What is governance?
Governance is a word that is used often, in the media and in the workplace. But what exactly does it mean?
Governance is a word that is used often, in the media and in the workplace. But what exactly does it mean?
The EU Expert Group on Good Governance defines governance in the context of sport as:
The framework and culture within which a sports body sets policy, delivers its strategic objectives, engages with stakeholders, monitors performance, evaluates and manages risk and reports to its constituents on its activities and progress including the delivery of effective, sustainable and proportionate sports policy and regulation.
Understanding the key terms
At its simplest, a key distinction to be made is that between governance and management.
Governance is the process by which decisions are made and implemented in an organisation. Strategically, governance encompasses the system(s) of oversight in place for an organisation and the approach used to achieve specific goals. Governance is usually the responsibility of a board of directors which, in the world of sports, is historically a voluntary position, unpaid.
Management, by contrast, is primarily about getting the organisation to perform, and deals with the practicalities of day-to-day administration and the implementation of the strategic plan. Management is often the responsibility of the executive/paid staff of an organisation.
In other words, management is about putting into place the decisions of the board and ensuring that strategic goals are met effectively, efficiently, legally and sustainably. The functions of management (e.g. marketing, human resource management, finance) focus on achieving an organisation’s objectives within a framework established by the board who are responsible for governance. The board will then oversee the performance of the executive organs of the organisation.
Requirement 1.1(c) of the Code for Sports Governance calls for boards to ‘maintain and demonstrate a clear division between the board’s management and oversight role and the executive’s operational role’. It is worth noting that in small organisations in all sectors this distinction may be less clear as board members take on more of the day-to-day running of its business. However, it is important that this duality is recognised and that board members ensure that their governance responsibilities take precedence over their management duties.
Strategic planning is a core responsibility of board members. While the staff/management may undertake most of the work, it should be the members of the board who decide the direction of the body, and they must balance short and long term activities. They should also hold managers to account for the delivery of that strategy against agreed key performance indicators (KPIs). However, it is good practice to include stakeholders in strategy development so staff/management can provide input and perspectives, they should have a voice and not be prevented from providing their views to the board.
Compliance refers to the requirement of some aspects of governance to ‘comply’ with legislation. This highlights that while organisations have some flexibility in how they are governed and managed, some structures/processes are required by law in order to be compliant with the law.
For more on compliance, click here.
What is good governance?
Good governance is ultimately about promoting fairness, accountability and responsible performance throughout your organisation. It involves developing trust amongst stakeholders in the people who run the organisation itself. To develop trust in this group, it is vital that they have accountability (are responsible) for their performance in relation to transparent organisational objectives.
To develop trust, we must look for opportunities in our sports organisations to develop the following two characteristics.
Fairness
Fairness is a concept linked to ethics and integrity. Good governance ensures stakeholders are given consideration and the diversity of interests amongst stakeholders is managed effectively. Fairness, leading to effective diversity management can then build legitimacy for your organisation.
Examples:
- Encourage stakeholder’s feedback/discussion of your organisation mission and vision.
- Conduct open meetings, encouraging discussion/questions from members when appropriate.
- Consider minority groups such as women, persons with a disability, diverse ethnicities in governance processes.
Accountability (and responsibility)
Accountability can be achieved in a number of ways. Broadly speaking, there are three main forms of accountability.
Fiscal accountability
Fiscal accountability refers to the formal mechanisms of control over funding. When it comes to high-performance sport, particularly in the UK, this is perhaps the most powerful form of accountability, as national governing bodies (NGBs) depend on public funding.
This is an increasingly precarious strategy, given major cuts in public spending. UK Sport and Sport England have placed good governance at the heart of the conditions attached to funding with the implementation of their new Code for Sports Governance.
Legal accountability
International bodies and their employees must abide by the laws of relevant jurisdictions in which those laws apply. Sports organisations operate under their own rules but organisations in the sector are also subject to a multitude of national laws, depending on the countries/jurisdictions in which they are based and operate.
Both the IOC and the Fédération Internationale de Football Association (FIFA) have made fundamental changes to their governance structures and procedures due to high-profile civil and criminal legal action taken by authorities in the US.
Stakeholder accountability
Organisations are also accountable to a growing number of stakeholders. Historically, the principal line of accountability was between the organisation and its membership. This still plays an important role in the democratic life of many sports bodies. However, this vertical and internal channel is increasingly becoming a form of network accountability as sports bodies operate in conjunction with a range of external stakeholders. This has been the result of more complex business arrangements for many and also the result of sport’s burgeoning role in socio-economic, political and health initiatives. For many bodies, increased reliance on public funding has given the impression that ultimate accountability might well be the fiscal accountability owed to the awarding sports council.
For more on this topic, check out our tool below, which gives further guidance on the principles that determine good governance.
