Sport Governance

Russell Hoye, Graham Cuskelly

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781136364822
• Edition: 1
• Topic: Economics
• Subtopic: Microeconomics
• Index: Economics

Sport Governance provides a comprehensive guide to the practical application of governance principles to amateur and professional sport organisations operating at the community, state/provincial, national, and international levels. It presents a balanced view between accepted practice and what contemporary research evidence tells us about a range of governance principles and practices. Organised in three parts, the text provides the reader with* an explanation of the concept of governance, key terms and definitions as well as the economic, political and social factors that impact on how the governance function is enacted within sport organisations;
* an understanding of the "mechanics" of governance – the elements of structure, process and performance that ensure the governance function is carried out within sport organisations; and
* a discussion of a number of contextual issues in sport governance, including dual leadership, ethics, governance change and future governance challenges. Sport Governance is essential reading for practitioners working and volunteering in the sport industry and upper level undergraduate and postgraduate students enrolled in sport and leisure management programs.

Sport Governance Concepts

The sport governance game

Overview

This chapter explores the nature of corporate and nonprofit governance, defines sport governance and reviews the main theories that have been applied to the study of corporate, nonprofit and sport governance behaviour.

Introduction

Organizational governance is the system by which the elements of an organization are directed, controlled and regulated. Effective governance is necessary for all groups to function properly, whether they are corporations, schools, charitable institutions, universities, religious organizations, nation states, voluntary associations, professional sport franchises or nonprofit sport organizations. A system of organizational governance not only provides a framework in which the business of organizations are directed and controlled but also ‘helps to provide a degree of confidence that is necessary for the proper functioning of a market economy’ (OECD, 2004: 11). In other words, an appropriately functioning governance system assures stakeholders that the organization in which they have invested money, time, effort or their reputations, is subject to adequate internal checks and balances, and that the people empowered to make decisions on behalf of the organization (the board) act in the best interests of the organization and its stakeholders.

One of the most influential authors on corporate governance, Bob Tricker, outlined the importance of governance and its implied influence on organizational performance. He wrote ‘if management is about running a business, governance is about seeing that it is run properly’ (Tricker, 1984: 7). Governance deals with issues of policy and direction for the enhancement of organizational performance as well as ensuring statutory and fiduciary compliance. Governance is more than day-to-day operational management decision-making.

Interest in corporate governance as a field of research was first sparked by a series of failures in corporate governance in the UK in the early 1980s and later around the world (Clifford & Evans, 1996). As a result of these corporate failures, a number of committees of inquiry were convened around the globe. In the UK, the 1993 Cadbury Committee on the Financial Aspects of Corporate Governance ‘focussed attention on the way companies are governed and on the importance of strong, independent non-executive participation at board level’ (Tricker, 1994: 1). The recommendations of the Cadbury Committee concentrated on improving the conformance aspects of board operations, with an increased focus on ensuring compliance of management to its fiduciary responsibilities. In contrast, the 1993 Hilmer Report on improving corporate governance in Australia recommended that the board’s key role is to ensure that corporate management continuously and effectively strives for above average performance (Hilmer, 1993). In 1994 the Dey Committee on Corporate Governance in Canada of the Toronto Stock Exchange recommended that Canadian corporations adopt 14 best practice guidelines, including the use of a majority of independent directors and for separating the roles of chairman and chief executive officer (CEO).

An important focus of researchers and practitioners in the field of corporate governance in recent years has been the balance between management conformance and the enhancement of organizational performance, and how boards achieve these outcomes. The well-publicized corporate governance failures of corporations such as Enron in the USA, and HIH and OneTel in Australia in the early 2000s continue to highlight the need for effective organizational governance to protect the rights and interests of stakeholders. As a result of these corporate governance failures, the major stock exchanges and most government regulatory agencies developed standards of corporate governance that listed companies must either comply with or at least are encouraged to use to improve their corporate governance practices.

