Core principles of good governance were assessed by Government agencies Sport England and UK Sport during the Rio 2016 funding cycle, before any public funding was distributed to sports governing bodies. The bar has just got higher. Compliance with a prescriptive new governance code will now be a mandatory requirement for sports governing bodies hoping to receive funding in the lead-up to Tokyo 2020. This month, we consider the impact of the Code for Sports Governance.
A Code for Sports Governance
On 31 October 2016, UK Sport and Sport England (Funders) unveiled a new Code for Sports Governance (Code), a requirement of the government's strategy 'Sporting Future: A New Strategy for an Active Nation', published in December 2015. Following consultation with over 330 organisations, the Code aims to build on the funding triggers set out by the Funders for the Rio funding cycle, consolidating the triggers into a single set of governance requirements for the first time.
The Funders describe the Code as a tool to 'protect the value for money the public receives from investment into sport [and] to maximise the effectiveness of those investments.' The Code applies to all organisations within the UK who receive funding, and sets a number of compulsory requirements under five very broad 'principles of good governance', being: Structure; People; Communication; Standards & Conduct; Policies & Processes.
In response to the challenge of applying the Code across an incredibly wide spectrum of organisations with varying human and financial resources, the Funders have decided that they will implement (at their sole discretion) a three-tiered system with effect from 1 April 2017:
Tier 1: a light touch approach on governance for one-off projects under £250,000;
Tier 2: a bespoke combination of requirements from Tiers 1 and 3 for one-off projects (e.g. hosting major championships) between £250,000 and £1m; and
Tier 3: a formal commitment to detailed and prescriptive governance requirements within set timescales for investments of more than £1m over a continuous period.
A velvet glove..
The introduction of a tiered system aims to make the Code mandatory while maintaining a degree of flexibility. Emma Boggis, CEO of the Sport & Recreation Alliance, which in many respects paved the way for the Code when it introduced its 'Voluntary Code of Good Governance' back in 2011, believes the tiered approach 'should go a long way to ensuring that requirements are relevant, proportionate and achievable'. The Funders say they want to foster open dialogue and set bespoke requirements and timelines for organisations they acknowledge vary enormously. For Tier 1 organisations, for example, much of the guidance is 'encouraged' as opposed to mandatory.
But an iron fist..?
At the same time, for Tier 3 organisations (which, due to the low aggregate funding threshold, includes almost all sports governing bodies ranging from British Orienteering to British Cycling), the Code sets a range of specific, detailed and mandatory requirements and targets, some of the key ones being:
- at least 25% of the Board must be independent non-executive directors, one of whom shall be the Senior Independent Director. [Note that directors nominated by a Council are not 'Independent'];
- term limits of 4 x 2 years, 2 x 4 years or 3 x 3 years apply to all current and future directors, who must have a gap of at least 4 years before they can stand again;
- all directors must adhere to a mandatory director's Code of Conduct and provide a declaration of good character;
- Council may not override the Board, but shall have 'reasonable' rights to consultation and constructive challenge;
- no more than 33% of the Board can be made up of directors nominated by a Council;
- a target minimum 30% of each gender on the Board. Organisations must demonstrate a public commitment to gender parity and greater diversity (including disability) generally and publish information about this on their website;
- take proportionate and appropriate actions to support / maintain targets;
- publicly disclose sufficient information on governance, structure, strategy, activities and financial position to enable stakeholders to have a 'good' understanding of the organisation;
- have a strategy for engaging with stakeholders (athletes, home nations, etc.);
- publish an 'annual governance statement'.
There are many other mandatory requirements for Tier 3 organisations, and please see our briefing note 'Code for Sports Governance: at a glance' for further details of these.
The Code has been hailed by many as a positive step in the right direction. The Code's commitment to improving gender balance on Boards has been a particular point of praise, with Sally Hancock, chair of Women in Sport, calling it a 'significant step towards improving and sustaining standards for gender balance in the sector'. By contrast, Ed Connell, chairman of the Gay Football Supporters' Network feels that 'It looks as though you're deciding there are certain groups which need greater protection than others. We must be working towards having diverse governing bodies in sport full stop.' The Funders have since stressed that the 30% gender threshold is a target not a quota, and that Boards must make an ongoing public commitment to work towards diversity generally.
