Going for Gold: A New Code for Sports Governance
Any sports body or organisation that wishes to rely on public funding must now comply with a new Code for Sports Governance, and it requires preparation now.
In this article for Entertainment Law Review first published in January 2017, Joshua Charalambous discusses the backdrop to the changes, and explores the key aspects of the Principles and subsequent mandatory requirements provided for by the Code. This material was first published by Sweet & Maxwell in Entertainment Law Review (Volume 28; Issue 2; issn 0959-3799), and is reproduced by agreement with the Publishers.
All UK sports bodies and organisations that rely on, or wish to receive, public finding will now have to adhere to a new Code for Sports Governance (the Code). The Code aims to create a more transparent sports sector in the context of increased funding and potential threat of misuse of public and private funds. The expectation is that the Code will ensure that a gold standard of governance will be achieved in UK sport, and that it will be amongst the most advanced in the world.
The Code is underpinned by five key principles which act as the foundations of good sports governance. They are: 1) structure; 2) people; 3) communication; 4) standards and conduct; and 5) policies and processes (the Principles).
Sports bodies and organisations have until the next wave of public funding in 2017 to ensure that they are compliant with the Code. This article outlines the backdrop to the changes, and explores the key aspects of the Principles and subsequent mandatory requirements (Requirements) provided for by the Code.
In December 2015, the Government announced a New Strategy for an Active Nation aimed at tackling the flatlining levels of participation in sports and high levels of inactivity in the UK. In the foreword to the new strategy, David Cameron stated that the Code would be a response to journalists “lifting the veil on corruption and poor governance at the heart of some of the biggest international sports”.
A Charter for Sports Governance in the United Kingdom was announced earlier in 2016 setting out what it expected the Code to cover, with the Code being officially published on 31 October 2016. A copy of the Code is available on the Sport England website.
The key changes apply to all sports bodies and organisations which receive (or wish to receive) funding from UK Sport or Sport England. It therefore applies equally to elite and grassroots organisations. To account for this, the Code contains a three-tiered approach depending on the level of investment an organisation receives. This is intended to be flexible, and the Principles will flow through all elements of the Code.
The Code is easy to use, with the Principles in red and the Requirements in blue. The Code then provides a commentary on the Requirements to assist organisations in demonstrating ways in which they can ensure compliance. There is also an appendix of definitions.
Each Principle is accompanied by the question: “Why is this important?”.
Organisations should have a clear and appropriate structure, led by a board which is collectively responsible for the long-term success of the organisation.
Why is this important? The Code highlights the importance of good structure to investors, staff and suppliers whilst also ensuring a strong framework for organisational growth and development.
Organisations shall recruit and engage people with appropriate diversity, independence, skills, experience and knowledge to take effective decisions that further the organisation’s goals.
Why is this important? Diverse, skilled and experienced decision-making bodies which contain independent voice and engage in constructive, open debate enable good decision-making.
Organisations shall be transparent and accountable, engaging effectively with stakeholders and nurturing internal democracy.
Why is this important? Being responsive to stakeholders and hearing their interests helps shape governance and strategy. There should be transparency about why the organisation exists, what it is trying to do, how it is trying to do it, and with what results to empower stakeholders.
4. Standards and Conduct
Organisations shall uphold high standards of integrity, and engage in regular and effective evaluation to drive continuous improvement.
Why is this important? The right values and culture helps protect public investment and enhances the reputation of the organisation, earning stakeholder trust. Constantly seeking to improve makes an organisation swift to respond to challenges and opportunities.
5. Policies and Processes
Organisations shall comply with all applicable laws and regulations, undertake responsible financial strategic planning, and have appropriate controls and risk management procedures.
Why is this important? Understanding the legal environment and having in place appropriate financial and other controls help mitigate risk and enhance stakeholder trust.
The three-tier approach
Tier 3 represents the top level of Requirements in the Code. The Tier 3 Requirements represent the level of investment of public money in the bodies and organisations. Typically, UK Sport or Sport England will categorise an investment as Tier 3 if:
The funding is intended to be granted over several years;
The funding is granted for a continuing activity rather than a one-off project;
The total amount of funding is greater than £1m.
Tier 2 catches levels of investment that does not sit within Tier 3 or Tier 1. This might be because the investment is one-off (rather than long-term), or where the investment represents the start of a new strategic relationship between UK Sport/Sport England and the organisation.
