Corporate governance: a guide for supporters
The aim of this part of the Handboook is to provide a wider context to the strategies outlined in the previous section on acquiring a collective shareholding and exerting influence in the boards of football clubs. This section deals with supporters’ wider rights as stakeholders and shareholders, and sets out the minimum that supporters can expect. Some clubs with enlightened corporate governance practices may go beyond the minimum requirements set out by company law, consumer law, codes of corporate governance and the regulatory requirements of the football authorities. A benevolent owner or director may be willing to listen to the views of supporters and invite a supporter elected director onto the board. However, influence that is granted as a result of goodwill, rather than as of right, may soon evaporate when opinions differ. While benevolence is welcome, it is not a substitute for legal rights or regulatory requirements that cannot be taken away at the discretion of an owner or director, or by a change in control or ownership of the company.
The system of corporate governance sets out the rights of shareholders and other stakeholders. Understanding the system of corporate governance is therefore essential to enabling supporters to have more influence on how their club is run. Before setting out the system and how it can be of benefit to users, it is important to note that good corporate governance is good not just for supporters, but also for companies and clubs. Research and experience has shown that poor governance – lack of transparency, failure to disclose accurate information and/or listen to shareholders and customers – is associated with poor corporate performance. Supporters can play a positive role in their clubs with the effect of promoting good governance and good performance. Both the supporters and the club have much to gain.
What is corporate governance?
Corporate governance concerns all factors that govern the way companies are run. Football clubs are typically registered as companies and therefore their operation is directly determined by the system of corporate governance. The system of corporate governance encompasses the system of laws, codes and regulations that influence and constrain company behaviour. This includes setting the objectives of a company and defining the rights and roles of different participants in an organisation – the shareholders, the board of directors, employees and other stakeholders – and the relationships between them. In the case of football, two important sets of stakeholders are football supporters and the local communities in which football clubs are based. Corporate governance structures are important because they directly influence how owners, directors, managers, players, supporters and the local community interact to determine company/club strategy and the way in which the company or club behaves in its quest to meet its objectives.
The system of corporate governance is made up of a wide range of laws, regulations and codes that govern the behaviour of different participants in a club and therefore the behaviour of the club itself. The point of all these regulations is to safeguard the rights and interests of shareholders and other stakeholders. Good corporate governance systems aim to ensure high levels of transparency, accountability, competency and corporate responsibility, all of which are essential to good corporate performance. The collapse of Enron in the United States in 2002 provides an example of a failure of corporate governance caused by lack of transparency, conflicts of interest, poor auditing and failure of executive and non-executive directors to disclose the true financial state of the company to shareholders.
How can the system of corporate governance help supporters?
The system of corporate governance is designed to ensure minimum standards of corporate behaviour and to protect the interests of shareholders and stakeholders. The system of corporate governance is therefore of direct help to supporters as key stakeholders. It is also of relevance to shareholder supporters. Share ownership gives supporters additional rights, and these include rights to information about the club, the right to vote at meetings and the right to put resolutions to meetings. How the rights of stakeholders and shareholders might be exercised to exert influence over a club is discussed in detail below.
As can be seen from Figure 2 rights are bestowed by four mechanisms:
- Legal rights defined by company, consumer and competition law
- Rights enshrined in Codes of Corporate Governance
- Regulations set out by the Football Authorities
- Shareholder activism and Community Participation