The Organisation of FIFA - IDHEAP

The Future of Governance
at FIFA:
Some Proposals for Reform
Sport & the EU Conference 2012
Towards a Networked Governance in Sport
21 st -22 nd June 2012
Swiss Graduate School of Public Administration – Lausanne, Switzerland
Sean Hamil
Birkbeck Sport Business Centre
Department of Management
Birkbeck College
University of London
s.hamil@bbk.ac.uk
www.sportbusinesscentre.com
http://www.sportbusinesscentre.com/about/staff/seanhamil

Presentation Organisation
1. The Origins of Interest in Corporate Governance in Sport– Why Is It Important?
2. The UK Corporate Governance Code (2010) – Lessons for Sport Organisations.
3. The Organisation of World Football.
4. FIFA’s Organisational Structure & Purpose:
- Focus on the “solidarity” function.
5. FIFA’s Governance Structure - An Historical Critique:
- Key focus on the roles of the Executive Committee and the President.
6. Some Concluding Thoughts.

The Origins of Interest in
Corporate Governance in Sport
– Why Is It Important ?

The Origins of Interest in
Corporate Governance
in Sport
• A series of major corporate governance failings in sport governing bodies, with
significant consequences, leads to calls for governance reform:
– Salt Lake City Winter Olympics bid bribery scandal.
– FIFA 2018/2022 World Cup bids scandal and ongoing financial scandals which
see multiple resignations by Executive Committee members.
• “Something must be done”.

The Origins of Interest in
Corporate Governance
in Sport: FIFA
• In October 2011, FIFA announces the establishment of four “task forces” to review
various aspects of the organisation’s governance and recommend reforms:
Task Force Revision of Statutes, Task Force Ethics Committee, Task Force
Transparency and Compliance, and Task Force Football 2014.
• An Independent Governance Committee is also established to oversee the
implementation of reforms.
• The review and reform process is ongoing.

The Dutton Report:
Conclusions
• An enquiry into the mismanagement relating to the funding by Sport England to a
number of governing bodies in English sport.
• “A second theme and one which I have found frankly surprising, is that there have
been numerous well known sports which have simply not been properly governed
by their governing bodies. This is startling when one considers that by the mid to
late 19 th century it was recognised that sports required good governance…
…This was occurring more than a century after the establishment of governance
arrangements in at least some of our national sports. It might have been expected
that governance arrangements in sport would by the mid 1990s have progressed
into effective, efficient, economical and modern arrangements for all sports, and
in particular all sports whose members aspire to elite competition.
At the end of the 20th and the start of the 21st Century this had not happened.”
Timothy Dutton QC (Dutton, 2009, page 8).

The UK Corporate
Governance Code:
Lessons for Sport Organisations

Origins of the
UK Corporate
Governance Code
• Principal – Agent theory: the principal is the shareholder in a public company and
the agent is the executive management.
• Interest in corporate governance started with financial scandals, notably at the UK
Mirror Group newspaper company where the executive management, through the
activities of the Chairman Robert Maxwell, effectively ran the company in their
own interest (and not that of the shareholders) to the extent that he eventually
defrauded it.
• This led to the Cadbury corporate governance review in the UK (1992) which
focused on the role of the company board. Essentially it was concerned about how
you could have a better balanced board with more independent non-executive
directors to act as a counter-balance of power and oversight to the executive
management.
• From Cadbury developed a set of guidelines for quoted public companies – the
Financial Reporting Council UK Corporate Governance Code (FRC) (2010).

Origins of the
UK Corporate
Governance Code
• “The first version of the UK Code on Corporate Governance (the Code) was
produced in 1992 by the Cadbury Committee. Its paragraph 2.5 is still the classic
definition of the context of the Code:
`Corporate governance is the system by which companies are directed and
controlled.
Boards of directors are responsible for the governance of their companies [not the
company chairman] [presenter underline].
The shareholders’ role in governance is to appoint the directors and the auditors
and to satisfy themselves that an appropriate governance structure is in place.
The responsibilities of the board include setting the company’s strategic aims,
providing the leadership to put them into effect, supervising the management of
the business and reporting to shareholders on their stewardship.
The board’s actions are subject to laws, regulations and the shareholders in
general meeting’.”
Source: FRC, 2010, page 1.

• A.1 The Role of the Board
The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
Every company should be headed by an effective board which is collectively
responsible for the long-term success of the company.
� Meet regularly.
� Clear statement in the Annual Report of division of responsibility between the
board and the executive management.
� The Chairman, Deputy-Chairman, senior independent director, and the
Chairman and members of Board Committees should be identified.