Organisations receiving Tier 2 investment will be expected to comply with all Tier 1 Requirements, and some Tier 3 Requirements (which would be decided depending on the circumstances of the organisation and nature of investment).
Tier 1 represents the minimum level of Requirements. Tier 1 is designed to ensure the protection of public funding through good governance whilst not creating an administrative burden. Typically, UK Sport or Sport England will categorise an investment as Tier 1 if:
It is granted on a one-off basis (for example, for a specific project with a finite life);
The total amount of funding is less than £250,000.
Tier 1 Requirements (for all investments)
The organisation must be properly constituted, have a clear purpose and, if membership based, be inclusive and accessible;
The governing committee must meet regularly and record decision making;
Conflicts of interest must be recognised, managed by the chair and recorded. At least three people on the committee must be unrelated or non-cohabiting;
In deciding who sits on its governing committee the organisation considers the skills and diversity required of its committee members;
Committee members are subject to regular election and ideally should serve no longer than nine years;
The organisation must have a bank account and two independent signatories are required for payments; and
Annual accounts must be prepared and scrutinised independently of the person responsible for finance. The annual accounts should be made available to members to describe how money has been spent.
To assist organisations in complying with the requirements, the Code sets out a commentary. This commentary includes advice ranging from suggesting the number of times a governing meeting ought to meet to fulfil the “regular” meeting in Requirement 2); the suggestion is four times a year, to examples of when a conflict of interest might arise per Requirement 3); the Code states that a committee member would have a conflict of interest in circumstances where they (or a family member) receives a personal benefit from a committee decision.
The Tier 1 Requirements are straightforward, but it is vital that all sports organisations receiving investments undertake a compliance review sooner rather than later.
Tier 3 Requirements (for all Tier 3 and some Tier 2 investments)
The Tier 3 Requirements are, understandably, much more onerous. A summary of the key Requirements is set out below. It is crucial for any sports organisation receiving significant investment to review its corporate governance and undertake a thorough compliance review and risk analysis against each of the Requirements in the Code (not just those summarised below).
The board should be of appropriate size to meet the organisation’s requirements and have an appropriate balance of skills. In any event, the board should be limited to 12 people (unless otherwise agreed with UK Sport or Sport England).
The board should be the ultimate decision-making body and be responsible for setting the strategy of the organisation. The council should not be able to override the board.
25% of the board should be independent non-executive directors.
Subject to a few specific exceptions, a director may serve on the board for a maximum of eight years (in either four terms of two years, or two terms of four years) or nine years (in three terms of three years).
Each organisation shall adopt a target of, and take all appropriate actions to encourage, a minimum of 30% of each gender on its board, and demonstrate a strong and public commitment to progressing and achieving gender parity and greater diversity on its board (including but not limited to BAME diversity and disability).
Each organisation should adopt a mandatory directors’ code that, among other things, requires all directors to always act with integrity, in a forthright and ethical manner, and in accordance with the organisation’s conflicts policy.
Each organisation should publish directors' pay and, where the organisation employs over 50 staff, senior management pay.
Each year the board should evaluate their performance and ensure that an external provider evaluates the board’s performance every four years.
How will the Code be enforced?
We await the separate guidance referred to in the Code. That separate guidance will inform users how UK Sport and Sport England intends to monitor and assess compliance against the Requirements.
It is worth noting that at the time of writing the UK Government is looking at reforms to corporate governance structures which are primarily aimed at large private companies. Much of the Code has similarities with the UK Corporate Governance Code (which applies to London Stock Exchange listed companies). It will be interesting to see whether UK Sport/Sport England will adopt similar enforcement criteria to those used in corporate governance situations.
What can organisations do to prepare?
Simply, any sports body or organisation ought to review its rules and regulations alongside the new requirements and ensure compliance as soon as possible. A top tip is to use the Code to collate each Requirement and undertake a risk analysis based on the existing rules, thereby identifying any gaps or shortfalls.
There are then new documents that will need to be prepared. Given that the Code is much more prescriptive than the existing approach to sports governance, organisations should start drafting now if they have not already done so. There must be new policies and procedures to ensure board, council and chairperson compliance (including descriptions of the chairpersons’ roles). The new targets for inclusion and diversity will likely require new written policies.
Despite significant work required to review compliance, it is a fantastic opportunity for sports bodies and organisations to refresh the rules and regulations to ensure best practice.