Shortcomings in the organizational governance of sport organizations are no less prevalent, nor are the implications for organizational performance any less serious. One of the first efforts by government to identify governance issues within sport organizations was a 1997 report to the Australian Standing Committee on Recreation and Sport (SCORS). The SCORS report identified that a major concern amongst the sporting community was a ‘perceived lack of effectiveness at board and council level in national and state sporting organizations’ (SCORS Working Party on Management Improvement, 1997: 10). Subsequently, the government initiated governance reviews of national sport organizations (NSOs) such as the Australian Soccer Association (now Football Federation of Australia) and Athletics Australia in 2003 and 2004 respectively. These reviews have highlighted the negative impacts that poor governance structures and practices have on organizational performance. Independent reviews of how Football Association clubs are governed in the UK, such as those conducted by the Football Governance Research Centre (FGRC) at the University of London, also highlight the importance of developing and implementing sound governance practices in both nonprofit and professional sport organizations. The New Zealand Rugby Football Union Board undertook and independent review of its governance in 2000 as did New Zealand Cricket in 1995 (Ferkins, Shilbury & McDonald, 2005).

Awareness of poor or ineffective governance practices in sport organizations is not a new phenomenon. Governments and sport organizations themselves have recognized the problem for more than a decade, but coordinated responses in the form of guidelines or other assistance for sport from government have been relatively slow to materialize. Aside from a 1999 publication produced by the Australian Sports Commission (ASC, 1999a) entitled Governing Sport: The role of the board and CEO, governments in Australia, New Zealand, South Africa and the UK have only recently developed comprehensive guidelines and resources to assist sport organizations assess and improve their governance. The ASC produced a set of governing principles for NSOs in 2002 which was followed by a good practice guide in 2005 (ASC, 2002, 2005). Sport and Recreation New Zealand (SPARC) produced their Nine Steps to Effective Governance guide in 2004, the same year the UK Sport published their Good Governance Guide for National Governing Bodies. The South African Department of Sport and Recreation also published a set of Best Practice Principles of Good Governance in Sport on their website in 2004.

Clearly the importance of sport organizations adopting good governance practices has become increasingly recognized by governments which often provide significant amounts of funding to these organizations. The guidelines and resources developed by governments have tended to draw on the expertise of corporate governance experts, such as the UK Institute of Chartered Secretaries and Administrators and the Australian Institute of Company Directors, or consultants from the nonprofit field. Subsequently, these guidelines are based on a combination of principles from the governance of corporations and the governance of nonprofit entities. It is important to clarify the differences between these two schools of thought.

Corporate and nonprofit governance

Corporate governance deals with the governance of profit-seeking companies or corporations that focus on protecting and enhancing shareholder value. In contrast, nonprofit governance is concerned with the governance of voluntary organizations that seek to provide a community service, promote a charitable cause, raise funds or facilitate the involvement of individuals in a variety of activities. Both categories of organizations share similar governance elements as well as having some important differences. Corporate and nonprofit organizations both have boards of elected or appointed individuals to govern their activities and are the subject of a variety of accountability mechanisms to their stakeholders. However, there are a number of important differences in how corporate and nonprofit organizations are governed and consequently the research efforts in these areas have focussed on different issues.

Corporate governance research has covered ‘concepts, theories and practices of boards and their directors, and the relationships between boards and shareholders, top management, regulators and auditors, and other stakeholders’ (Tricker, 1993: 2). The prescriptive literature as well as research efforts, have concentrated on the two primary roles of the board. First, ensuring conformance by management, and second, enhancing organizational performance. Best practice guides for corporate governance outline how the board should go about supervising and monitoring the work of managers and ensuring that adequate accountability measures are in place to protect the interests of shareholders. Research in this area has sought to identify how conformance in these areas can best be achieved and why the behaviour of managers and boards may deviate from prescribed practices. In addition, corporate governance guidelines provide recommendations on how to enhance organizational performance through the development of strategy and policies that create the direction and context within which executives and managers will work. Research efforts have focussed predominantly on examining the role of the board in developing strategy and how the board can influence organizational outcomes.

The practices of ensuring conformance and enhancing performance appear to be directly applicable to nonprofit organizations. However, the unique characteristics of nonprofit organizations have created a governance framework different to that of the corporation. Nonprofit organizations exist for reasons quite distinct from their profit-orientated counterparts, and generally involve a greater number of stakeholders in their decision-making structures and processes. The relationships that exist between decision-makers who must decide how the nonprofit organization is to be directed, controlled and regulated will therefore be different to that found within profit-seeking corporations (Drucker 1990b). Aside from this major difference in stakeholders and ownership, Drucker (1990b: x) highlighted the following characteristics that distinguish nonprofit organizations from profit-oriented firms: organizational mission; the outcomes of the organization; strategies employed to market their services and obtain funds; the need to attract, develop and manage volunteers; managing a diversity of constituent groups; fund raising and fund development; problems of individual burnout due to commitment to a ‘cause’; and importantly, the ‘very different role that the board plays in the nonprofit institution’.

