Governance Gremlins Threaten Sport's Ability To Thrive

Published July 4, 2019

Over the past 27 years, the Sport Law & Strategy Group (SLSG) has written hundreds of articles on topics related to the law, planning, leadership, and governance. Some of our articles have pushed boundaries and buttons. Our intention is always to serve in the best interest of the sport community. As lawyers and strategists, we study the law, good governance practices, and leading-edge management theories so we can help the sport sector stay ahead of some of the bigger risks and threats facing 21st century social profit organizations. While we are proud of the work we are doing to support sport organizations at the international, national, provincial, territorial and community levels, we are still a long way off from Sportopia. 

Lately, we are noticing a number of poor governance practices in boardrooms across the country. In part, we believe this is due to complacency (people are so busy they fail to uphold sound business practices or groupthink sets in with Boards where there are no fixed terms) and a sense of entitlement (when people have been serving on the Board for a number of years and feel at some level that the organization owes them or they feel they own the organization). These are both troubling risks that are directly connected to ineffective and insufficient governance practices. 

Risks of directors’ not managing conflict 

Over the past two years we have received dozens of calls from staff and volunteers expressing frustration with the lack of understanding within their sport organization about the fiduciary responsibility to avoid conflict whenever possible, and the responsibility to manage it according to sound legal practices if it cannot be avoided. 

For instance, the Directors of a large sport organization failed to manage conflict when they appointed a sitting President to be the organization’s senior staff person without opening up the hiring process. This came after the sitting President fired the current senior most staff person (who himself had previously been a Board member). The Board did not communicate the firing and hiring to its membership. At one point, the current President held the role of president and senior staff person, and also served as President of another organization within the same sport. Previous approaches to employment in this organization had involved rigorous hiring practices in place that included striking a hiring committee, job postings on SIRC and in the local paper, interview processes, and a media release announcing the new hire. But either complacency or a sense of entitlement – the governance gremlins – had invaded this organization and caused a serious and troubling governance risk. 

Another example of not managing conflict occurs when senior staff or Directors are permitted to hire family members, specifically through closed hiring processes, effectively ‘appointing’ the individual into a job. We would argue that this presents a clear conflict as the staff person has a pecuniary interest by hiring a member of his or her family. Regardless of the motivation to do so, the Board must stand united, as the elected voice for the membership and the organization, to serve the best interest in a manner that upholds legal requirements and ethical standards. In these cases, the Board failed to consider whether the decision would be supported by the members of the organization and whether it presents a conflict that places the organization’s best interests at risk.   

Methods to mitigate and manage conflicts such as the ones described above include: 

• Hiring Practices: Put in place and adhere to modern hiring practices and standards. A good question to ask is: “Would this approach be acceptable in the organization I work for?” Unless you are a business owner (and you have the authority to hire whomever you want), ensuring you follow good hiring practices is an important indicator of whether the organization is governing and managing with integrity.  
• Avoid Giving Yourself A Job: If a current Board member is interested in applying for a paid position, they must first step down as a Director, apply for the position, go through the hiring process, and demonstrate the skills required of the position. Given the circumstances, we would advise that the Board strike a hiring committee independent of the Board, given that the Directors may be conflicted having established a relationship with the Director as his/her peers. Having independent people serve on the hiring committee can provide much needed neutrality. Communicate the process to the membership and ensure transparency in the hiring of the individual for the position 
• Acknowledge Conflict: If a former Director is the best candidate for the job, acknowledge the potential discomfort that might set in when colleagues become supervisors and ensure performance milestones are clearly identified and progress monitored. A good practice would be to put in place a 3-month trial period to ensure good fit. 
• Live Your Values: Be prepared to answer questions from the membership about the appearance of conflict and speak to the hiring process and the candidate’s skill set as a way of mitigating this risk. Openness and transparency are a must. 

Risks that Boards are not focused on the right things 

One of the higher-level governance risks we see regularly is that Boards often focus on operational or management type discussions when their primary focus ought to be one of oversight, management of risk, and ensuring the monetary and strategic viability and relevance of the organization. Too often, Boards get caught up discussing the colour of the jersey when more important conversations need to be had. Examples of questions that good governing Boards ought to have include: Are we providing the right amount of oversight? What is our tolerance for risk? Does our CEO/ Executive Director/ General Manager have the operational policies in place to make fair, ethical and sound business decisions? Are we financially diversified enough? What is our success planning?   

Good practices to ensure that the Board stays focused include: 

• Putting in place a consent agenda. A consent agenda is a board meeting practice that groups routine business, non-controversial items and reports into one agenda item. The consent agenda can be approved in one action, rather than filing motions on each item separately. Using a consent agenda can save boards anywhere from a few minutes to a half hour, providing the time needed for the board to discuss more important issues. 
• Reviewing the risk registry and ensuring that risks are mitigated and if they come to pass, well managed 
• Developing a strategic plan and ensuring progress against desired outcomes 
• Monitoring and measuring the performance of the CEO/ ED/ GM 
• A process in place to recruit the next Board members 
• Ensuring that they are structured to meet the growing demands of a social profit organization 

Risks of not modernizing the governance structure  

In many sport organizations we are seeing outdated governance structures that are capping the potential of organizations to meet the challenges and mine the opportunities available to them. We wrote about this risk in a previous blog. We reiterate that the current structure of sport boards is reducing the likelihood that sport will attract younger generations and preventing sport leaders from coordinating a national effort to attract new sponsors, educate coaches and officials in a streamlined manner, ensure financial security, and meet minimum legal obligations.  

We spent time recently with the CEO of the National Golf Owners Association who successfully modernized his governance structure in 2001 and has reaped the benefits ever since. We will be sharing more about what CEO Jeff Calderwood had to share with us. For organizational leaders interested in exploring a better way to govern, we offer up the following to support your inquiry: 

• Do we feel our system is supporting the achievement of our mission? 
• Do we fully understand our role as Directors and that our legal duty is to serve the best interest of our membership? 
• Are we attracting and retaining new volunteers for the Board and for Committees? 
• Do we feel we are managing risks effectively? 
• How does our staff feel about the structure? Are we surviving or thriving? 
• How connected do we feel with other sport organizations within our sport? 
• Do we feel we are duplicating efforts and wasting money on common expenses related to audits, communications, website, legal, planning, policies, and sponsorship? 
• Do we feel we want to leave our sport system better than when we received it? 

We appreciate hearing from you and we are interested in knowing if your organization is also struggling with some of the governance gremlins we have written about. Drop us a line at DBL@sportlaw.ca or SJI@sportlaw.ca.