THE RELATIONSHIP BETWEEN GOOD GOVERNANCE AND SUSTAINABILITY IN AUSTRALIAN SPORT

1 THE RELATIONSHIP BETWEEN GOOD GOVERNANCE AND SUSTAINABILITY IN AUSTRALIAN SPORT Francesco Bonollo de Zwart * and George Gllgan ** Workng Paper Not to be quoted wthout the express permsson of the authors, comments welcome Bonollo de Zwart and Gllgan Abstract Governance, and n partcular, the quest for ongong good governance, has become one of the domnant paradgms of contemporary socety. Good governance s a mantra for organsatons such as the World Bank and the Internatonal Monetary Fund n how they deal wth less developed natons. Smlarly, the quest for good governance les at the heart of much of the corporate law reform that has occurred n many of the most developed natons n recent tmes, such as Australa s Corporate Law Economc Reform Program (CLERP). Ths paper dscusses how the mpacts of these broader developments strvng for good governance, especally n the corporate envronment, have permeated nto the sphere of sport n Australa, and how good governance s ncreasngly beng vewed as essental for the sustanablty of Australan sports and sportng organsatons. 1. INTRODUCTION Few movements n regulaton have swept across the globe - from the developed countres to the developng, from the prvate sector to the publc and from the forproft organsatons to the not-for-proft lke the quest for good governance. In the corporate, regulatory and economcal development spheres, organsatons whch nclude the World Bank 1, the Internatonal Monetary Fund (IMF) 2 and the Organsaton for Economc Co-operaton and Development (OECD) 3 have made pronouncements on governance prncples or practces whch transcend natonal * Assstant Lecturer, Department of Busness Law & Taxaton, Monash Unversty. ** Senor Research Fellow, Department of Busness Law & Taxaton, Monash Unversty 1 The Internatonal Bank for Reconstructon and Development/The World Bank and Organsaton For Economc Co-operaton and Development, Global Corporate Governance Forum: 1 Focus: Corporate Governance and Development, Stjn Claessens author, 2003, Washngton, DC; 2 Toolkt: Developng Corporate Governance Codes of Best Practce, User Gude: Volume 1 Ratonale and Volume 2 Process, 2005, Washngton, DC, ( WB Global Corporate Governance Forum ). 2 See for example, Internatonal Monetary Fund, Good Governance: The IMF s Role, August 1997, IMF Publcaton Servces, Washngton ( IMF Gudance Note ). 3 See for example, Organsaton For Economc Co-Operaton and Development, OECD Prncples of Corporate Governance 2004, 2004, OECD Publcatons Servce, Pars ( OECD Prncples ). See also n 1.

2 boundares. In the case of the OECD Prncples, for example, the Preamble expresses that they are: ntended to assst OECD and non-oecd governments n ther efforts to evaluate and mprove the legal, nsttutonal and regulatory framework for corporate governance n ther countres, and to provde gudance and suggestons for stock exchanges, nvestors, corporatons, and other partes that have a role n the process of developng good corporate governance The Prncples represent a common bass that OECD member countres consder essental for the development of good governance practces. They are ntended to be concse, understandable and accessble to the nternatonal communty. They are not ntended to substtute for government, sem-government or prvate sector ntatves to develop more detaled best practce n corporate governance. 4 Contnung n the publc corporate and regulatory spheres wthn Australa, regulatory bodes such as the Australan Stock Exchange (ASX) have mposed ther own governance regmes n the corporate sphere. Under one aspect of the ASX model, for example, publc companes lsted on ts exchange are requred to dsclose the extent of ther complance wth ASX best practce recommendatons. 5 Of course, the quest for good governance s not lmted to publcly traded organsatons. Governance prncples and best practce gudelnes have been developed n relaton to state-owned enterprses 6 and for the non-proft and voluntary/communty sectors. 7 Concurrent wth these developments, an awareness of the mportance of good governance to sportng organsatons whether governng or partcpatory - has grown. 8 Wthn Australa, the Australan Sports Commsson (ASC) n 1992 ssued ts own best practce prncples for natonal sportng organsatons ( NSOs ). 9 A 4 OECD Prncples, above n 3, Preamble, p 11. 5 See ASX Lstng Rule 4.10 and ASX Corporate Governance Councl, Prncples of Good Corporate Governance and Best Practce Recommendatons, Australan Stock Exchange, March 2003 ( ASX Best Practce Recommendatons ), p 5. Proposed changes to the ASX Best Practce Recommendatons are currently the subject of publc comment. See ASX Corporate Governance Councl, Prncples of Good Corporate Governance and Best Practce Recommendatons, Exposure Draft of Changes, Australan Stock Exchange, 2 November 2006 ( ASX Draft Recommendatons ). 6 See, for example, Organsaton For Economc Co-Operaton and Development, OECD Gudelnes on the Corporate Governance of State-Owned Enterprses, 2005, ( OECD SOE Gudelnes). The Preamble to the OECD Prncples, above n 3, p 11 also expresses that to the extent they are deemed applcable, they mght also be a useful tool to mprove corporate governance n non-traded companes, for example, prvately held and state-owned enterprses. 7 See, for example, ACEVO, Charty Trustee Networks, ICSA, NCVO on behalf of The Natonal Hub of Expertse n Governance, Good Governance A Code for the Voluntary and Communty Sector, 1 st edton, June 2005 ( Natonal Hub Voluntary Sector Code ) and the references lsted n Appendx 4 thereto, pp 36-7. 8 See Ferkns, L, Shlbury, D and McDonald G, The Role of the Board n Buldng Strategc Capablty: Towards an Integrated Model of Sport Governance Research (2005) 8 Sport Management Revew, 195-225. See also, for example, European Olympc Commttee, Fédératon Internatonale de l Automoble, Herbert Smth, The Rules of the Game, Europe s frst conference on the Governance of Sport, Conference Report & Conclusons, Brussels, 26 & 27 February 2001. More recently, see Forster, J, Global Sports Organsatons and Ther Governance (2006), 6 (1) Corporate Governance 72, 72-83. 9 Australan Sports Commsson, Governance: Prncples of Best Practce, May 2002 ( ASC Governance Prncples ).

