Corporate Governance in Soccer

Corporate Governance in Soccer
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Executive Summary
Corporate governance involves the mechanism through which a corporate organisation or firm is directed and controlled. Some of the advantages of enhancing corporate governance include the promotion of democracy, linking the club to the community that forms the major stakeholder, establishing stability and confidence, improving relationships with the local businesses and empowering the fans and stakeholders. The principal disadvantages highlighted are in the form of decision making, finance and sustainability. Ineffectiveness in corporate governance is a product of lack of competence in management, low stakeholder commitment and inadequate resources among others. Some of the measures that can be applied in minimising the negative impacts of corporate governance include strengthening the internal governance mechanisms, empowering the shareholders, enhancing the disclosure requirements and enhancing the public enforcement write essay my cultural identity. The paper will focus on the analysis of the Corporate Governance in soccer, with a special emphasis on Europe.
Corporate Governance in Soccer
The definition of corporate governance has been subject to numerous definitions due to the global diversity of the practices. For instance, Shleifer and Vishny (1997, p. 737) define corporate governance as the executive method through which the executive controls the financial resources in corporations to enable them acquire profits for their investments while Aoki (2000) avers that corporate governance represents the structure of the responsibilities of the stakeholders of an organisation. The prevalence of the cases of governance failure in professional soccer clubs has led to increased interest in the corporate governance of the professional soccer clubs. Farquhar, Machold and Ahmed (2005) blame these cases on the lack of adequate internal and external mechanisms for governing soccer. This prompted Vrooman (2007) to assert that the governance systems of the European soccer are living in denial because they are currently faced with internal corporate governance issues. The current rise in the governance scandals affecting corporations such as Royal Dutch in the UK has made various governance systems to be a subject of wide criticism. According to Buraimo, Simmons & Szymanski, (2006) the series of mistakes and unprofessionalism has led to poor standards of corporate governance among the executives; leading to financial crises. One of the measures intended to improve corporate governance in European football is the Cadbury Report in 1992 that intended to address its underlying problems, the pressure for the changes by the institutional investors and the absence of effective oversight boards.[1]
State Of Football in the UK
Football is a hugely successful industry in the UK and contributes significantly to the community; culturally and economically (Appendix 2).[2] The football clubs are uncomplicated organizations that exist with a goal of enhancing the participation and spectating of organized commercial football. The potential for revenue generation in the professional leagues has led to the tensions between the cultural and commercial value of football clubs. The regulation capacity of the FA to control the general English football has been faced by a myriad of challenges emanating from the power of professional football to influence its decisions and structures. The governance challenges facing various organisations e.g. soccer clubs have prompted them to adopt the globalising trends that emphasises on the shift from direct control of the sport to the corporate governance approach. According to Henry and Lee (2004), the current business environments are characterized by the interaction of organizations and other working groups within and across organizations. Sport is not an exception and this has seen the globalizing trends being characterized by the incorporation of the systematic governance in soccer management. Profound changes have been noted in the manner in which football is managed at a national and international context. Of importance is the fact that the new developments have led to an increase in negotiations among stakeholders in decision making. The governing bodies no longer control the football activities, but indulge into negotiations and cajoling for the achievement of the required objectives.
Theoretical Perspective
The commercialisation of the European Football has led to an increase in the interplay of the corporate governance in football issues. The products of the commercialisation are the establishment of the Champions league and European Championship (EURO). They generate large financial returns that are distributed to all the stakeholders including the member competing clubs and other national associations. The application of theories related to governance is crucial in ensuring improved maintenance effective corporate governance in football organisations. The agency theory contends that the principle role of a board is to control the management. According to Sugden and Tomlinson, (2003), the relationship between the board and management is crucial in ensuring effective corporate governance in organisations. The theory stipulates that the owners of an enterprise and the managers have different interests that may compromise the gains that an organisation is expected to deliver to its customers instead of focusing on the general performance of the corporation first. Castells??™s theory of ???network society??™ can be used to place the development of corporate governance in football in the context of the capitalist society in which a country has been overridden by a myriad of international financial interests which have been variably advanced by improved communication networks (Sugden, 2002). The author further asserts that the Castells??™s effect is applied in the lucrative football business due to its effect on global development as well as the political control.
