The new governance code for sports charities was published in October 2016.
The code has, at its heart, five principles of good governance:
- Structure
- People
- Communication
- Standards and conduct
- Policies and processes
Compliance with the letter of the principles is not mandatory, but Sport England and UK Sport:
The code is mandatory for all sports bodies seeking public funding in the next funding period. This includes a number of charities seeking Sport England funding for the first time as a result of the extended remit of Sport England and, in particular, the focus on encouraging physical activity set out in the Government’s strategy for sport – Sporting Future.
Following the launch of the Charter for Sports Governance, commentators expressed concern that the code would not adequately provide for organisations that are seeking a modest amount of public funding to support work that they already do or face barriers to complying with some aspects of the code. For example, many membership charities harness the passion of volunteers to do fantastic work encouraging people to make physical activity part of their lives. But the volunteer-run membership structure which is such a strength also makes it harder to embrace some aspects of the code, such as the requirement for ‘independence’ at board level.
The code neatly side-steps the risk of an inflexible one-size-fits-all approach, setting out three tiers of investment. UK Sport and Sport England will:
The three tiers (surely destined almost inevitably to be thought of as bronze, silver and gold) are:
Reviewing the code, it is possible to highlight a number of interesting mandatory requirements:
- Tier 3 – for larger or longer-term investments, generally including those of over £1m.
- Tier 2 – investments that do not fall within tier 1 or tier 3, typically of between £250k-£1m. Where an investment is placed in this tier, it must meet all tier 1 requirements and the funder will determine how many of the tier 3 requirements must be met.
- Tier 1 – the minimum level of governance, required of organisations receiving one-off or short-term funding, typically less than £250k.
Tier 1
‘If membership based, is inclusive and accessible’ – intended ‘to promote greater diversity and an inclusive approach’: ‘membership based organisations are expected to take all reasonable steps to ensure they are accessible to all sections of the community’.
This should provide a useful impetus to the much-needed work on diversity that is being done by many charities and other funded bodies.
Conflicts of interest. The requirement that conflicts of interest should be ‘recognised, managed by the chair and recorded’ is nothing new. Most funded bodies will already be obliged to do this. However, the guidance that:
‘This could arise, for example, where a trustee/director of a not for profit organisation is also a director/owner of a for-profit enterprise, which wishes to supply goods or services to the not for-profit organisation, as the trustee/director (or their family) could personally gain.’ might help to highlight a tricky issue for many membership charities: it is not unusual for volunteers to have found a way to make a living from their passion so that some of the most active and committed volunteers also have conflicts of interest arising from their commercial activities as a paid coach, training provider or similar.
The requirement to consider ‘the skills and diversity required of committee members’ is uncontroversial, but this is an area where many organisations have a great deal of work to do. Tellingly:
‘An online consultation formed part of the development of this code and an overwhelming majority of those who responded recognised a need to increase diversity within their organisation’
This will chime with the experience of many people working in the sector. Many NGBs (National Governing Bodies) and organisations in the wider physical activity sector do not yet have a management committee as diverse as the communities in which they operate. There is no easy answer to this issue – it takes sustained work to improve the diversity of membership bodies – but it is right that the sector should demand progress here.
The last survey by Women in Sport, Trophy Women in 2015 found that female representation on all funded bodies was finally averaging 30% but also observed that ‘For almost half (49%) of publicly funded National Governing Bodies less than a quarter of their board are women’ and concluded that:
‘…the barriers that existed six years ago still persist in preventing many women from taking on leadership roles; contributing to a gender imbalance in boards. The result is a lack of sustainable pipeline of female leaders rising to the top.’
Women in Sport has welcomed the new 30% gender diversity requirement in the code but stresses the need for urgent action to achieve it. Many in the sector would argue that there should be a greater focus on achieving gender parity.
Many small organisations (e.g. clubs or charities) rely on volunteers who give up their time to administer the organisation, and without whom, the organisation may not exist…[the code] asks organisations to at least consider the skills and diversity it needs, should the opportunity to recruit relevant individuals arise.
This is not just an issue for ‘small organisations’. Some substantial national charities rely on a volunteer base from which Trustees are drawn and would struggle to persuade their members to increase the number of externally appointed trustees. The resistance is not, or not necessarily, motivated by any objection to ‘diversity’. For many the resistance is based on a commitment to the principle that those who are ultimately responsible for the management of the organisation should be drawn from the membership. These are not necessarily inconsistent, but it is not unusual to see lively disagreement over how best to balance competing priorities.
Board members ‘ideally should serve no more than nine years.’
The need to refresh boards of trustees is well recognised and the model of up to three terms of three years is commonly used. So much so that the Hodgson review of the Charities Act 2006 recommended that ‘Trusteeship should normally be limited in a charity’s constitution to three terms of no more than three years’ service each’ and that trustees should have to explain any departure from this model. However, the model is not always suitable (and Lord Hodgson’s recommendation was rejected on that basis).
Tier 3
‘1.1 The Board of the organisation shall … (C) maintain and demonstrate a clear division between the Board’s management and oversight role and the executive’s operational role.’
The need to distinguish clearly between the operational governance issues is a common element of board training and development. However, the distinction is more complex than it may seem at first glance.
The board is to be large enough to ‘promote an open dialogue amongst the directors.’ (1.8) and ‘1.9. The size of a Board shall not exceed twelve persons unless agreed with UK Sport/Sport England’
There is a tension between these aims and some organisations may need to argue for a board of more than 12 people to promote the desired quality of open dialogue.
‘1.10 Each organisation must maintain an up-to-date matrix detailing the skills, experience, independence and knowledge required of its Board.’