3 statutory authorty charged wth the responsblty of dstrbutng Commonwealth Government funds to NSOs, the ASC noted at that tme that: It s mportant, therefore, that the ASC has a clearly stated poston wth respect to the governance of natonal sportng organsatons to whch the ASC provdes taxpayer moneys. 10 The purpose of the Part 2 of ths paper s to examne broader developments n governance n the economc sphere, (n partcular, corporate governance), n order to dentfy the polcy and structural components of those developments whch seek to promote successful long-term economc performance or, n other words, economc vablty or sustanablty (puttng asde, for the moment, how that may be measured). The broader governance developments wll not be examned ndvdually n the way of detaled provsons. Instead, the paper wll seek to dentfy core features or aspects of those governance structures, ncludng recurrng themes and tensons and examne how they seek to nfluence the varous economc actors to whch they pertan. In other words, how and to what extent, do the relevant structures mpact on the relevant sectors, and what features, or varables, of a model governance structure can be dstlled from ths? Turnng then to the sphere of sport n Part 3, the paper wll seek to descrbe how, and to what extent, the broader developments n governance have been adopted as a means of mprovng the ablty of Australan sportng organsatons to acheve longterm economc sustanablty for the purposes of achevng ther varous objectves. Ths wll be done frst by examnng some specal governance factors or consderatons whch arse n the case of sports and sportng organsatons and, second, by a comparson of the ASC Prncples ssued by the Australan Sports Commsson wth an nternatonal sportng governance code, corporate governance schemes and non-proft/voluntary sector governance schemes. 2. CORPORATE GOVERNANCE SCHEMES 2.1 Purpose of Corporate Governance Schemes The OECD explans the meanng and purpose of corporate governance n the followng way: Corporate governance nvolves a set of relatonshps between a company s management, ts board, ts shareholders and other stakeholders. Corporate governance also provdes the structure through whch the objectves of the company are set, and the means of attanng those objectves and montorng performance are determned. Good corporate governance should provde proper ncentves for the board and management to pursue objectves that are n the nterests of the company and ts shareholders and should facltate effectve montorng. 11 10 Ibd, p 1. 11 OECD Prncples, above n 3, Preamble, p 11.

4 In ths way, we submt that corporate governance schemes through the establshment of varous structures and processes - seek to balance a number of competng nterests across varous relatonal axes. On one axs, the freedom of a company s management to pursue (proft-maxmsng) objectves (value enhancement) at one end s balanced aganst the nterests of the shareholders (owners) n montorng management s performance (performance assessment and reportng) and seeng that a company s resources are not dsspated (value preservaton). On another axs, entrepreneursm and nnovaton (rsk-takng) are balanced aganst rsk management, control and accountablty (responsblty). 12 Lastly, the nterests of those wthn the company such as the board, management and shareholders (nternal stakeholders) are balanced aganst the nterests of those outsde the company such as lenders, government legslators and regulators and the general publc (external stakeholders). A detaled examnaton of the ams and consequental economc effects of the adopton by governments and companes of good governance practces s beyond the scope of ths paper and has been well-traversed by other authors. 13 Speakng generally, the OECD sees corporate governance as essental for varous reasons essentally related to market confdence, effcency and development: The presence of an effectve corporate governance system, wthn an ndvdual company and across an economy as a whole, helps to provde a degree of confdence that s necessary for the proper functonng of a market economy. As a result, the cost of captal s lower and frms are encouraged to use resources more effcently, thereby underpnnng growth. 14 Related to ths n terms of global movements, the OECD also recognses the mportance of nternatonally accepted prncples of good governance n attractng long-term foregn nvestment. 15 In a detaled paper, Claessens summarses the developmental effects of good governance for busnesses as ncludng mproved access to captal, reduced captal costs, manageral mprovement (wth consequent mprovement n results) and enhanced stakeholder relatonshps. 16 The author dentfes ncreased nvestment, growth and employment as some of the macroeconomc benefts flowng from some of these. 17 The Commonwealth Assocaton for Corporate Governance (CACG) smlarly dentfes enhanced profts and effcency for organsatons, sustaned compettveness for natonal economes and organsatons and market stablty and credblty as related to good governance. 18 12 ASX Best Practce Recommendatons, above n 5, p 3. 13 See, for example, Claessens, S, Corporate Governance and Development, n WB Global Corporate Governance Forum: 1 Focus, above n 1. See also, Internatonal Corporate Governance Network, ICGN Statement on Global Corporate Governance Prncples, July 8, 2005, ICGN Annual Conference, London, ( ICGN Statement ). 14 OECD Prncples, above n 3, Preamble, p 11. 15 Ibd, p 13. See also ASX Best Practce Recommendatons, above n 5, p 4. 16 Claessens, S, Corporate Governance and Development, n WB Global Corporate Governance Forum: 1 Focus, above n 1, p 14. 17 Ibd. 18 Commonwealth Assocaton for Corporate Governance, CACG Gudelnes of Corporate Governance, November 1999, ( CACG Gudelnes ) pp [3-4].

