Corporate governance, believe it or not, is actually very simple. People tend not to say this out loud though, because a lot of careers rely on it remaining something of a mystery. However, anyone working in governance and being responsible for its application, need stakeholder buy-in. This means that de-mystifying governance and demonstrating practical application using plain English should be a priority. Unfortunately, that’s not always the case.
This is hard to understand. When corporate governance is simply the right people talking about the right things at the right time or put even more simply, decision making, why is so much explanation and guidance required?
Sport England and UK Sport have authored a revised Code for Sports Governance (the “CSG”) which has recently been introduced containing 68 pages, 4 pages longer than the previous code. Similarly, the UK Corporate Governance Code (“UKCGC”) for listed companies began life in the early 1990’s with 748 words and the latest version, published in 2018, now has 4,230 words.
The majority of the CSG relates to Tier 3 organisations, these are organisations in receipt of funding greater than £1m per year. Most organisations will fall into Tier 1 where the total amount of funding is typically between £10,000 and £250,000 or on a one-off basis. It is right that any organisation that receives public money should have the mechanisms in place to protect and justify that “investment”. In the corporate world, capital is provided to companies by shareholders who elect directors to run the businesses they have invested in. Corporate governance frameworks were first implemented to address the fact that the people trusted to run companies are not always the same people who have made the investment. Governance has since evolved to consider the interests of all stakeholders but the relationship between shareholders and directors remains key.
Like the UKCGC, a principles-based approach has been taken but the key difference is that compliance is mandatory. Whereas flexibility is available, a comply or explain approach is not.
It’s interesting that the thresholds between the tiers are purely financial though and don’t consider the size of the organisation or number of participants. This is important as what the CSG doesn’t do is explain why governance is important – it’s more than just to secure funding.
The Principles set out in the CSG can simply be seen as the “why?”. Taking each in turn:
Structure: You need a clear purpose and your decision makers in place (“sitting” on a board) along with a mechanism for them to perform this role (particularly when they have other priorities and are volunteers with busy lives). Your board must meet regularly and keep a record of decisions (the minutes) and the rules (your governing document) must be up to date and available to all.
People: Your decision makers represent the interests and views of your stakeholders. It’s therefore important that you identify and engage with your stakeholders at an early stage. Remember that diversity also relates to background, not just ethnicity or gender. Also, by ensuring that decision makers are regularly subject to election and ideally don’t serve for more than 9 years, fresh ideas and viewpoints are frequently introduced, and independence is maintained.
Communication: Transparency is the key. Governance should make it easier for people to understand and carry out their responsibilities and for those outside of the boardroom to gauge how well they are doing it. It matters if any organisation fails as stakeholders lose out. Governance helps avoid nasty surprises.
Standards and conduct: Doing things in the right way for the right reason builds trust and helps build a positive culture. Governance helps the management of potential conflicts of interest – these are a fact of life but should not be a barrier to effective decision making if handled properly. The CSG also mandates that at least 3 decision makers are not related to or living with another member thus reinforcing the “People” principle.
Policies and processes: All organisations have legal and regulatory obligations that they can’t control, only comply with. Governance is not compliance. Instead, it enables compliance in a proactive way. The CSG is focussed here on financial reporting and risk management. Organisations need to be able to “tell their story” to the outside world in their financial statements and make sure that the disclosures provide a true and fair view of the financial health of the organisation. In terms of risk management, there is nothing wrong with taking risks as long as the approach is managed.
Unfortunately, an industry has grown up around corporate governance which has its own language, jargon and acronyms, none of which help the end user, and which will most likely be completely alien to the average volunteer trying to make sense of it all. Sport England and UK Sport have sought to make governance accessible to all with their various versions of the CSG but even with the Tier 3 requirements removed, it remains a hefty document.
Sport is all about participation, exercise and having some fun. Governance should not be a barrier to any of these things and whereas the requirements of the CSG are not especially onerous and do make sense, such formality can be off putting to people who simply want to provide something safe and healthy that everyone can enjoy. Anyone can apply good governance as much of it is common sense.
By understanding the language and putting it into plain English, it will become clearer and easier to buy in to and will ensure consistency. You are probably doing many of the things outlined in the CSG already but perhaps not understanding why it’s important or perhaps using different terminology. Using the same language will help people have the right conversations in the right way.
Your focus should always be on getting the best outcomes for your stakeholders. This starts with understanding how decisions are made in your organisation and what can be done to encourage better ones. When thinking about the practical application of the CSG, perhaps start with a simple gap analysis of the way you do things against what is in the code. This will then illustrate what’s missing and what could be done differently and will inform a conversation with your stakeholders on your recommendations about what changes might be required. Along the way ensure you document all of your processes and make sure that all of the key governance documents are up to date and accessible to those who need them.
Like many people involved in sport, you may well be a volunteer with other time pressures on you. Try to view governance as a tool to help your organisation comply with its obligations and not red tape or a barrier to getting things done. Codes achieve nothing without people, but the right people need to be in the right roles. Remember that it’s normal to outsource and seek external advice whether that is from a governance professional, lawyer or accountant in the same way you call a plumber or an electrician when you need them (remembering, of course, that it’s not your money to spend). If you can view corporate governance as a utility, something every day and part of life then it will start to demystify itself.