Governance in Sport

Tom Bruce and David Hunt, Farrer & Co

Topics for Today

1. Filling skills gaps on Boards

2. Equality and diversity on Boards

3. Conflicts: Board members and NGB members

Filling skills gaps on Boards

• How are you going about this?

• Who? Appointed / Elected Directors?

• What? An openly advertised, transparent, independent, skills-based process?

• How? Candidates nominated by the Board or an Appointments Panel?

• Where should the process be set out? Articles or Rules?

Equality and Diversity on Boards

• Sport England's governance guidelines include an expectation that 25% of NGB Boards should, by 2017, be women;

• Overall percentage of women on NGB Boards risen from 23% in 2013 to 27% in 2014 (WSFF NGB Leadership Audit 2014);

• 49% of NGBs still not currently meeting the 25% target (WSFF).

Case study

• "Slowball UK" (a fictitious NGB) has a Board made up entirely of white males;

• It therefore, conscious of the Sport England target, issues an advertisement in Women Leaders in Sport for two newindependent Board members, stating only women may apply.

Case study – cont.

• What do you think about the approach taken by Slowball UK from both a legal and non-legal point of view?

Meeting the Sport England Guidelines – the legal considerations

• Section 49 of the Equality Act 2010 prevents women only recruitment drives (or indeed selecting a woman applicant over a man on grounds of gender (subject to s.159 (more below)) when recruiting to any "Personal Office";

• "Personal Office" for these purposes will include membership of an NGB Board but only where membership brings with it an "entitlement" to remuneration.

Meeting the Sport England Guidelines – the legal considerations – cont.

• Where Board membership is unpaid and therefore, in effect, a voluntary role, an NGB can run a women-only recruitment drive or prefer a woman candidate over a man without breaching the Equality Act.

• However, clearly there are also wider political considerations involved in doing so.

Case study – cont.

• Slowball UK decides it does not want to limit applicants to just women;

• However, it does want to try and encourage a greater number of women applicants;

• How might it do that in both the short and more medium term?

Positive action

• Even where it applies, the Equality Act allows for two types of "positive action" aimed at improving the representation of any under represented group;

• Positive action, unlike positive discrimination, is lawful.

Positive action – general power (s.158)

• First of all, the Equality Act allows "proportionate" steps to be taken to encourage participation in an activity where participation by persons of a particular protected characteristic (e.g. sex, race, etc.) is disproportionately low (section 158).

Positive action (s.158)

The Equality and Human Rights Commission's guidance entitled "Appointment to Boards and Equality Law" suggests such steps might include:

• Reserving places for women on training courses in Board leadership;

• Providing targeted networking opportunities for women;

• Providing networking and sponsor programmes;

• Offering appointments to women to shadow existing Board members and/or observe Board proceedings;

• Placing adverts where women are more likely to read them; and

• Setting aspirational targets for increasing the number of women on Boards with a particular timescale.

• If Slowball UK advertises and the two best applicants, one a man and one a woman, were of equal merit, would you advise it to appoint the woman given the current make-up of the Board?

Case study – cont.

Positive action in recruitment (s.159)

• As a second type of positive action, the Equality Act allows an NGB to select an applicant from an under represented protected characteristic where two candidates for membership of the Board are of "equal merit" (section 159).

Positive action in recruitment (s.159) –cont.

Government guidance on section 159 indicates that the assessment of whether applicants are of equal merit can take into account a candidate's:

• overall ability;

• competence;

• professional experience;

• relevant formal or academic qualifications; and

• other qualities required to carry out the particular job.

Conflicts: Board members and NGB members

1. What duties are owed by NGB Board members?

Duties of NGB Board members

• Board members have an overriding statutory duty to:

– act in the best interests of NGB

– avoid situational and transactional conflicts

• Includes avoiding and/or dealing appropriately with potential, actual and perceived conflicts of interest and conflicts of loyalty

Consequences of getting it wrong

• Decisions/agreements can be challenged by third parties

• May cause significant reputational damage to the NGB

• May be personal liability if there is loss to the NGB

How to manage Board conflicts

• What do your Articles say?

• Adopt and remember to use a conflicts policy

• Identify and declare conflicts and keep a conflicts register

• Prevent the conflict from affecting a decision

• Record the conflict in minutes

Conflicts: Board members and NGB members

2. What duties are owed by NGB's members?

Duties of NGB's members

In theory: members are free to vote on the basis of their own personal interests and do not have to have regard to the interests of other members or the NGB as a separate entity

However members must comply with obligations set out in NGB's Articles and Rules

Therefore very important to include mechanisms within NGB's constitutional documents to deal with membership issues

Consequences of getting it wrong

• Likely to cause significant reputational damage to the NGB

• Significant time and cost

• A distraction to the day job

How to manage Member conflicts

1. How should a Board deal with member conflicts?

Minimise the risk

- Prevention is better than cure- Communicate effectively- Maintain good corporate governance standards, in

particular transparency, independence- Seek to understand and address member concerns on an

ongoing basis- Monitor press, social media etc. to ensure you quickly and

effectively correct any misconceptions

How to manage Member conflicts

Include relevant provisions in your Articles and Rules

- Articles to deal with automatic termination of membership and expulsion

- Membership subject to NGB's Rules – which should contain clear disciplinary procedures

- Include deemed resignation if subscription / entrance fee in arrears (Board discretion)

How to manage Member conflicts

Natural Justice

- Unless NGB has an Article allowing expulsion, a member cannot be expelled.

- The provision must set out a fair process:-

E.g. "It shall be the duty of the Board, if at any time it shall be of the opinion that the interests of the Company so require, by notice in hard copy form sent by prepaid post to a member's address, to request that member to withdraw from membership of the Company within a time specified in such notice…"

How to manage Member conflicts

Natural Justice

- the provisions must also give a member the opportunity to answer the complaints against him before a decision to expel him is taken

- any relevant disciplinary procedure will need to be followed

- Expulsions Committee?

Dealing with a difficult Board member

2. How should members deal with a difficult Board member?

• Speak to the Chair or CEO

• Vote of no confidence: NB. no legal standing

• Company law procedure to remove a director (last resort)

- Requested by at least 5% of members, special notice (28 days)- general meeting, majority of members to approve, right to be

heard

David HuntPartner020 3375 7214david.hunt@farrer.co.uk

Tom BruceAssociate020 3375 7192tom.bruce@farrer.co.uk

Next steps:-

• Please let us know if you would like to see a copy of our Model Articles of Association for NGBs

• Do come and ask us if you have any questions