5 In respect of the relatonshp of good governance to the fnancal performance of enterprses, Brown and Caylor undertake a detaled examnaton of the relatonshp between 51 corporate governance varables to operatng performance, valuaton and shareholder payout. 19 The authors conclude that better-governed frms are relatvely more proftable, more valuable, and pay out more cash to ther shareholders. 20 More recently on a smlar theme, Goldman Sachs JBWere (GSJBW) produced a Research Report n 2006 enttled Good Corporate Governance = Good Investment Returns. 21 In the Research Report, GSJBW concluded n relaton to the Australan market that there was a good relatonshp between corporate governance ratngs and share prce performance for FY06 22 In ths respect, n terms of quanttatve results, GSJBW state that: The top rated, Board Sklls, Overall Board, Audt and Remuneraton companes have outperformed and, conversely, the bottom rated stocks under each of these categores have underperformed. Specfcally, we fnd that an nvestment strategy nvestng long n top rated companes and sellng short bottom rated companes would have generated the followng alpha (e return n addton to a passve market return) for each governance category: Overall Governance +10.9%, Board Sklls +10.9%, Overall Board +10.0%, Remuneraton +7.1%. 23 Turnng to the sphere of sport, long-term economc sustanablty for a sportng organsaton s, t s submtted, essental (or, at least, desrable) for that organsaton to acheve ts long-term objectves. Unlke the corporate sphere, the sportng organsaton s pursut of economc sustanablty s not, n many cases, only for the purpose of maxmsng returns to owners or measures such as operatng performance, valuaton and shareholder payout. For many non-proft or voluntary organsatons, these wll not be among the objectves at all or may only represent a means to an end rather than the ultmate objectve. In ths respect, the multple objectves and purposes of sportng organsatons (and consequental stakeholder nterests) are further dscussed n secton 3.1.1 below. For present purposes at least, the sportng organsaton can only acheve ts (sometmes mxed) long-term objectves f t contnues to operate n the long run. In ths respect, Burger and Gosln, n ther revew of the adherence of South Afrcan sportng organsatons wth corporate governance prncples, recognse the mpact of multple stakeholder nterests on the quest for economc sustanablty: 19 Brown, L D and Caylor, M L, Corporate Governance and Frm Performance, December 7 2004, pp 1-52, avalable at www.ssproxy.com (as at 9 January 2007). 20 Ibd, Abstract, p 1 and Secton VIII, Summary and Implcatons, pp 28-32. 21 Goldman Sachs JBWere (Gray, A, analyst), Research Report, Good Corporate Governance = Good Investment Returns, A strong result from governance nvestment strateges agan for FY06, June 2006, avalable at www.gsjbw.com. Source: Corporate Governance Internatonal, subscrber letter, 16 June 2006 and attachments (copy on fle wth authors). 22 Ibd, p 6. 23 Ibd, Key Ponts, p 4. For further dscusson of the relatonshp between good governance and share prce performance, see also, Cremers, K J M and Nar, V B, Governance Mechansms and Equty Prces, Yale Internatonal Center for Fnance, Yale ICF Workng Paper No. 03-15, May 2003, avalable at Socal Scence Research Network Electronc Paper Collecton, http://ssrn.com abstract_d=412140.

6 The ncreased global and local attenton sport receves from poltcans, legslators, sponsors and government reflects a growng recognton of the mportance of sport and the mpact t has on socety, culture, the economy and poltcs. Ths heghtened nterest, however, carres wth t an nherent demand to justfy long-term sustanablty as well as show the ablty to self-regulate (Burger, 2004). The ablty to self-regulate s vested n an organsaton s complance wth best-practce corporate governance prncples. 24 2.2 Scope and Methodology - Governance Schemes under Revew In Part 2 of ths paper, we wll examne varous corporate governance schemes. As noted n the ntroducton to ths paper, t s not our am to examne n detal the provsons of those schemes. Instead, the paper wll seek to dentfy core features or aspects of those governance structures n table form to dstl the man themes (or varables) underpnnng those structures. Gven the numerous corporate governance schemes whch have been proposed to date, ths paper wll not revew all of them. Instead, the examnaton wll nvolve a selecton of the major well-establshed schemes n the world today - both global (cross-border) and natonal (Australa, UK) and both for-proft (corporate) and non-proft/voluntary/communty - to reflect the sweepng growth of contemporary corporate governance.. Accordngly, the revew n ths paper wll concentrate on the followng schemes: 2.2.1 Global/Cross-Border: 2.2.2 Natonal: o OECD Prncples 25 o ICGN Statement 26 ; and o CACG Gudelnes 27 o ASX Best Practce Recommendatons (Aust) 28 o The Combned Code on Corporate Governance (UK) 29 2.2.3 Non-Proft/Voluntary/Communty (UK): o Natonal Hub Voluntary Sector Code 30 24 Burger, S and Gosln, A, Complance Wth Best Practce Governance Prncples Of South Afrcan Sport Federatons (2005) 27(1) South Afrcan Journal for Research n Sport, Physcal Educaton and Recreaton 11, 11. The authors cte Burger, S, Complance wth best practce governance systems by natonal sports federatons n South Afrca, Unpublshed Masters of Busness Admnstraton thess, Unversty of Pretora, Pretora. 25 See above n 3. 26 See above n 13. 27 See above n 18. 28 See above n 5. 29 Fnancal Reportng Councl, The Combned Code on Corporate Governance, June 2006, London ( Combned Code ). See also the related document, Fnancal Reportng Councl, Good Practce Suggestons from the Hggs Report, June 2006, London. 30 See above n 7.

7 In constructng Tables 2.3.1 and 2.4.1 below, ths paper has adopted, as a foundaton for the governance varables, the OECD Prncples as these have been used as a model n the development of many other codes (ncludng the ICGN Statement and the CACG Gudelnes 31 ). Where a governance varable was adopted n the frst nstance from one of the other governance schemes, the varable appears n bold type. In ths way, Tables 2.3.1 and 2.4.1 set out the relevant prncple or secton of the relevant governance schemes. The functon of Tables 2.3.1 and 2.4.1, whle notng the relevant prncples or sectons, s not to present a comprehensve statement of the contents of each scheme nor s t to dentfy defcences or omssons among the relevant schemes. Indeed, the Tables do not contan detaled reference to all the prncples or sectons. Instead, the functon of the Tables s to buld-up a landscape of governance varables whch have been dentfed as central or mportant n the constructon of global and natonal governance codes. Indeed, and as can be seen from the Tables themselves, the varous governance schemes cover much the same terrtory. For example, whle Table 2.3.1 demonstrates that the ICGN Statement and CACG gudelnes contan some addtonal provsons to the OECD Prncples, these are often by way of placng a greater or dfferent emphass on partcular aspects of governance rather than representng omssons from the OECD Prncples altogether. Ths s recognsed by the ICGN Statement tself whch states: Ths revson, n general, endorses the revsed OECD Prncples, a number of whch are thus repeated here. The revson also dentfes addtonal prncples of corporate governance of partcular concern to the ICGN and ts members. 32 The CACG Gudelnes, too: have been structured on a bass complementary to the OECD Prncples of Corporate Governance, wth partcular focus on the emergng and transton economes n the global market whch comprse a substantal number of Commonwealth countres. 33 Smlarly, the governance varables n the Table are not ntended to be a checklst of matters whch an organsaton must satsfy. Lke the OECD dscussed above, we submt that good governance must be vewed n terms of relatonshps between actors (whch may well change over tme) and, n ths respect, the governance varables are ntended to dentfy areas whch must be examned n undertakng a governance revew of the organsaton for the purpose of achevng long-term economc sustanablty and, n turn, the organsaton s multple objectves. In ths way, these varables (e, areas for examnaton) must also be vewed n lght of the specal factors pertanng to sportng organsatons dentfed n Part 3. 2.3 Global/Cross-Border Corporate Governance Schemes 2.3.1 Scope and Applcablty of Global Governance Schemes The major global or cross-border governance schemes presented here operate largely n a top-down way. In other words, generally speakng, the schemes are not bndng 31 See ICGN Statement, above n 13, p 1 and CACG Gudelnes, above n 18, Preface, pp [2-3]. 32 ICGN Statement, above n 13, p 1. 33 CACG Gudelnes, above n 18, p [6].