The reality is that most governing bodies are quietly and carefully working through the detailed and prescriptive mandatory requirements of the Code and applying them to their existing governance structures ahead of meetings with one or both Funders, when they will hope to learn what requirements and timescales for compliance will be set for them in 2017 and beyond.
We can clearly see in the Code swathes of the UK Corporate Governance Code, the FRC's Guidance on Board Effectiveness and some established best practice governance principles (such as the separation of powers between the Board and the executive). However governing bodies are (to state the obvious) not Premium Listed Companies. Governing bodies are at once regulators, rights sellers and event organisers with (in most cases) limited financial and human resource, and the sports they support rely hugely on volunteers who may not have the time or the appetite for risk to take on the range of additional responsibilities and reporting requirements set out in the Code. In this regard, we anticipate that the Funders have a very significant role to play in adapting the Code over the course of the next funding cycle and perhaps relaxing some of the mandatory requirements or adopting a 'comply or explain' approach where they can, so that the Code becomes more sport-specific and less 'corporate'.
A challenge for any governing body seeking an investment that doesn't fit neatly into Tier 1 or Tier 3, will be obtaining guidance on the requirements that they are expected to meet. Tier 2 investments are defined as anything falling between Tier 1 and Tier 3, and the Funders have made it clear that banding will be 'at their sole discretion'. Tier 2 organisations will be expected to meet all of the Tier 1 requirements with a few from Tier 3, but exactly which and the timeline for compliance 'will depend on the nature of the investment and the organisation'. This clearly raises questions of transparency, consistency of approach and predictability for the planning of budgets and strategy, etc.
In our view the biggest danger is that compliance with the Code becomes an administrative box-ticking exercise and not a driver for systemic cultural change. At Tier 3, much will depend upon the desire of a governing body's Board, Council (if applicable) and Members to create a culture of open and effective governance and the extent to which Government funding constitutes a significant proportion of their income that they can – or can't - live without.
Furthermore, there is almost no detail on enforcement of the Code. The Funders have made it clear that at the highest level, they require formal commitments from governing bodies within set timescales, and intend to supplement the Code with further resources (will these be human, financial, template documents, systems to facilitate the sharing of best practice, etc.?) to assist with compliance. However, it is unclear if and how quickly funding will disappear should governing bodies fail (whether due to a lack of desire or constraints imposed by their existing governance structures), or be slow to comply.
Leaving to one side the wider question of whether and the extent to which the state should dictate the governance of sport in the UK, the Code is a strong advance on the Rio cycle's funding triggers. A single Code sensibly and pragmatically enforced by the Funders ought hopefully to allow sports organisations to plan clear and effective processes for compliance with it. There are some very substantial challenges however and the Funders will, in our view, struggle to apply the Code fairly across Tier 3 governing bodies, simply by virtue of the huge range of organisations they have included within that bracket.
That said, if the Funders are prepared to work with organisations at all levels to encourage and support their attempts to put in place robust governance procedures, this is surely an impressive statement of intent for sporting bodies across the UK.
INN OUR VIEW
As BBC Sports Personality of the Year approaches, the Farrer & Co Sports Group have looked at the contenders. In an incredible year for British sport it is almost impossible to pick between them. In third place, we have selected Laura Kenny, who this year became the first British woman to win four Olympic gold medals. The choice for runner-up and winner is extremely difficult, but we concluded that Andy Murray’s record of winning second Wimbledon and Olympic titles, as well as overhauling the seemingly invincible Novak Djokovic to become world number one, should see him just pip Mo Farah (who defended his 5,000m and 10,000m Olympic titles) to win the award. Honourable mentions also to Kate Richardson-Walsh who captained the women’s GB hockey team to gold in Rio and captured the hearts of the nation, and Sarah Storey who took her tally to 14 Paralympic gold medals.
About the author: Tom Bruce is a core member of the Farrer & Co Sports Group and regularly advises national and international sports bodies on a wide range of governance and constitutional matters.
If you require further information on anything covered in this briefing please contact Tom Bruce (firstname.lastname@example.org ; 020 3375 7192) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Sports Governance page on our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2016