The sporting industry is currently depending majorly on the intellectual property rights as the prominent source of revenue. The football clubs have been allowed to capture more returns from their fans through application of the property theory through focus on copyright, right of publicity, trademark and patent. The rights related to broadcasting have enabled the football clubs to play games in front of millions of fans vicariously rather than physically. The application of the intellectual property rights has provided the soccer teams the opportunity to enter into lucrative licensing agreements for the team trademarks and logos with a range of manufacturers for various products. For instance, Dunmore (2010) posits that in 2009, the English Premier League entered into a ?l.782 television deal for the control of its rights to the domestic matches. UEFA has incorporated the Stewardship theory in its corporate governance through addition of value in decision making by enhancing the partnership between the administration and the executive committee. The stewardship theory assumes that the managers have the positive intentions of enhancing effective role through acting as the stewards of the organisational resources (Arnaut, 2006). This indicates that the role of the governing body is to add value to the organisation through the improvement of decision-making and improved associations with the stakeholders. The democratic alignment of UEFA, need for improved managerial outcomes, and the high-rated stakeholder integration explains why the organisation reflects the opposing theories of governance ((Appendix 1). This is referred by Cornforth (2003: 237) as the ?????¦paradoxical nature of the governance??¦??? with tensions and conflicts being the major causes of the governance paradoxes. The organisations are products of stakeholders associations and their success is dependent on the efforts that the stakeholders put in promoting the functions of the corporation. This is further clarified by stakeholder theory that asserts that the incorporation of the stakeholders on the governing board ensures that the organisation is more likely to cover the broader social interests due to the abundance of representativeness. According to Hindley (2002), the stakeholder theory argues that the involvement of the stakeholders improves the organisational performance due to the wide range of views presented by the inclusive management. The life of UEFA has been complicated due to the increase in the commercial and sporting activities occurring in a high profile global political environment. There are various causes of the challenges that affect the effectiveness of the corporate governance in football.
The prominent cause of the poor performance of the professional football clubs is the inefficient standards of the corporate governance (Kirchmaier and Grant, 2005). Inefficient corporate governance is a product of league-specific governance failures, lack of external and internal control mechanisms, and classifying governance obsolescence as a form of malady. The low performance of the corporate governance in soccer has also resulted from the coalition of the prominent political players within FIFA and the business networks around the globe. This has compromised the democratic facade of the governance systems and the operational requirements. Some of the measures that can be applied improving the effectiveness of the corporate governance in soccer include strengthening of the internal mechanisms for governance, empowering shareholders, enhancing of the disclosure and requirements and tougher public enforcement
Strengthening Of the Internal Mechanisms for Governance
The board of directors serves as the primary institution involved in the control of the corporate governance. Regulations should be enacted to mandate greater independence for the director and clear definition of the roles of the board. Some of the processes that can be encompassed include auditing, setting the compensation of the executive, ensuring transparency of the transactions and disclosing the information flows. However, Denis and McConnell (2003) opine that the measure has contributed minimally in containing the abuses from the shareholders.
Empowering Shareholders
The rights of the shareholders to vote, sell and sue are traditionally enhanced by the law. The shareholders may also be empowered through granting them the right to sue directors of the organisation and contributing their opinions in corporate governance issues. Kirchmaier and Grant (2005) aver that the minority shareholders may not feel left out if they are allowed to share the control premium with the majority shareholders.
Enhancing Of the Disclosure Requirements
The shareholders??™ right to information disclosure is dependent of the possibility of their access to information. The mandatory right to enclosure of the organisational dealings can be an effective tool for imposing the limitations in the self-dealing for the people in control. Enhanced disclosure of the information helps in curbing the insider trading.
Tougher Public Enforcement
The enforcement of the corporate and security laws through the supervision agencies may act as the most effective way of preventing various forms of expropriation such as the insider trading. Djankov et al., (2006) further argues that public enforcement may be further effective if severe actions such as imprisonment are sufficiently imposed.
Pros of Good Corporate Governance
Efficient corporate governance portrays a positive correlation to the organizational performance (Bauwhede , 2009). The corporate governance systems are responsible for establishment of the framework that ensures that companies are managed effectively and the stakeholder value is attained. Although corporate governance vehemently involves minimising risks and curbing fraud, it also promotes economic performance and facilitation of access to capital (Witherell, 2004). This is an implication that corporate governance is an essential tool in the improvement of the efficiency of the football organisations as well as promoting the sponsor confidence. Therefore, the cost of capital is lowered while the competitiveness is improved. Bauwhede (2009) avers that the presence of effective corporate governance in an organisation system contributes in the improvement of the confidence and trust among the executives and other employees. Adoption of an effective corporate governance system ensures that the rights and interests of the stakeholders are prioritised. The stakeholders are also challenged to act responsibly and ensure accountability in the distribution and protection of the wealth owned by these clubs. The basic beneficiaries of effective corporate governance in European Soccer are the football clubs; therefore, all the stakeholders have an obligation of putting effort in ensuring that the necessary strategies are put in place for a common benefit. However, the positive aspects of the corporate governance are difficult to ascertain due the presence of numerous subjective areas and variable factors. The effectiveness of the corporate governance system is also affected by the cultural, historical and legal factors as well as the market structure.
