The recent events at Volkswagen show the risks that boards run when they fail to ensure strong governance and risk management procedures are in place.
While the real story of what happened at the German car manufacturer will emerge over time, the red flags highlighted in Volkswagen’s governance structure by MSCI, an independent provider of risk indicators for institutional investors, are also relevant in the world of sport.
MSCI highlighted the Volkswagen board was not made up of a majority independent board. A constitutional requirement for half the board to be employee-elected also contributed to a lack of independence. It also led to a board of 20 people – far too large to be effective according to well-recognised codes of governance.
As funders of National Governing Bodies (NGBs) of sport in the UK, both Sport England and UK Sport have set funding expectations that are leading to change in board structures. Their requirements have a particular impact in terms of increased board independence and diversity, while still requiring board size to be kept to a maximum of 12. They are also focusing on improving skills and experience around the board table.
There has been a lot of progress towards meeting these objectives over the last three years, although hearts and minds of chairs and chief executives of many NGBs may not have always been fully behind the changes. Perhaps the lessons learnt from Volkswagen will persuade them of the need for an ongoing drive for continuous improvements in board performance and effective good governance.
Sound governance also requires effective risk management – including establishing the level of risk appetite that the organisation is willing to accept. Unless this is determined and clearly expressed, how can boards and management teams make the right decisions on strategic and operational matters?
Achieving compliance with that risk appetite and maintaining good governance standards ultimately depends on developing and sustaining an appropriate culture across the business. The board plays a key role here by ‘setting the tone at the top’. It’s not enough to declare the importance of good governance; behaviour must make it a reality. Regulators in the financial sector are currently focusing on culture as a key requirement for sound governance, but the message holds true for all sectors, including sport.
If you are interested in finding out more about governance and risk management in sport, or would like a meeting to discuss what your sport could do to improve existing governance and risk management processes, please get in touch.
For more information, please contact Sarah Hillary.