• A.2 Division of Responsibilities
The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
There should be a clear division of responsibilities at the head of the company
between the running of the board and the executive responsibility for the
running of the company’s business. No one individual should have unfettered
powers of decision [presenter’s underline].
� The positions of Chairman and CEO should not be occupied by the same
person.

The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
The case of UK retailer Marks & Spencer:
• Governance concern: Sir Stuart Rose combined the roles of chair and chief
executive, which is seen as a dangerous concentration of power (March 2008).
• Engagement process: LAPFF (Local Authority Pension Fund Forum) Chairman
engages with board members to express concerns but no compromise agreed.
• Taking the initiative: LAPFF filed a shareholder resolution (March 2009) seeking
the appointment of an independent chair by July 2010.
• Vote result: resolution achieved a vote of almost 38% in favour.
• Following retirement of the incumbent Marks & Spencer separates roles with a
new CEO (Nov 2009) and Chairman (August 2010) being appointed.
Source: PIRC

• A.3 The Chairman
The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
The chairman is responsible for leadership of the board and ensuring its
effectiveness on all aspects of its role.
� A CEO should not normally become the chairman later [Presenter’s underline].

• A.4 Non-Executive Directors
The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
As part of their role as members of a unitary board, non-executive directors
should constructively challenge and help develop proposals on strategy.
� A senior independent non-executive director should be appointed by the board
to act as a sounding board for the chairman and conduit for direct dialogue
with shareholders.
� The chairman should meet with non-executive directors without the executives
present.

The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
• B.1 The Composition of the Board
The board and its committees should have the appropriate balance of skills,
experience, independence and knowledge of the company to enable them to
discharge their respective duties and responsibilities effectively.
� The board should be of sufficient size that no one group of directors can
dominate [presenter underline].
� Independence defined as not being employed or paid by the company in recent
times or has other close business links.
� At least half the board, excluding the chairman, should comprise non-executive
directors determined by the board to be independent [for terms not more than
six years – B.2].

The UK Corporate
Governance Code:
Lessons for the Governance of
Sport Organisations
• Sport organisations can learn much from the UK Corporate Governance Code in terms
of how they organise their internal governance.
• Critically, that mechanisms should be in place:
- to prevent the concentration of power in any one institution of the
organisation, or amongst particular directors.
- that a well-designed board structure should assist the strategy development
capability of the board.

FIFA’s Organisational
Purpose & Structure

The Organisational Structure
of FIFA
• “The Fédération Internationale de Football Association (FIFA) is an association
governed by Swiss law. It has 208 member [national] associations and its goal,
enshrined in its Statutes, is the constant improvement of football.” – FIFA.com.
• FIFA is neither a private company or a charity, it is a not-for-profit association,
governed under the Swiss Civil Code, dedicated to promoting the game of football
worldwide.
• “The supreme and legislative body of FIFA is the Congress, which is made up of all
the member associations, with each getting one vote. The executive body is the
Executive Committee, which is presided over by the FIFA President. The standing
and ad-hoc committees advise and assist the Executive Committee in fulfilling its
duties. Lastly, the General Secretariat is the administrative body (Art. 21 of the
Statutes).“
• The membership of the Executive Committee is elected via the congresses of the
six regional confederations – but the regional confederations are not directly
represented.

The Organisational Structure
of World Football
• As football developed, shadowed by the growth of its associated business
stakeholders’ activities in everything from sports apparel to broadcasting, it did so
within the framework of a managed global “ecosystem”.
• FIFA is at the apex of this global ecosystem, below which are six broadly regional
confederations which are recognised by FIFA (FIFA Statutes, 2011, Article 20), but
which are not actually members of FIFA: the AFC (Asia), the CAF (Africa),
CONCACAF (North and Central America and the Caribbean), CONMEBOL (South
America), the OFC (Oceania) and UEFA (Europe).
• Each organises their own national team and club competitions.
• Below the regional confederations are the individual national associations which,
as well as being members of FIFA, are also members of their respective regional
confederations.
• National associations have historically organised their own leagues with clubs
from their respective countries, or acted as partners with national leagues.

The Organisational Structure
of World Football
• FIFA only recognises one national association and one league pyramid in any country
member, thus preserving the global pyramid of world football (Statute 20.3e).
• The key benefit of the global football pyramid has been that it provides a stable operating
and regulatory environment for football development and competitions:
- as reflected in FIFA’s responsibility for drawing up one coordinated
international match calendar annually, which facilitates the efficient operation of
complementary international club and country competitions.
• Critically, it has been the maintenance of the integrated football pyramid by agreement of all
of football’s key stakeholders that has facilitated the development of football into the
world’s most popular participation and spectator sport.
• Moreover, it has given rise to a number of hugely successful commercial revenue generating
activities from which all of football’s stakeholders have benefited:
- Such initiatives include the promotion of participatory, spectator and
commercial interest in football domestically and via solidarity payments
derived from the operating surpluses of international competitions such as the
FIFA World Cup.