Alexander and Weiner (1998: 224) also highlighted that nonprofit governance ‘stresses the values of community participation, due process and stewardship (whereas) the corporate model stresses the value of strategy development, risk taking and competitive positioning’. While the management processes employed by CEOs and executive staff to carry out the tasks of the corporate and nonprofit organizations are similar, the governance frameworks are very different. Nonprofit organizations may not be able to adopt corporate governance models because of ‘strong pressures to adhere to traditional values of voluntarism, constituent representation and stewardship’ (Alexander and Weiner, 1998: 240).

Categorization of sport organizations as either profit-seeking firms or nonprofit organizations on the basis of their governance systems is not as straightforward as it seems. The variety of organizational forms that exist within the sport industry defies simple categorization. Organizations such as government-funded trusts that operate major sporting stadia, statutory authorities that regulate sporting activity or government trading enterprises that operate sporting activities are subject to a variety of corporate as well as public sector governance requirements. These may include reporting to either a Parliament or a Minister, being subject to the scrutiny of an independent Auditor-General, operating according to specific legislation, or working under the direction of an advisory body appointed by the government. While many sports organizations such as sporting goods manufacturers, athlete management companies, retail companies and many venues can be categorized as profit seeking, the majority of sport organizations that provide participation and competition opportunities can be considered to be nonprofit. Sport organizations such as local community clubs, regional associations or leagues, state or provincial governing bodies and national or international sport organizations are generally operated on a nonprofit basis. Their focus tends to be developing opportunities for individuals and teams to participate in sport with any surplus finds used to enhance facilities and services for organizational members. Smith (1993) defined these types of organizations as member-benefit organizations that are created and maintained by the members who consume the services provided by the organization.

It is somewhat difficult to ascertain how many nonprofit sport organizations there are within the sporting system of any individual country. Doherty (2005) identified that there are more than 33,000 sport and recreation organizations in Canada that comprise 21% of all voluntary nonprofit organizations and that 71% of sport and recreation organizations operate at a local level. The Leisure Industries Research Centre (LIRC) (2003) estimated that there were at least 106,000 volunteer run sports clubs in England, in addition to regional and national governing bodies (NGBs). The ASC (1999b) stated that there were more than 30,000 nonprofit sport organizations in Australia. If it is assumed that approximately 70% of these organizations operate at a local level with little or no staff, then there could be as many as 50,000 nonprofit sport organizations that employ at least one paid staff member within the UK, Canada and Australia alone.

Kikulis (2000: 306) highlighted the institutionalized nature of the governance structures of nonprofit sport organizations where there is universal acceptance of the ‘volunteer board at the top of the hierarchy of authority’. She also argued that the permanency of such structures is based on a shared ‘agreement on the value of the volunteer board and its legitimate decision-making authority has been established and widely adopted across national, regional and local sport organizations’ (Kikulis, 2000: 306). This book therefore focuses on the operation of volunteer boards as they have become ‘recognized as the legitimate solution for the governance and decision-making structure’ (Kikulis, 2000: 307) of nonprofit sport organizations. In addition, this book focuses almost exclusively on nonprofit sport organizations that deliver sport participation or consumption opportunities. It is predominantly concerned with organizations that have at least one paid staff member, though many of the larger nonprofit sport organizations have a great deal more staff. Thus, the principles and ideas in this book are relevant for large community sport clubs; sport-governing bodies of sport at the regional, state or provincial, national and international level; professional sport franchises that operate on a nonprofit basis; and allied sport organizations that deliver events, manage stadia or facilities or deliver services to sport participants and consumers. A further focus of this book is the governance of sport NGBs. UK Sport (2003: 8) defined a sport NGB as an organization that performs the following functions:

■ prepares a...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• List of Figures
• Series Editor
• Sport Management Series Preface
• Preface
• Abbreviations
• Part 1. Sport Governance Concepts
• Part 2. Sport Governance Fundamentals
• Part 3. Sport Governance Future
• Bibliography
• Index