Funded bodies are unlikely to object to the professed aim of ‘promoting boards with skilled, diverse and independent opinion’ or the assertion in the commentary that: ‘striking the right balance between those who have an intimate knowledge of the sport and those who bring experience from outside is also important.’
However, maintaining a matrix will require some effort and central support if it is to be a meaningful exercise rather than an exercise in box ticking.
No executive chairs: ‘1.17. The roles of chair and chief executive shall not be exercised by the same individual and the division shall be established in writing and agreed by the Board.’
‘1.18 UK Sport and Sport England reserve the right to require that an organisation in which they invest appoint an independent chair. This right will only be exercised after appropriate consultation and if UK Sport/Sport England reasonably believes that it is necessary to safeguard public funding or further the purposes for which that funding was granted.’
The role of members: the members of membership organisations wondering how much influence they will lose as a result of the organisation’s decision to pursue public funding may be reassured by the guidance note that:
‘Members of the organisation (i.e. the legal members in the case of a company limited by guarantee, for example, this means the members of the company whose names are entered into the company’s register of members) also have an important role to play in governance, and the requirement that the Board has ultimate authority does not override or supersede the powers of such members under law.’
Independent non-executive directors
‘1.19 At least 25% of the Board shall be independent non-executive directors.’
Helpfully, the definition of ‘independent’ makes clear that:
‘A person may still be deemed to be ‘independent’ even if they are a member of the organisation and/or play the sport.’
and
‘a person is independent if they are free from any close connection to the organisation and if, from the perspective of an objective outsider, they would be viewed as independent. A person may still be deemed to be ‘independent’ even if they are a member of the organisation and/or play the sport.’ The Code also includes helpful examples of a ‘close connection’.
‘1.20 Each Board shall appoint one of its independent non-executive directors to be the Senior Independent Director.’
‘The Senior Independent Director has a specific role set out in the definition in the Appendix. Senior Independent Directors can assist the working of the Board through the exercise of these special responsibilities. It is for organisations to decide whether this replaces the role of vice chair should organisations decide to appoint a vice chair (which is not a mandatory Requirement).’
‘1.23 The Board shall maintain an audit committee and … a nomination committee unless the particular circumstances of the organisation are such that it is appropriate for the Board to act as the nomination committee.’
The introduction of a nominations committee can be a valuable means of ensuring that potential board members are selected by reference to the skills knowledge and experience they can bring to the role. However, the process of introducing a nominations committee can be contentious. Some members will see the step as an unwarranted interference with the role of the members in choosing board members.
Diversity
‘2.1 Each organisation shall:
A. Adopt a target of, and take all appropriate actions to encourage, a minimum of 30% of each gender on its Board; and
B. Demonstrate a strong and public commitment to progressing towards achieving gender parity and greater diversity generally on its Board, including, but not limited to, Black, Asian, minority ethnic (BAME) diversity, and disability.’
The code goes on to require that a funded organisation:
- identify ‘proportionate and appropriate actions to be taken to support and/or maintain’ those targets,
- publish on their web-site the details of the work done, including an annual update on progress with the actions referred to above.
It is good to see indications of a willingness to drive real change in the sector and push for meaningful change in this respect. Several commentators have expressed impatience with the lack of clear targets for diversity in relation to protected characteristics other than gender.
Governance
‘The expectation is that each funded organisation will publish an annual governance statement.’
It will be interesting to see what form this takes and how effectively funded organisations use this as a tool to demonstrate the progress they have made and invite support with further improvement.
Achieving compliance
Now that the code is in place, Sport England will need to consider how to ensure that National Governing Bodies and other organisations it funds comply with the code.
Where Tier 3 requirements apply:
‘Sport England and UK Sport will look for a formal commitment from organisations to meet requirements within set timescales.’
In some cases that will involve real challenges as indicated above. For example:
- The minimum proportion of both women and men on the board of funded bodies has increased to 30%. While some would argue that the target should be parity of the sexes since this has been an area of focus for many years, some organisations will struggle to get a board which has at least 30% of members who are women.
- The current code requires a proportion of board members to be ‘independent’. That requirement will need to be considered carefully by the many membership charities that are seeking Sport England funding on the basis that they can deliver physical activity and ‘help create a much healthier and more active nation’ as the Government’s strategy for sport Sporting Future envisages. Many membership charities see it as a key part of their identity that trustees are drawn from their membership and some would find it difficult to introduce a requirement to recruit from non-members in the interest of independence. Such organisations will need to be able to justify the approach they adopt and demonstrate how they ensure that trustees are able to avoid group think.
- Some organisations have struggled to make much-needed progress on other aspects of diversity including for BAME and disability representation. Without specific targets for such representation, they may find it difficult to make the meaningful change that is called for in this area.
- New requirements in relation to term limits and board size will be seen as unduly constraining by some.
- The requirement of the Charter that membership organisations ‘work to ensure that internal democracy is vigorous and healthy’ will have been greeted with mixed feelings by some chairs and CEOs. It is undoubtedly true that ‘vigorous democracy is important for organisations with membership bases’ and most trustees and chief executives I work with are passionate about this issue. Sadly, it is also true that many organisations spend a disproportionate amount of time and effort responding to the actions of a small minority of members who employ democratic mechanisms in a way that does not always seem to have the interests of the organisation as a whole, or even in the interests of a substantial minority of members, at heart. Finding the right balance between fostering member engagement and delivering the aims of the organisation will continue to require attention.
For further information
If you wish to find out more about how we support charities with governance, take a look at the charity section of our website. Alternatively, you can contact Dominic Curran.
