I wrote last week about why it was important to seriously consider reform of the way football is run in England, and to get to grips with why football clubs need to be dealt with as unique businesses. I wanted to go into a bit more detail about what measures could be taken to address the concerns many hold about the way the game is run.
Five years ago, with a general election looming and yet another government Expert Working Group asking for views, I wrote an article alongside Duncan Drasdo, CEO of the Manchester United Supporters’ Trust, that attempted to set out how reform might be undertaken. Yesterday, Parliament staged a debate on The Future of Football Governance. This edited version of our original article is intended to contribute to the conversation, and sets out our case for a Football Club Ownership and Governance Act.
We’ll be clear from the outset in stating our belief that government needs to act if we are going to see meaningful and permanent reform in football. To what extent intervention is required is a debate that needs to happen and we would certainly not advocate complete state control of football. But football has been given multiple chances to reform itself, and failed. There now exists a major crisis of confidence in not only the ability but the very inclination of those bodies that claim to govern football to carry out that role. There can be no avoiding the conclusion that, if reform is to happen, that reform needs to become a requirement, not simply an aspiration.
Clearly the Premier League (and similarly the Football League) are controlled by their clubs but the power of the clubs also extends deeply into the FA and hence all attempts at self-reform have failed. That is why Government needs to legislate. It should be emphasised that such legislation could be very much light touch but a Football Club Ownership and Governance Act would create a peg on which to hang future amendments should football fail to respond to further voluntary invitations to progressive reform.
We’re aware that such a view will immediately provoke accusations of ‘interference with the free market’. And that leads us to one of the basic principles upon which our approach is based. Football is not a business like any other, and so needs a unique set of rules to be applied to it.
The current legal framework does not recognise that football clubs are fundamentally different from ordinary commercial businesses in certain key respects. Like commercial companies, they have relationships with suppliers and customers and need to take into account the interests of employees. But, unlike most companies, most football clubs are integral to the local community. Uniquely, football clubs have a very important stakeholder – their supporters – but, unfortunately, the current legal framework does not recognise their existence.
The majority of football clubs are privately owned and non-transparently managed. Currently, an owner can sell the club’s stadium, relocate the team, change the colour of the shirt, massively inflate ticket prices, sell the best players, increase the borrowings and extract massive dividends, without being accountable.
But football is not a business like any other. One key reason is because of the historic culture of non-transferable loyalty of the fan base. Consequently, football clubs each operate as distinct micro-monopolies, with the fans being key stakeholders. But these key stakeholders find themselves outside a commercial company and without the equity required to give them a voice. They are treated as if they were customers of a business operating in an efficient competitive market.
It is possible to regulate football as the business it is, if the political will is there. We believe that will is there among the vast majority of supporters, and we would hope to see that will reflected by those we elect to Parliament. How this could be done leads us to our second basic principle – there is no ‘one-size-fits-all’ solution. What works at a big, globally-recognised club may not work at a small club more closely linked to its local community. And, at every level of the game, 100% supporter ownership of a football club may not be necessary, or even desirable. What we are advocating is based upon a third, and final, basic principle — that a ‘no overall control’ model may deliver the optimum solution.
What we mean by that is that measures to promote mixed ownership of football clubs may well provide the best opportunity to successfully reform football in the UK nations.
The absence of any single majority owner and/or no majority control of the board will lead, we believe, to better governance and avoid exploitation of the club for the benefit of owners. A mixed ownership model akin to that of Bayern Munich (50%+1 member club ownership but with major commercial investment) strikes a good balance between retaining a commercial drive and making the best interests of the Club paramount. The very existence of majority fan power discourages many of the abuses we see in English football.
But with no requirement for football clubs to have a majority of independent directors (IDs) whose first duty, in the event of a conflict, would be to the Club, a majority of shareholders could simply replace any resistant directors with others who would do their bidding.
Since the implementation of the Companies Act 2006, it is now unarguable that directors must look to shareholders’ interests before those of the Club or any other stakeholder. So the absence of a majority of truly independent directors (especially independent from major shareholders) could allow takeovers which are clearly detrimental to Clubs.
How would the necessary changes be achieved? We believe that there are two routes available. One is to amend the Companies Act 2006. The other is to draw up and implement a new Football Club Ownership and Governance Act. We would favour the latter approach, because a new Act would serve as a marker of intent and be more likely to appeal to any government as it would pay a greater political dividend than low profile amendments to the existing Companies Act. Furthermore, a specific Act for football would pre-empt concerns that such reform would invite a flood of requests from other special interest groups.
The key reforms required are:
- Require the controlling boards of all football clubs to have a majority of directors to be independent of both the executive management and of the shareholders, with at least one director elected by an accredited Supporters’ Trust.
- Ensure that while the fiduciary duty of IDs remains primarily to shareholders, where a potential conflict of interest arises which might result in material detriment, the best interests of the club will precede those of shareholders.
- Require IDs to promote supporter engagement and facilitate growth of supporter share ownership.
- Require clubs to conform as a minimum with all appropriate sections of the UK Corporate Governance Code especially in relation to reporting, audit and accounting standards.
- Set out a simple, model company structure for all Football Club ownership structures to conform to so as to avoid attempts to bypass the above reforms or more general obfuscation, tax avoidance or unequal rights for some shareholders.
- Require the consent, as a class matter, of the relevant Supporters’ Trust for any attempt to change the location of or sell the club’s home ground, or to change the club’s name or home shirt colours.
Additional beneficial reforms:
- Require Clubs to conform appropriately with the Freedom of Information Act in certain areas to encourage general transparency over decision making unless there is a good reason why it should be kept confidential.
- Remove tax reliefs on leveraged buy-outs of football clubs except where the buy-out is by an accredited Supporters’ Trust and/or the only way to save a Club from extinction.
- Removal of tax relief on Football Club debt interest. Clubs should be encouraged to live within their means and when capital is desired they should issue new shares to their fans. If investment isn’t forthcoming by that route then that suggests there is insufficient support for it and it would probably be imprudent.
We believe these measures are both desirable and possible. While the German model is often referred to in these discussions, and has been by us again above, we would also draw attention to the so-called “B Corporation” movement which is steadily gaining momentum in the US. In addition to changing the duties of directors of a company to represent stakeholders rather than shareholders, the B Corp certification system uses the B Impact Assessment to measure and access ‘the other bottom lines’. Social and environmental performances are measured so that they can be considered by directors alongside financial performance.
Today we can see growing demands for corporate social responsibility and a definition of sustainability that incorporates concepts such as social impact, along with increasingly detailed attempts by the accountancy profession to include and update cost evaluation of sustainable initiatives on the balance sheet. The ideas we are putting forward are no longer seen as fringe, they are mainstream for businesses that are serious about surviving and thriving.
All this resonates in the context of football clubs in terms of directors representing “stakeholders” rather than exclusively shareholders. Football Clubs should not be sacrificed at the altar of “shareholder value”.
The views set out above are a set of proposals and we would encourage discussion of them at all levels of the game. They are not an unchangeable set of demands, but we believe that the basic principles represent a genuine way to reform the game. Cynicism about this latest attempt by Parliament to consider reform of football is understandable after so many past failures. But the thinking in our proposals is shared widely by supporter groups, and the fact that more and more grass roots supporter groups have the confidence and ability to put forward such detailed ideas is a signal in itself that the terrain has changed.
Politicians have a unique opportunity to reform a game that remains at the heart of national life. That chance should not be wasted.