The incorporation of effective corporate governance in the management of the professional soccer units/clubs improves their performance. This has seen the rise in the privatisation of the European Soccer Clubs e.g. Chelsea FC and FC Salzburg. This assures closer governance and improved performance. Effective corporate governance offers primary and direct benefits to the soccer organisations, especially because it offers the required avenues for the promotion of accountability and credibility. This enhances the club relationship with the stakeholders; a step necessary for additional protection of the soccer organisation in times of financial and management difficulties. Such benefits include low control costs, increased trust and increased attraction to more sources of funding (Speckbacher, 2003).
Cons of Ineffective Corporate Governance Ineffective corporate governance leads to a significant negative impact on the football governing bodies i.e. leads to withdrawal of sponsorship, reduction in membership as well as the participative capacity and the possibility of them intervention from the external bodies (Bauwhede, 2009). The immense commercialisation of football has greatly has made sponsorship and membership as crucial factors that determines effectiveness of the corporate governance in football. The increased influence of the external bodies especially the European Union on football has made has made the competence of the governing bodies a prerequisite in for the retention of the autonomy and influence. Sugden and Tomlinson, (2003: 280-281) argue that the European Union should play a leading role in enhancing the accountability of UEFA (Union of European Football Associations) and FIFA (Federation Internationale de Football Association) should be conformed, ???within the embrace of an accountable international organisation such as the United Nations.???Recommendations
Soccer organisations are facing numerous challenges related to non-compliance with the soccer laws and codes; thus, urgent improvement is required (Hamil et al., 2004). The improvement in corporate governance in football organisations requires focus on the improvement in the crucial areas ranging from governance of the clubs, regulating the agents, and appraising the performance of the governing bodies. The improvement should commence at the club level. According to the UEFA (2005, p. 10), ???In an ideal world football clubs would be legally structured and governed in ways that prioritise sporting objectives above financial concerns. Moreover, all clubs would be controlled and run by their members according to democratic principles.??? The establishment of the principles of good governance should focus on the ethical standards that underpin relationships as well as the methods and instruments within the organisations that share common principles. Katwala, (2000: 13) argues, ???…sport is a public good and so the goal of sporting governance is to ensure that sport is run effectively and in accordance with its values, while taking advantage of the ability to bring in additional private resources and spread participation of resources.??? He argues that only the exercising power in a transparent and accountable way can assist in ensuring that the soccer industry remains relevant in the current age characterised by a high level of scrutiny and scepticism (Katwala, 2000: 26). This implies that effective corporate governance in sports lies squarely in the hands of the governing bodies. The governing bodies can only retain the authority through the maintenance of the high governance standards and equitable distribution of the immense resources that currently characterises the industry. It is crucial for the soccer fraternity to realize that the corporate governance progressed from shareholder to stakeholder approach through the involvement of a wider group of persons such as sponsors, soccer fans, creditors, government and employees among others. The fact was realised by Gammels?ter & Senaux, (2011)) in the stakeholder theory that opines that the success of an organization is determined by the manner in which the organization manages the relations and meets the interests of various stakeholders.
The involvement of the shareholders enhances the principle of shared governance responsibility. One of the useful values that results from the culture of shared responsibility is integrity. Corporate integrity enhances the quality of corporate governance while individual integrity is the fundamental basic unit for the formation of a successful corporate integrity. The necessity of the wider corporate governance should also be viewed in a wider corporate environment. In the United Kingdom, this has been realised through various codes of corporate governance that endeavours to improve the corporate performance. These elements of good corporate governance are stipulated in OECD Principles of Corporate Governance and acts as a guide and a foundation to the codes of corporate governance (OECD, 2004). The codes are the practice recommendations regarding the behaviour of the board of directors. The application of the codes in the corporate governance of the football organisations provides the guidelines that work to improve the credibility and legitimacy for the benefit of all the stakeholders. The corporate governance codes and laws can also be used as a form of communication whereby the stakeholder reaction i.e. compliance or no-compliance can be used as a form of communication/response to the effectiveness of corporate governance. This encouraged FIFA to introduce the corporate governance code designed for the professional clubs in 2005 (Hamil et al., 2004). The code offers guidelines that encourage the soccer clubs to adhere to the principles of good governance. The compliance with these codes will be variably crucial in the future considering the fact that FIFA is introducing the financial fair play in 2015 and therefore more efficient corporate governance is needed. The analysis of the environmental landscape characterising the European football as well as issues that shape the debates about the European football are crucial in successful application of the codes when making improvement recommendations for the future governance of the European football.