8 on countres by way of nternatonal treaty or the lke but are ntended to operate by way of example or a benchmark for conduct n order to promote nternatonal consstency n governance. In the case of the OECD Prncples: The Prncples are non-bndng and do not am at detaled prescrptons for natonal legslaton. Rather, they seek to dentfy objectves and suggest varous means for achevng them. Ther purpose s to serve as a reference pont. 34 The ICGN Statement 35 and CACG Gudelnes 36 are ntended to operate n a smlar fashon. In the case of the ICGN Statement, ts ntenton s to hghlght elements that ICGN nvestng members take nto account when makng asset allocatons and nvestment decsons. 37 Hence, ths emphass can help to explan some of the governance varables addtonal to the OECD Prncples n Table 2.3.1. The followng Table 2.3.1 represents the prncpal governance themes and varables whch underpn the global governance schemes lsted n secton 2.2.1 of ths paper. Table 2.3.1 Global/Cross-Border Governance Schemes No. Governance Varable (Based on OECD Prncples) OECD Prncples ICGN Statement CACG Gudelnes 1. External Governmental Legal and Governance Structure/Complance 38 : IA D Approprate legal structures/agences Demarcaton and transparency for governmental and regulatory agences 7.2 5, 7 2. v v Owner Shareholdng and Partcpaton Rghts 39 : Ownershp and transfer structures Partcpaton n profts Tmely dsclosure of nformaton Questons and votng n meetngs ncludng re: a. Appontment/removal of drectors b. Key/extraordnary changes c. Corporate governance Protecton for market for corporate control IIA G 4.1-4.16 2.1 2.1-2.2 4.4, 4.8 4.5 4.9 4.5, 8.2 6, 7 2, 9 34 OECD Prncples, above n 3, p 13. 35 ICGN Statement, above n 13, pp1-2. 36 CACG Gudelnes, above n 18, p [6]. 37 ICGN Statement, above n 13, p 1. 38 OECD Prncples, above n 3, p 17.

9 3. v Farness 40 : Ablty to brng acton for breach of shareholder rghts Equalty wthn share classes Safeguards for mnorty Interested or conflcted drector dsclosure IIIA-C 4.16 4.2 4.2 5.5, 5.14-5.15 7 7 7, 9 4. Stakeholder Partcpaton 41 : Identfcaton, consultaton and partcpaton Tmely dsclosure of nformaton Employee/management/drector ncentve and partcpaton schemes IVA-F 7 5.18, 7.4 8 3, 6, 8 6 3 5. Access/Transparency of Informaton 42 : Tmely dsclosure of materal nformaton: a. results b. remuneraton polces c. drector ndependence d. rsk factors e. governance codes/polces Independent/external audt Qualty and ntegrty of nformaton VA-F 2.1-2.2 6.1 8.1 3.1-3.5 3.1, 3.5 8 6, 7 7 10, 15 6, 10 6. v Board Functons and Independence 43 : Complance wth statutory and legal dutes on organsaton/drectors Far and ethcal decson makng and corporate socal responsblty 44 Recognton of stakeholder nterests Prncpal Responsbltes: a.. Strategc/long-term plannng; budget; performance revew b. Corporate governance complance c. Selecton and montorng of key management d. Far and open electon of drectors VIA-F 5 5.3 7.5-7.6 5.1(1) (8) 1, 5, 7 5, 8 8 1,3 2, 3, 4, 7, 14 3,4 3, 4, 7, 11 12 2 39 Ibd, p 18-19. 40 Ibd, p 20. 41 Ibd, p 21. 42 Ibd, p 22-23. 43 Ibd, p 24-25 44 ICGN Statement, above n 14, p 9. 45 Ibd, p 7. 46 Ibd, p 8. 47 Ibd, p 9. 48 ICGN Statement, above n 13, p 4 and CACG Gudelnes, above n 18, pp [18-19]. 49 CACG Gudelnes, above n 18, pp [20-21]. 50 Ibd, pp [21-22].

10 v v v v x x x e. Interested drector or management conflcts or transactons f. Reportng, audt, fnancal/ operatonal control, rsk management g. Dsclosure of nformaton Independence from management: a. Non-executve/ndependent drectors b. Responsbltes of Board subcommttees delneated and dsclosed Competency/experence and sklls of drectors 45 Dsclosure of drector contrbuton/ndependence 46 Board/drector performance revew 47 Mantenance/revew of nternal controls/procedures 48 Use of Technology 49 Evaluaton of Solvency 50 5.5, 5.14-5.15 5.4-5.8 5.12-5.13 5.2 5.9 5.16 3.5 7, 9 4, 10, 14 6 3, 9 1, 2, 9 10 2, 9 11 10 13 15 7. Maxmsng Profts 51 1.1-1.2 1, 14 2.3.2 Comparson of Global/Cross-border Corporate Governance Schemes The CAGG Gudelnes re-produce more of the OECD Prncples than the ICGN Statement, but a number of ssues have been drectly transplanted from the OECD prncples to both the ICGN Statement and CAGG Gudelnes. The followng Table 2.3.2 represents the prncpal corporate governance varables common to all three global governance schemes the OECD Prncples, ICGN Statement and CACG Gudelnes. Commonalty Table 2.3.2 Common Global Governance Varables No Table 2.3.1 Reference Common Global Governance Varable 1 1. Approprate legal structure/agences 2 2., 5. Tmely dsclosure of materal nformaton 3 2.v.b Shareholder questons and votng n meetngs re key/extraordnary changes 4 3. Equalty wthn share classes 5 3..b, 6.v.e Interested or conflcted drector dsclosure 6 4 Stakeholder partcpaton 7 4. Incentve and partcpaton schemes 8 5..b Dsclosure of remuneraton polces 9 5. Independent/external audt 10 5. Qualty and ntegrty of nformaton 11 6. Statutory and legal complance ssues 51 ICGN Statement, above n 13, p 3.

