the Code. Investments in Tier 3 are likely to be £1million+ and funding over a period of years.

Tier 3 sets a high level of governance standards because of the significant public investment being made. Formal commitment from organisations to meet the requirements within agreed timescales will be required which can include action plans to ensure compliance.

It is expected that most of Sport England and UK Sport’s investment into national governing bodies fall into Tier 3 because of the nature of the investment made to these organisations. Exceptions may be made in the light of the organisations size/resources and the length of the investment relationship with them. The Code sets out the requirements under each principle, with guidance to illustrate what is expected or needs to be done to work towards achieving the requirement.

 

Principles

The Code has five principles that run through all the tiers to a degree, although they are more detailed for the Tier 3 requirements. They are:[21]

  • Structure;

  • People;

  • Communication;

  • Standards and Conduct; and

  • Policies and Processes. 

The Code provides guidance throughout at each Tier on how organisations can achieve compliance with the requirements. 

Principle 1 - Structure

This means having the right governance structure with, in particular, decisions being made at the right level to drive the success of the organisation. Having the right governance structure demonstrates to all stakeholders that the organisation is well managed. This is key to winning the confidence of staff, suppliers and potential investors, and provides a framework for organisational growth and development.

The role of the board is particularly important. Directors are collectively responsible for the long-term success of the organisation and therefore it is appropriate that ultimate authority rests with them. The board should set the strategy, but to do this effectively they are likely to need to consult with a range of stakeholders. 

Principle 2 – People

It is recognised that diverse, skilled and experienced boards which contain independent voice and which engage in constructive open debate enable optimum decision making. 

The requirements under this principle address diversity, selection process, and knowledge and experience levels.

The Code has built on the previous governance standards set by Sport England and UK Sport for national governing bodies, with significant improvements. The current standard requires all governing bodies by the end of the current 2013-17 funding cycle to have 25% female representation on their board. 97% of NGB boards now have women represented. By contrast, in 2013, only 80% had female representation. 69% have achieved the target of more than 25% of each gender on their boards.

This shift is welcomed but more can and should be done to tackle inequality in the sport sector. Diversity at boardroom level remains an issue. The Code calls for increased skills and diversity in decision-making with a target of at least 30% gender diversity on boards. The target for gender diversity has been enhanced to 30% but the expectation is to work to gender parity. Extensive consideration was given as to how far this “target” could be pushed; however mandated quotas are not allowable under the Equality Act.

As at March 2017, the Women in Sport survey found around half of the 68 Sport England and UK Sport-funded national governing bodies have fewer than 30% of non-executive director roles filled by women. There has been a decrease in the number of women in senior leadership roles - the most senior paid roles, excluding the chief executive officer. Nine of the 68 organisations had no female senior leaders below chief executive level, and 18% of chairs are female and 23% of CEOs are women.[22]

It is positive to note that the sector itself is recognising that it needs to be more diverse and reflect those who it engages, or wishes to engage with. Feedback from the consultation for a governance code with over 300 organisations supports a commitment to better diversity on the board:

  • 89% of respondents believe boards should actively demonstrate how they attract a diverse range of candidates

  • 78% recognise a need to increase diversity in their decision-making structure[23]

Achieving diversity on boards is a challenge. The Parker Review, A Report into the Ethnic Diversity of UK Boards: “Beyond One by ‘21' "[24] carried out by Sir John Parker reported of the 1,087 FTSE 100 directors, 90 directors are from black, Asian, minority ethic (BAME) representation. This represents about 8% of the total compared to 14% of the UK population who identify as BAME.[25] As at November 2016, BAME representation across 68 sports boards including national governing bodies was: one chair (1%), one CEO (1%) and 26 out of 601 board members (4%).[26]

This has to change, and Sport England expect demonstrable, meaningful commitment to achieve greater diversity, including greater representation of BAME communities and disabled people.

This does not only mean at the decision-making level but at all levels of the workforce. It also doesn’t only encompass those within the protected characteristics of the Equality Act 2010 but, just as importantly, socio-economic backgrounds and diversity of thought. The Code encourages organisations to seek to recruit people who think differently as well as those who have different backgrounds.[27]

While the Code does not have BAME and disability targets as it does for gender diversity, there is a new commitment that organisations must demonstrate a strong, public commitment to greater diversity, including BAME and disability.