FIFA’s Operational Roles:
A Summary
• FIFA describes itself as the governing body of world football. FIFA exercises this
role in five key ways:
1. Governing the rules of the game through its role within IFAB.
2. Football Development – 22% of expenditure (2006-2010):
- FAP, Goal, Win in…
3. Organising Competitions, notably the FIFA World Cup:
- most of FIFA’s competitions do not generate surpluses.
4. Commercial exploitation of FIFA properties.
5. Regulation:
- player status and international transfer system.
- protection of national team competitions – club players must be
released.

Point to Consider
• In 2012 the global economy is in its worst economic crisis since the 1930s:
- The global financial system is in turmoil.
• Yet the global football eco-system continues to function effectively:
- Evidence of robustness in the way the system is structured, and that some
value is being delivered to key stakeholders?

FIFA’s Governance Structure:
An Historical Critique

The central objective of FIFA is:
The Central Objective of FIFA
• “…to improve the game of football constantly and promote it globally in the light
of its unifying, educational, cultural and humanitarian values, particularly through
youth and development programmes…”.
(FIFA Statutes, Art. 2a).
• “Obviously, there is a certain tension between this [FIFA’s non-profit] legal form,
best suited for NGOs and other genuine non—profit organisations, and the
economic significance of FIFA. However, FIFA remains, - in accordance with Swiss
law – a non-profit organisation as long as it invests its surplus into the objectives
of the association.”
(Pieth, 2011, page 12).
• Critical questions?
- Is there really such a tension between FIFA’s non-profit goals and its
economic significance?
- Surely the critical question is not whether an international sport federation
like FIFA is able to generate a significant surplus from its activities, but what
it does with that surplus?
* And critically, how it accounts for the distribution of that surplus?

• The Congress:
The Organisation of FIFA:
Congress
- decides whether to admit, suspend or expel a member;
- may award the title of honorary president, honorary vice-president or
honorary member;
- is responsible for amending the Statutes, the Regulations Governing the
Application of the Statutes and the Standing Orders of the Congress;
- may remove a FIFA Executive Committee member from office;
- approves the balance sheet and income statement ;
- approves the Activity Report ;
- elects the president every four years.
• The FIFA President has an important function during the Congress: he presides
over it and ensures that the debates are properly conducted. After the Congress,
he is then responsible for ensuring that the decisions passed are implemented.
[Author’s underline].
Source: FIFA.com

The Organisation of FIFA:
Congress
• Essentially the Congress fulfils the same role as the Annual General Meeting of
shareholders at a public company (as Pieth, 2011, page 13, notes).
• As Pieth also notes (page 13):
� The dispersed nature of the 208 members makes it difficult to challenge decisions
of the Executive Committee and the President pro-actively.
� Many members are economically dependent on FIFA through financial assistance
and development programmes.
• The Congress has limited capacity to exercise democratic accountability over the
Executive Committee, the Office of the President, and the Office of the General
Secretary.

The Organisation of FIFA:
Executive Committee
• The Executive Committee consists of a President, elected by the Congress in the
year following a FIFA World Cup, eight vice-presidents and 15 members,
appointed by the confederations and associations.
• It meets at least twice a year, with the mandate for each member lasting four
years.
• Its role includes determining:
- the dates, locations and format of tournaments (until recently that of the
FIFA World Cup).
- appointing FIFA delegates to the IFAB.
- electing and dismissing the General Secretary on the proposal of the
FIFA President [presenter’s underline].
(FIFA Statutes, Arts. 30 & 31).

The Organisation of FIFA:
Executive Committee
• The Executive Committee “… resembles more of an assembly of member
delegates … than an executive body…. “.
• This is “… further supported by its large size (24 members) and few meetings [two
in 2011)]…”.
• “The Executive Committee rather has the role of a “reduced Congress” i.e. it is
more supervisory than of an executive nature. The question though is, whether
the Executive Committee is an adequate body to independently and effectively
perform supervision of management.”
• “The governance systems of enterprises address such principal-agent problems by
installing a board of directors, including a number of independent non-executive
directors [presenter’s underline]”
Pieth, 2011, pages 13-14.
• Begs the question: Does FIFA need to create a Board of Directors, similar in
character to that at a corporation, with the Executive Committee taking on the
role of a “Supervisory Board”?