11 12 6. Far and ethcal decson-makng 13 6.v Prncpal (board) responsbltes 14 6.v.a Independence of drectors 15 6.v.b Responsbltes of board subcommttees delneated and dsclosed That these ssues should appear n all three s not surprsng because together they are at the core of organsatonal actvty and one or more can be the source of governance dffcultes wthn, and across, organsatons and sectors. However, t s easer to develop protocols on some more than others. For example, specfc benchmarkng regardng ndependent and/or external audt s easer to acheve than unversal standards on what consttutes a truly ndependent drector. Smlarly, there can be much ambguty around ethcal decson-makng and corporate socal responsblty, whereas t s harder to fudge whether or not share classes are equal or not. Qualty and ntegrty of nformaton can be an elastc concept n many contexts, whlst statutory and legal complance oblgatons tend n many, but obvously not all, nstances to be more clear-cut. Some ssues spll across many of these categores, for example, conflcts of nterest. No non-bndng, and ndeed probably even any bndng, codes could elmnate all such problems. The central purpose of these varous codes, prncples and statements s to promote mproved behavour. That promoton effort wll occur through formal mechansms, but also, and n the longterm perhaps more mportantly, through normatve channels. Ths postve normatve change can occur on an ntra-organsatonal bass, t can happen between organsatons, t can be stmulated on an ntra-sector level and n cross-sector contexts, t can be promoted on local, regonal and natonal bases, and, as we see below, mproved governance can be promoted n other nternatonal envrons. 2.3.3 Other Global Governance Schemes As noted n the ntroducton, other global bodes n addton to those n Table 2.3.1 have also been nvolved n the sculptng of the global governance envronment. For example, n 1997, the IMF produced ts gudance note enttled Good Governance: The IMF s Role. 52 Through ths IMF Gudance Note, the IMF has expressed that whle good governance s prmarly a functon of natonal governments and authortes 53, ts partcpaton wll nclude: a more comprehensve treatment n the context of both Artcle IV consultatons and IMF-supported programs of those governance ssues that are wthn the IMF s mandate and expertse; [and] a more proactve approach n advocatng polces and the development of nsttutons and admnstratve systems that am to elmnate the opportunty for rent seekng, corrupton, and fraudulent actvty[.] 54 52 See above n 2. 53 IMF Gudance Note, above n 2, p 3. 54 Ibd, p 2.

12 In ths respect, the IMF states that ts prmary nvolvement n enhancng governance wll be through reformng publc sector resource allocaton and utlsaton and fosterng transparency and stablty of economc and regulatory condtons. 55 Smlarly, the Global Corporate Governance Forum, establshed jontly by The World Bank and the OECD, has been nfluental n the global movement for good governance, producng a substantal and sgnfcant toolkt to assst natonal governments and others nvolved n the corporate governance process to evaluate, mplement, revew and mprove good governance schemes. 56 2.4 Natonal Corporate Governance Schemes 2.4.1 Scope and Applcablty of Natonal Corporate Governance Schemes Generally speakng, natonal corporate governance schemes are ntended to be more focussed than ther global counterparts because they are: amed at mprovng and gudng the governance practces of corporatons wthn a country s specfc legal envronment and busness context. These codes are typcally based on prncples and focus on country-specfc ssues. 57 A detaled and comparatve examnaton of the nature, status and content of varous natonal corporate governance codes, gudelnes and schemes and the dfferng approaches to complance adopted by countres has been undertaken by the Global Corporate Governance Forum and so wll not be repeated here. 58 Inevtably, dfferent natonal corporate governance schemes adopt varous approaches to applcablty/complance. For example, n the case of Australa s ASX Best Practce Recommendatons, companes lsted on the Australan Stock Exchange are, under ASX Lstng Rules, requred to dsclose the extent of ther complance wth the Recommendatons. 59 Ths method of complance has been referred to as dsclosure (comply or explan). 60 In the case of the UK Fnancal Reportng Councl s Combned Code 61, a smlar approach s adopted. 62 Interestngly (or confusngly), the Natonal Hub Voluntary Sector Code s also expressed to be based on the prncple of comply or explan but that [t]hs means that t s not a legal or regulatory requrement. 63 Ths emphass s probably due to the nherent voluntary character of 55 Ibd, p 3. See also, The IMF and Good Governance, address by Mr Mchael Camdessus, Managng Drector of the IMF, 21 January 1998, Pars, France, avalable at www.mf.org. 56 WB Global Corporate Governance Forum, above n 1, 2 Toolkt: Developng Corporate Governance Codes of Best Practce, User Gude, p 2 and Volume 1 Ratonale and Volume 2 Process. 57 WB Global Corporate Governance Forum, above n 1, 2 Toolkt: Developng Corporate Governance Codes of Best Practce, User Gude: Volume 1 Ratonale, p 21. 58 Ibd, pp 21-35 and Annexures 3 and 5. 59 See ASX Lstng Rule 4.10 and ASX Best Practce Recommendatons, above n 5, p 5. 60 WB Global Corporate Governance Forum, above n 1, 2 Toolkt: Developng Corporate Governance Codes of Best Practce, User Gude: Volume 1 Ratonale, Annexure 5, p 64. 61 Combned Code, above n 29. 62 Ibd, Preamble, 2-3, p 1. See also WB Global Corporate Governance Forum, above n 1, 2 Toolkt: Developng Corporate Governance Codes of Best Practce, User Gude: Volume 1 Ratonale, Annexure 5, p 90. 63 Natonal Hub Voluntary Sector Code, above n 7, p 6.