The paper has attempted to illustrate the corporate governance of soccer, especially in the UK. The soccer industry is characterised by numerous peculiarities that offers significant challenges to the corporate governance. It is also in the domain of various research studies that the form of the corporate governance is dependent on the choice of the legal form used in the soccer organisations. The improved corporate governance in sport lies in the hands of the governing bodies that are expected to improve their standards and apply the global standards that govern the sporting activities through brilliant utilisation of their authority and securing their financial resources for improvement. Ensuring effectiveness in corporate governance requires one to deeply assess the organisational environment, analyse the issues affecting ownership, the management and the manner in which the structure of the organisation conforms to its achievement of the organisational objectives. Some of the improvement measures that can be applied in promoting corporate governance in soccer include strengthening of the internal mechanisms for governance, empowering shareholders, tougher public enforcement and enhancing of the disclosure requirements
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Appendix 1
The objects of UEFA:
a) to deal with all questions relating to European football;
b) to promote football in Europe in a spirit of peace, understanding and fair play, without any discrimination as to politics, gender, religion or race;
c) to safeguard the overall interests of the Member Associations;
d) to respect the interests of Member Associations, and to settle disputes between Member Associations;
e) to promote unity among Member Associations in matters relating to European and world football;
f) to ensure that its representatives within FIFA loyally represent the views of UEFA and act in the spirit of European solidarity; to organise and conduct international football competitions and international tournaments at European level;
g) to hold course and conferences;
h) to disseminate information on UEFA activities;
i) to maintain contact and cooperation with FIFA and the Confederations recognised by FIFA.
Source: UEFA Statutes, 2005.
Appendix 2
|Rank in |Club |Revenue |Country |Rank in |Change |
|2011??“12 | |(?† million) | |2010??“11 | |
|1 |Real Madrid |512.6 |[pic]? Spain |1 |[pic]??” |
|2 |Barcelona |483.0 |[pic]? Spain |2 |[pic]??” |
|3 |Manchester United |395.9 |[pic]? England |3 |[pic]??” |
|4 |Bayern Munich |368.4 |[pic]? Germany |4 |[pic]??” |
|5 |Chelsea |322.6 |[pic]? England |6 |[pic]+1 |
|6 |Arsenal |290.3 |[pic]? England |5 |[pic]?1 |
|7 |Manchester City |285.6 |[pic]? England |12 |[pic]+5 |
|8 |Milan |256.9 |[pic]? Italy |7 |[pic]?1 |
|9 |Liverpool |233.2 |[pic]? England |9 |[pic]??” |
|10 |Juventus |195.4 |[pic]? Italy |13 |[pic]+3 |
|11 |Borussia Dortmund |189.1 |[pic]? Germany |16 |[pic]+5 |
|12 |Internazionale |185.9 |[pic]? Italy |8 |[pic]?4 |
|13 |Tottenham Hotspur |178.2 |[pic]? England |11 |[pic]?2 |
|14 |Schalke 04 |174.5 |[pic]? Germany |10 |[pic]?4 |
|15 |Napoli |148.4 |[pic]? Italy |20 |[pic]+5 |
|16 |Marseille |135.7 |[pic]? France |14 |[pic]?2 |
|17 |Lyon |131.9 |[pic]? France |17 |[pic]??” |
|18 |Hamburg |121.1 |[pic]? Germany |18 |[pic]??” |
|19 |Roma |115.9 |[pic]? Italy |15 |[pic]?4 |
|20 |Newcastle United |115.3 |[pic]? England |25 |[pic]+5 |
[1][2] Aoki, M. Information, Corporate Governance, and Institutional Diversity: Competitiveness in Japan, the USA, and the Transnational Economies. 2000.[3] Ibid

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