The Organisation of FIFA –
The Office of President
� The President is elected by FIFA’s members for a four year term. There is no term
limit on the number of terms a FIFA President can serve.
� “ As the supreme leader of FIFA, the President” [FIFA.com] has the following roles
and powers:
First of all, the President shall represent the Federation legally (Art. 32 .1). He is
primarily responsible for:
(a) implementing the decisions passed by the Congress and the Executive
Committee through the general secretariat;
(b) supervising the work of the general secretariat;
(c) relations between FIFA and the Confederations, Members, political bodies and
international organisations (Art. 32.2). “
Source: http://www.fifa.com/mm/document/fifafacts/organisation/52/00/03/fs-
110_01e_president.pdf

The Organisation of FIFA –
The Office of President
� Only the President may propose the appointment or dismissal of the General
Secretary.
� He presides at the Congress, meetings of the Executive and Emergency Committees
and committees of which he has been appointed chairman.
� The office of President is an executive position and thus embodies considerable
day-to-day management authority and influence.

The Organisation of FIFA –
The Office of President
� “Translated into the terms of corporate governance, the President of FIFA is the
chief executive of the organisation…”.
� “At the same time the President presides over the Congress and the Executive
Committee which supervises the management of FIFA. This set-up is thus
comparable to a “monistic” system of corporate governance, in which the roles of
the chairman of the board and the chief executive officer are combined in one
person…”.
� “… in order to mitigate the risk associated with the concentration of power in a
monistic system… best practice in corporate governance has developed elements
to provide for adequate checks and balances…”
(Pieth, 2011, page 14).
� In the UK Corporate Governance Code this “check and balance” function is
provided by the requirements to:
- separate the roles of CEO and Chairman.
- provide for independent non-executive directors on the board.

The Organisation of FIFA:
the Secretary General
• The FIFA President is an executive president and so exercises day-to-day
managerial authority over the General Secretariat & the Secretary General.
• The General Secretariat carries out the administrative work of FIFA under the
direction of the Secretary General (FIFA Statutes, Art. 67).
• The President appoints the managerial staff (directors) in the General Secretariat
on the proposal of the Secretary General (FIFA Statutes, Art. 68).
• The Executive Committee elects and dismisses the General Secretary on the
proposal of the FIFA President [presenter’s underline (FIFA Statutes, Art. 31).
• “While the President is the chief executive, the Secretary General is the chief
operating officer… Although the Secretary General is formally appointed by the
Executive Committee, he is responsible to the President, who can exclusively
initiate dismissal of incumbents and proposal of successors. The influence of the
President on the General Secretariat is further accentuated by his competences to
appoint the next level of management including the Deputy General Secretary…”
Pieth, 2012, page 15.

Some Concluding Thoughts

Election Procedure Problems
at the IAAF
• On August 24 th 2011 the Board Election of the International Association of
Athletics Federations (IAAF) is re-run in the afternoon after the morning election
sees favourite, ex-UK Ukrainian Olympic pole-vaulter Sergey Bubka fail to be
elected.
• The election is re-run due to “technical problems” with the morning vote.
• The afternoon vote is carried out manually.
• The afternoon vote see Sergey Bubka re-elected.
• IAAF President Lamine Diack says there is no reason to be embarrassed.
• Source: Insidethegames.biz (24 th August 2011). “Election re-run sees bubka and coe keep places as iaaf
vice presidents”. Inside the games.biz. http://www.insidethegames.biz/sports/summer/athletics/13994election-re-run-sees-bubka-and-coe-keep-places-as-iaaf-vice-president

Concluding Thoughts
• International sport federations can make a strong case to retain not-for-profit
status on the basis that they deliver a key solidarity function which enhances
sport’s grassroots in an era of declining public expenditure on sport.
• However, this status can only be retained if their governance legitimacy is
retained:
- scandals undermine the legitimacy of the not-for-profit model.
• An alternative model would be to see the commercially successful activities of
sport federations, and the solidarity benefits they currently generate, privatised:
- the result, a polarised sport system? – “grassroots squalor, elite affluence”.
• International Sport Federations like FIFA need a stronger board structure, more
closely representing the best practice in public company with independent nonexecutive
directors representing the wider interest of sport system stakeholders.
• A key role of a re-constituted Board of Directors in a sport federation should be
the entrenchment of the commitment by directors to the not-for-profit model in
their responsibilities as directors:
- their responsibility needs to be greater than, for example, the
representation of a particular geographical interest.