Governance – principles and key areas
Legal forms and governance structures
Sports organisations can be found in the public, private and voluntary sectors in the UK and there are many different sizes and structures of these organisations. We can see a clear distinction between professional and amateur sporting bodies and the laws in the UK reflect this with different legal structures available.
Let’s examine the options for your sports organisation and consider the advantages and disadvantages of each.
The majority of amateur sports organisations (clubs and governing bodies) are ‘unincorporated associations’. This is when no formal legal steps have been taken to set up the organisation, and the individuals are bound together by the constitution or rules of the organisation, which is run by one or more committees. The members bind the organisation into contracts on behalf of the club. There is great flexibility in this form of sporting organisation and little cost or formal administration is required.
However, members can be held personally liable for contracts and legal claims made against the organisation (such as personal injury claims) and the club does not own any of its own assets; these are owned by the individual who enters into the contract. While these organisations are vital to their communities, they are at a disadvantage in that they cannot be held accountable/responsible for funding received in a consistent/sustainable manner, especially if the individuals involved change from time to time.
Another prevalent form of legal structure in UK sport is the company limited by guarantee (CLG). These are particularly common in amateur sports as CLGs can only really be used for clubs who operate on a not-for-profit basis. Each member pays only a small sum (usually £1) if the club becomes insolvent, thereby providing a key advantage over an unincorporated association, as the members have limited legal liability. There are more formal requirements for this legal structure, starting with registration at Companies House. Incorporating as a CLG, however, is a good first step towards a more sustainable and accountable sports club.
Across all sectors, a company limited by shares (CLS) is the most common company. The owners of a CLS are its shareholders and crucially are protected by limited liability, like members of a CLG. Shares in the company can be bought and sold (subject to restrictions in the constitutional documents of the company) and attract a dividend payment when sufficient profits are made by the sporting association. For these reasons, CLSs are usually only formed for large sports governing bodies and organisations.
There is a risk to the sport in that a CLS can be controlled strategically and operationally by any shareholder (or group of shareholders with a common objective) who owns over 50% of the voting rights, with little legal protection for minority shareholders.
There is even greater risk where an individual or group of shareholders own over 75% of the shares, as they can pass special resolutions and thereby change the constitution of the organisation. This can be mitigated by protectionist provisions being inserted into the Articles of Association and/or a shareholders’ agreement. This type of organisation is also registered through Companies House.
Any unincorporated sporting organisation or sporting company that is a club can acquire Community Amateur Sports Club (CASC) status, which offers significant tax relief, including business rates relief and Gift Aid. A CASC’s main purpose must be to provide facilities for and promote participation in one or more eligible sports (a club can have a number of sports provided by the CASC).
To be eligible for CASC status, an organisation must:
- Be open to all of the community – membership must be open and cannot discriminate except when a certain level of physical ability is needed to take part in a sport.
- Offer affordable membership and costs of participation – no more than £31 a week for membership, and clubs that charge more than £10 a week must provide help (e.g. a discount) for people who can’t pay. You can charge different fees for different types of members, like juniors or students, as long as you’re not discriminating against groups or individuals.
- Provide facilities for eligible sports and encourage people to take part – at least 50% of the members must take part in the sport(s).
- Be organised on an amateur basis – this means the club must not make a profit, unless this is reinvested in the club, and not pay more than £10,000 in total to all players in a year.
- Be managed by ‘fit and proper persons’ – as determined by His Majesty’s Revenue & Customs (HMRC) on each individual’s personal history.
Visit this website to find out all the details of Community Amateur Sports Club status.
Unincorporated associations and CLGs can also be charities, making fundraising easier and offering significant tax advantages – even greater than those for CASCs.
A club or sporting organisation can only be charitable in nature if its constitution promotes amateur sports and/or other healthy amateur recreations as set out in the Charities Act 2011. In all cases, the club must exist for the public benefit.
One potential downside to obtaining charitable status for a sports club is that membership is open to all: all members must play, be amateur and cannot simply be ‘social members’. There are also additional administration costs involved in registering with the Charity Commission.
Further, there is a specific charitable legal structure open to sports organisations called the Charitable Incorporated Organisation (CIO). Again, it must meet the charitable requirements in the Charities Act 2011, but it is a flexible, low-cost structure with limited liability. You may check your regional government for guidance or check out this useful summary by Southwark Council:
A CIO may have more difficulties raising finance given that the Charity Commission does not provide a searchable register of charges. This increases the risk for an organisation that could provide finance for a sports club in the form of debentures or secured investments.
You can read more about choosing the right structure for your organisation here. This section should give you an understanding of what governance means in a general sense. Its principles are largely transferable across all sectors. Next, we take a look at what governance means in the context of sport more specifically.