13 the sector, but obvously there are ntervenng regulatory requrements whch do have tracton regardng the actvtes of any voluntary organsaton Of course, wthn natonal boundares, more than one complance method may be adopted accordng to the legal or regulatory status of the ssuer. For example, although beyond the scope of ths revew, we note that n the Unted States the New York Stock Exchange (NYSE) has ssued ts Fnal NYSE Corporate Governance Rules. 64 Those Rules form Secton 303A of the Exchange s Lsted Company Manual and apply to all common equty securtes subject to varous exceptons. 65 Other US bodes such as the Busness Roundtable have ssued corporate governance prncples. Comprsed of CEOs from varous large companes, the Busness Roundtable has ssued a number of nfluental gudelnes and n 2005 produced ts revsed corporate governance prncples - the Busness Roundtable Prncples of Corporate Governance 2005 66 whch are voluntary n nature. 67 Table 2.4.1 below represents the prncpal governance themes and varables whch underpn the natonal governance schemes lsted n sectons 2.2.2 (natonal for-proft) and 2.2.3 (natonal non-proft/voluntary) of ths paper. As can be seen from the Table, the governance varables are based on those n Table 2.3.1 so as to further buld-up the landscape of varables. Table 2.4.1 Natonal Corporate Governance Schemes No. Governance Varable (Based on Table 2.3.1) ASX Best Practce Combned Code UK Nat Hub Voluntary 1. External Governmental Legal and Governance Structure/Complance: Approprate legal structures/agences Demarcaton and transparency for governmental and regulatory agences 2. v Owner Shareholdng and Partcpaton Rghts: Ownershp and transfer structures Partcpaton n profts Tmely dsclosure of nformaton Questons and votng n meetngs ncludng re: 6, 6.1 6 6 D1-2 D1, E1-2 E3 64 New York Stock Exchange, Fnal NYSE Corporate Governance Rules, approved by SEC 4 November 2003 (except s 303A.08) and 30 June 2003 (s 303A.08), ( NYSE Rules ). 65 Ibd, pp 1-3. The exceptons nclude controlled companes, Lmted Partnershps and Companes n Bankruptcy, Closed-End and Open-End Funds and Foregn Prvate Issuers. 66 Busness Roundtable, Prncples of Corporate Governance 2005, A Whte Paper by Busness Roundtable, November 2005, Washngton, DC. 67 Ibd, Foreward and Introducton, p 3. See also WB Global Corporate Governance Forum, above n 1, 2 Toolkt: Developng Corporate Governance Codes of Best Practce, User Gude: Volume 1 Ratonale, Annexure 5, p 91.

14 v 3. v a. Appontment/removal of drectors b. Key/extraordnary changes c. Corporate governance Protecton for market for corporate control Farness: Ablty to brng acton for breach of shareholder rghts Equalty wthn share classes Safeguards for mnorty Interested or conflcted drector dsclosure 2.4 7.1-2 2.1, 3.1-3 A3.1 G 4. Stakeholder Partcpaton: Identfcaton, consultaton and partcpaton Tmely dsclosure of nformaton Employee/management/drector ncentve and partcpaton schemes 10 10.1 9.1, 9.5 B1-2 H C15a,e,f, C17, E14 E16, H H D19c 5. v v Access/Transparency of Informaton: Tmely dsclosure of materal nformaton: a. results b. remuneraton polces c. drector ndependence d. rsk factors e governance codes/polces Independent/external audt Qualty and ntegrty of nformaton Electronc communcatons 68 Webste 69 5, 5.1, 6 9, 9.5 4.4, 6.2 4.1 6.1 6.1 C1, D1-2 E1-2 A1,B1-2 SchA E2, SchC A1,C3 A5 H D18-19 D7-8 6. v Board Functons and Independence: Complance wth statutory and legal dutes on organsaton/drectors Far and ethcal decson makng; corporate socal responsblty and codes of conduct 70 Recognton of stakeholder nterests Prncpal Responsbltes: a. Strategc/long-term plannng; budget; 3.1 3, 10.1 3.1, 10.1 10.1 1.1 A1 A1 B1,B3,D1-3 G G B, B1 B, E13 68 ASX Best Practce Recommendatons, above n 5, p 39. 69 Ibd, p 40. 70 Ibd, pp 25-26, 59-60. 71 Ibd, p 15. 72 Ibd, p 20.

15 v v v v x x x performance revew b. Corporate governance complance c. Selecton and montorng of key management d. Far and open electon of drectors e. Interested drector or management conflcts or transactons f. Reportng, audt, fnancal and operatonal control, rsk management g. Dsclosure of nformaton Independence from management: a. Non-executve/ndependent drectors b. Responsbltes of Board subcommttees delneated and dsclosed c. Dstngush/specfy board and management roles 71 d. Term of offce 72 Competency/experence and sklls of drectors Dsclosure of drector contrbuton/ndependence Board/drector performance revew Mantenance/revew of nternal controls/procedures Use of Technology Evaluaton of Solvency 8.1 2.1, 3.1-3 7 2.1-3, 9.3 2.4, 4.2, 7, 9.2 1.1 2.1 2.5 2.5 8.1 4.4, 7 SchC A4, A7 A3.1 A1.3,A3.1-3,A7,SchB A1.2, A3 A4.1-3,C3 A1.1, A2 A7.1 A3, A4 A6, A7 C2 C1.2 C14 D17 C15c, E8-9 G1-9 C9-12 C7, E1, E14 F8 B7-9,F1-7 E6 D5, D9-13 E1-2, E14 B1f, C5-8 E14 B1 7. Maxmsng Profts 8. Dsclosure of non-complance wth best practce Gudes To Reportng Preamble ss. 2-4 Introdn p 6 A2-3 2.4.2 Comparson of Natonal Corporate Governance Schemes As n Table 2.3.2, although we are examnng dfferent manfestatons of recommended governance schemes, we can see from Table 2.4.1 that there are some varables that appear n all three table columns. The followng Table 2.4.2 represents the prncpal governance varables common to all three natonal corporate governance schemes the ASX Best Practce Recommendatons, the UK s Combned Code and the UK s Natonal Hub Voluntary Sector Code. Commonalty Table 2.4.2 Common Natonal Governance Varables No Table 2.4.1 Reference Common Natonal Governance Varable 1 4. Incentve and partcpaton schemes 2 5. Tmely dsclosure of materal nformaton 3 5..b Dsclosure of remuneraton polces