It is for the organisation to decide how it identifies and agrees the action that should be taken to support and/or maintain diversity targets, but the expectation is that both recruitment practices and capacity building are considered. For example, recruitment processes should do so in a way that encourages consideration of a diverse range of candidates.[28]

Organisations must also report annually and publically on their work to foster all aspects of diversity in their leadership. The important change means the public can see what actions have been taken to tackle inequality.[29]

Principle 3 - Communications

Key theme of the Code is transparency which threads through all tiers. Transparency about why the organisation exists, what it is trying to do, how it is doing it and with what results enables accountability. It empowers stakeholders by giving them the information about the organisation that they need to know.

Being responsive to stakeholders, understanding their interests and hearing their voice helps shape the organisation’s governance and strategy.

The UK scores highly on transparency, coming 10 out of 176 countries for transparency in business in 2016;[30] and we know that many of our national governing bodies already engage well with its members (UK Sport’s Athlete Insight Survey 2015[31]):

  • 76% of athletes agreed there was effective communication from their NGB, slightly up from 71% in 2014

The requirements in Principle 3 are all new:

  • Public disclosure of information

  • Stakeholder engagement strategy

  • Staff survey once a year

  • Publication of remuneration information[32]

Transparency is a key theme of the Code, enabling stakeholders to have clear and accurate information about the organisation, thereby enhancing its visibility and accountability.

The required disclosures will consist of certain standing information (eg. about the structure of the organisation) and periodic (i.e. annual) reporting on key outputs and results in finance, governance, progress against the organisation’s strategy, together with an annual review of the activities of the organisation.

Principle 4 - Standards and Conduct

Upholding high standards of integrity, and having the right values embedded in the culture of the organisation helps protect public investment, enhances the reputation of the organisation, earning stakeholder trust. Constantly seeking to improve also makes an organisation swift to respond to new challenges and opportunities.[33] This threads through all Tiers.

This principle covers development of the Board (the whole Board, Board committees, and individual directors); integrity; and conflicts of interest.

With the development of the Board, it introduces an external evaluation which aims to elicit periodic independent perspective to help enhance the on-going requirement for internal Board evaluation. This also includes the requirement to implement and progress a plan following the external evaluation.

This principles also covers behaviours and introduces (where organisations currently do not have one in place) the requirement for a mandatory Directors’ Code to be developed which requires directors to act at all times with integrity, in a forthright and ethical manner and in accordance with the organisations conflicts policy.[34] 

Principle 5 - Policies and Processes

It is important at all Tiers that organisations understand the legal environment they operate within and have in place appropriate financial and other controls to help mitigate risk and enhance stakeholder trust.

This principle deals with the legal, regulatory and compliance policies, processes and procedures a well governed organisation should have in place including financial controls and risk management and those which are of particular importance to the sporting landscape (e.g. regarding elite athletes, and safeguarding).

The board understands its legal and regulatory obligations in order to fulfil their duties. Examples include the duties set out under the Companies Act, charity law, health and safey legislation, data protection and anti-corruption.

Directors are not required to have absolute knowledge of all corporate regulation. However, they should be sufficiently familiar with regulations that applies to their organisation to enable them to identify potential issues and know the appropriate actions to take when such issues arise. Financial policies should be appropriate for the organisation, with relevant policies communicated with staff and volunteers. 

Audited annual accounts to be published and easily accessible to the public and should provide visibility of income received from UK Sport and Sport England.

The board is responsible for determining the nature and extent of the principle risks that it is willing to take in achieving its strategic objectives and how risk is to be managed and monitored.[35]

 

What will the Code do for the Sports Sector? 

What the Code does at all Tiers, is make it clear what the expectations are for being in receipt of public funding. It is going to make bodies raise their governance standards – this can only be a positive thing resulting in a well-governed, resilient and successful domestic and international sector.

 

Comment

Sport England and UK Sport are in the process of conducting governance assessments with the national governing bodies to assess compliance levels with the Code. Where full compliance is not achieved, national governing bodies will agree governance action plans that detail how and when the organisation will address all areas of non-compliance. Implementation of the governance action plan and continued compliance with the Code will remain a condition of any funding. This will also apply to other Tier 3 organisations.

The implementation of the Code will be monitored on a regular basis by Sport England and UK Sport. It will also be monitored by the Government as an indicator of creating a more financially and organisationally sustainable sport sector by an “increase in the number of publicly funded bodies that meet the new UK Sports Governance Code”.[36]

 

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Author

Erin Stephens

Erin Stephens

Erin, a duly qualified solicitor in England & Wales and Australia, started her career working for the NSW Attorney-General’s Department in Sydney, Australia, before relocating to London in 2006. Having worked in the sport sector for the past ten years, she has headed up the Legal Department at Sport England since 2013 which was recently shortlisted for ‘Public Sector In-House Team of the Year 2016’ by The Lawyer.

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