16 4 5. Qualty and ntegrty of nformaton 5 6. Statutory and legal complance ssues 6 6.v Prncpal (board) responsbltes 7 3..b, 6.v.e Interested or conflcted drector dsclosure 8 6.v.b Responsbltes of board subcommttees delneated and dsclosed 9 6.v.c Independence of drectors dstngush/specfy board and management roles 10 6.v.d Drectors term of offce 11 6.v Competency/experence and sklls of drectors 12 6.v Board/drector performance revew 13 6.x Mantenance/revew of nternal controls/procedures 14 8 Dsclosure of non-complance wth best practce 2.4.3 Summary Global and Natonal Corporate Governance Schemes All of the varables lsted n Table 2.4.2 are mportant recurrng themes n the polcy and practce of corporate governance. Of the lsts appearng n the Commonalty Tables 2.3.2 (global) and 2.4.2 (natonal), the governance varables whch have been promnent n all columns of Tables 2.3.1 (global) and 2.4.1 (natonal) are: Tmely dsclosure of materal nformaton (5.) Interested or conflcted drector dsclosure (3..b, 6.v.e) Incentve and partcpaton schemes (4.) Dsclosure of remuneraton polces (5..b) Qualty and ntegrty of nformaton (5.) Statutory and legal complance ssues (6.) Prncpal (board) responsbltes (6.v) Independence of drectors (6.v.a, 6.v.c) Responsbltes of board subcommttees delneated and dsclosed (6.v.b) So, tentatvely, one mght project that these could be the most generalsable varables n corporate governance dscourse. It s lkely that dfferent sectors wll generate dfferent core sets of governance varables, but t would be nterestng to nvestgate, when one segments analyss down to a specfc sector, how often ths specfc lst s re-produced as the heart of key governance varables, and how generalsable t mght be across sector-specfc governance codes. We begn ths process by lookng at one sector as an example, sport n Australa.

17 3. CORPORATE GOVERNANCE SCHEMES AND SPORTING ORGANISATIONS Part 3 descrbes the extent to whch broader developments n governance have been adopted as a means of mprovng the ablty of Australan sportng organsatons to acheve long-term economc sustanablty for the purposes of achevng ther varous objectves. Ths wll be done frst by examnng some specal governance factors or consderatons whch arse n the case of sports and sportng organsatons and, second, by a revew of the Statement of Good Governance Prncples ssued by the Governance n Sport Workng Group. 73 Fnally, Part 3 wll conclude wth a comparson, agan n table form, of the ASC Governance Prncples ssued by the Australan Sports Commsson, the GSWG Statement and the corporate and voluntary/non-proft governance varables set out n Tables 2.3.1 and 2.4.1. 3.1 Specal Governance Factors Applcable to Sportng Organsatons Havng dentfed the core features or aspects of governance structures generally n the corporate and voluntary sphere, ths paper wll, before examnng the extent to whch those developments have been adopted n the sportng sphere, consder how some of the structural and organsatonal characterstcs of sportng organsatons could affect the applcaton of corporate governance prncples to those organsatons. In other words, what specal factors or consderatons applcable to sportng organsatons requre modfcaton to, or partcular emphass on, the relatonshps descrbed or envsaged by the relevant corporate governance prncples? 3.1.1 Multple Objectves and Multple Stakeholders Frst, n ths respect, Ferkns, Shlbury and McDonald observe that sportng organsatons do not ft neatly nto the dstnctve publc/prvate and proft/non-proft spheres descrbed n the ntroducton to ths paper. 74 In ths respect, and drawng on earler work by Shlbury, they explan a dvergence n the outcomes sought to be acheved by proft and non-proft organsatons: Accordng to Shlbury (2001), the key dstncton can be found n the purpose for exstence. Fnancal motves and the responsblty to create shareholder wealth domnate the msson of for-proft organsatons. Non-proft organsatons, n contrast, are motvated by a preponderance of goals. They are not solely drven by fnancal gan, and nstead are charged to protect servceto-msson. 75 Ths, by tself, of course, s not a ground for dsmssng (puttng asde, for the moment, modfcaton of or placng partcular emphass on) the applcaton of relevant 73 Governance n Sport Workng Group, Statement of Good Governance Prncples, contaned n European Olympc Commttee, Fédératon Internatonale de l Automoble, Herbert Smth, The Rules of the Game, Europe s frst conference on the Governance of Sport, Conference Report & Conclusons, Brussels, 26 & 27 February 2001, pp 4-7 ( GSWG Statement ) 74 Ferkns, Shlbury and McDonald, above n 8, 196-7. 75 Ibd, at 196. The authors here cte Shlbury, D, Examnng board member roles, functons and nfluence: A study of Vctoran sportng organsatons (2001) 2 Internatonal Journal of Sport Management, 253 281.

18 governance prncples to sportng organsatons. Indeed, f all organsatons are vewed, as a matter of generalty, as amng to acheve some type(s) of outcome (whether fnancal or non-fnancal), then the relevant questons become frst, whether corporate governance prncples developed prncpally for publcly lsted corporatons can be appled to non-proft motve (or multple motve) organsatons (ncludng many sportng organsatons) and, f so, what modfcatons to, or emphass on, those prncples (agan, the relatonshps envsaged by those prncples) are needed to cater for the specal features of such organsatons? However, the exstence of multple objectves as descrbed n the precedng secton s not, of course, wthout consequence. Prmarly, the smultaneous exstence of varous objectves results n multple stakeholders to whch those objectves relate. In ths respect, Ferkns, Shlbury and McDonald recognse multple stakeholders as a governance ssue facng sportng organsatons. 76 Of course, the stakeholders of sportng organsatons are not lmted to the governments, legslators and sponsors as noted n secton 2.1 of ths paper. They range, dependng on the type of organsaton, from members and grass roots partcpants to governng or representatve state, natonal and global organsatons; from governmental fundng agences (for example, the Australan Sports Commsson) and prvate lendng or fundng organsatons to customers, goods and servce supplers and sportng faclty provders and many more nstances can be gven. In ths respect, Ferkns, Shlbury and McDonald conclude that: The board s ablty to strategcally lead the organsaton s central to ts capacty to avert major crses and respond to stakeholder concerns. 77 In ths respect, some of the governance varables dentfed n the case of voluntary/not-for-proft organsatons (whch, generally, do not have owners n the sense of shareholders seekng dvdends or captal apprecaton from ther nvestment) can be of assstance n gudng relatonshps wth relevant stakeholders. In the case of the Natonal Hub Voluntary Sector Code, Secton H ncludes detaled provsons relatng to the dentfcaton of, consultaton wth and partcpaton of stakeholders of the organsaton. 78 In the case of the prncple of communcaton and consultaton, the Code states, among other thngs: H1 H3 The Board should dentfy those people and groups who have a legtmate nterest n the organsaton s work; these mght nclude users, benefcares, members, partners, staff, volunteers, regulators, other government bodes and funders. We refer to these as stakeholders n ths code There should be regular and approprate communcaton and consultaton wth stakeholders to ensure that: (a) ther vews are taken nto account n the organsaton s decsonmakng; (b) they are nformed and consulted on the organsaton s plans and proposed developments whch may affect them; 76 Ferkns, Shlbury and McDonald, above n 8, 206-7. 77 Ibd, 207. 78 Natonal Hub Voluntary Sector Code, above n 7, Secton H, Board Openness, pp 28-30.

19 (c) there s a procedure for dealng wth feedback and complants from stakeholders, staff, volunteers and the publc; and (d) the organsaton s performance, mpacts and outcomes are reported to stakeholders 79 Detaled provsons also appear n the Voluntary Sector Code relatng to openness and accountablty and stakeholder nvolvement. 80 Stakeholder nterests, however, are not lmted to voluntary or not-for-proft sector codes. As can be seen from Table 2.3.1, the OECD Prncples smlarly contan prncples relatng to the dentfcaton of stakeholder nterests, partcpaton, the provson of nformaton and communcaton. 81 OECD Prncple IV states n part: The corporate governance framework should recognse the rghts of stakeholders establshed by law or through mutual agreements and encourage actve co-operaton between corporatons and stakeholders n creatng wealth, jobs, and the sustanablty of fnancally sound enterprses. A. The rghts of stakeholders that are establshed by law or through mutual agreements are to be respected. B. Where stakeholder nterests are protected by law, stakeholders should have the opportunty to obtan effectve redress for volaton of ther rghts. C. Performance-enhancng mechansms for employee partcpaton should be permtted to develop. D. Where stakeholders partcpate n the corporate governance process, they should have access to relevant, suffcent and relable nformaton on a tmely and regular bass. E. Stakeholders, ncludng ndvdual employees and ther representatve bodes, should be able to freely communcate ther concerns about llegal or unethcal practces to the board and ther rghts should not be compromsed for dong ths 82 Outsde these schemes, the characterstcs of multple objectves and stakeholders s also developed wthn prncples of corporate socal responsblty. Whle a detaled examnaton of the underpnnng theores and developments n that prncple are beyond the scope of ths paper, t s apt to note that the Australan Government s Corporatons and Markets Advsory Commttee (CAMAC) ssued n December 2006 79 Ibd, p28. 80 Ibd, pp 29-30. 81 OECD Prncples, above n 3, Prncple IV, The Role of Stakeholders n Corporate Governance, pp 21 and 46-48. 82 Ibd, (Prncple IVF omtted and emphass n orgnal). Prncples IVA-D are also set out n Mche, J and Oughton, C, The Corporate Governance of Professonal Football Clubs n England (2005) 13(4) Corporate Governance 517, 522.

20 ts Report enttled The Socal Responsblty of Corporatons. 83 CAMAC observes that: In that Report, The term corporate socal responsblty does not have a precse or fxed meanng. Some defntons focus on corporate complance wth the sprt as well as the letter of applcable laws regulatng corporate conduct. Other defntons refer to a busness approach by whch an enterprse takes nto account the mpacts of ts actvtes on nterest groups (often referred to as stakeholders) ncludng, but extendng beyond, shareholders, and balances longer-term socetal mpacts aganst shorter-term fnancal gans. 84 CAMAC explans that the socetal mpacts are usually categorsed as envronmental, socal and economc. 85 Notable for the purposes of ths paper, CAMAC observes that the ASX Draft Recommendatons 86 assume that drectors may consder stakeholder nterests pontng to the proposed replacement to Prncple 10 of the ASX Best Practce Recommendatons n ths respect. 87 Draft Prncple 3 of the ASX Draft Recommendatons s expressed n part n the followng terms: Prncple 3: Promote ethcal and responsble decson-makng Companes should actvely promote ethcal and responsble decsonmakng. To be successful, companes need to have regard to ther legal oblgatons and the nterests of a range of stakeholders ncludng shareholders, employees, busness partners, credtors, consumers, the envronment and the broader communty n whch they operate. It s mportant for companes to demonstrate ther commtment to approprate corporate practces and decson makng 88 Wth reference to Table 3.3.1 below, the ASC Governance Prncples provde for the recognton of, and partcpaton by, nterested stakeholders. ASC Governance Prncple 1.5 states n part: 1.5 The ASC advocates that each board should: Set the broad strategc drecton of the organsaton through approprate consultaton wth stakeholders. Ths ncludes determnng the 83 Corporatons and Markets Advsory Commttee, The Socal Responsblty of Corporatons, Report, December 2006, Australan Government, Sydney, avalable at www.camac.gov.au, ( CAMAC Socal Responsblty Report ). 84 Ibd, para. 2.1, pp 13-14 (footnote omtted). 85 Ibd, para. 2.1 and n 5 theren, p 14. CAMAC further defnes these three mpacts by reference to the Global Reportng Intatve (GRI) 2002 Sustanablty Reportng Gudelnes whch defne envronmental mpacts to nclude effects on land, ar and water ; socal mpacts to nclude labour practces [and] human rghts ; and economc mpacts as affectng economc resources at all levels. 86 ASX Draft Recommendatons, above n 5. 87 CAMAC Socal Responsblty Report, above n 83, Para 3.5, pp 94-95. 88 ASX Draft Recommendatons, above n 5, Draft Prncple 3, p 19 (bold n orgnal, emphass added). See also CAMAC Socal Responsblty Report, above n 83, Para 3.5, p 95.