Sports Governance – Good risk management for sporting organisations
Best practice governance within a sporting organisation is essential in order to ensure that your organisation is run properly and effectively and that risks are adequately managed. A vital aspect of the governance framework is risk management. Amongst other things, the board ought to adequately anticipate, observe and manage the risks of the sporting organisation.
While taking on risk is an inevitable by-product of a sporting organisation’s expansion and progress, left unmonitored, it can be particularly harmful to the ongoing operation of a sporting organisation. Implementing sound risk management processes helps to reduce the chance of legal action against the association, leads to more appropriate handling of many delicate issues allowing the sport to function a lot more smoothly and reduces the risk of personal liability of the directors/executive.
There is no magic formula when it comes to risk management. Often a common sense and proactive approach will serve a sporting organisation well in this area. Sporting organisations can turn their minds to the following items as a starting point when it comes to ensuring good risk management.
Financial Affairs
Each board member is responsible for ensuring that the annual financial statement submitted to Business Affairs Victoria or the Australian Securities Investment Commission (ASIC) is an accurate account of the books of the organization and its annual transactions.
Even if a director is not an accountant, and a person with accounting qualifications sits on the board, the director still has obligations to consider and satisfy themselves as to the accuracy of the annual financial report. Directors therefore ought to have a basic level of financial literacy. If the annual report is hiding losses, or an organisation (such as a financial institution) relies on an incorrect annual report and suffers a loss as a result, board members could be held personally liable for any loss.
Audit and Risk Committee
Sport Australia has a range of mandatory sports governance principles which it recommends that each sporting organisation follows. With respect to risk management, Sport Australia advises that each sporting organisation ought to have an Audit and Risk Committee, including at least one external and independent CPA or Chartered Accountant. The remainder of the Committee ought to also have basic financial literacy in order to comprehend and, importantly, to actively challenge financial information presented to it if need be.
Having a thorough system of audit and risk management helps to ensure that there are adequate checks and systems in place to allow for management and the Board to be advised of, or to detect, potential risks related to the operation of the sport. These could be financial risks, integrity risks, legal risks etc.
Meeting all requirements at law
Sporting organisations need to ensure they comply with any relevant employment, trading, taxation, discrimination and occupational health and safety laws. Directors are also subject to strict duties at law which are largely designed to prevent directors from misusing their positions for their own benefit and to protect the interests of members. Organisations may have internal legal resources or can outsource this function to a legal services provider.
Good demarcation of roles between the board and CEO/Administration
Firstly, the board should oversee, but not micromanage, the CEO/Administration. There should be mutual trust and respect between the CEO and board. The board ought to be concerned with broader strategic, compliance, budgetary and policy issues, leaving day-to-day matters to the CEO or administrative staff. An organisation should also choose board members for their competence rather than who or what they represent.
Sound organisational Constitution, policies and processes
A Constitution sets out broad purposes/powers under which the board can act without unnecessarily seeking association approval for their decisions. It also properly gives the sport’s tribunal or discipline body its powers and can reduce the chance of legal action if a member is ejected from the association or aggrieved by a decision of the association. Organisations ought to also ensure that appropriate policies and processes are in place, particularly processes for ensuring that past occurrences do not recur.
Strategic plan & regular reviews
Organisations should have a plan for the future carefully mapped out in the form of a three to five-year plan. The progress and adherence to the plan needs to be assessed at least annually. The plan should be adjusted or updated if circumstances change (e.g. an economic downturn).
Similarly, the CEO and board members’ performances need to be reviewed every six to twelve months. New board members should also receive a formal induction into the board and the organisation. Such an induction should include receiving a full set of governance documentation, such as the strategic plan, the constitution or rules, all governance policies, up-to-date financial position, and prior to the first board meeting, a meeting with the chairperson and the chief executive officer to become familiar with both board and operational processes and issues. The rules or the constitution of the organisation also ought to be reviewed every one or two years in light of feedback from members, referees, coaches.
Does the Board carry adequate insurance?
Ensuring your organisation has appropriate insurance is a key way to manage losses. It is imperative that insurance is not viewed as a substitute for active risk management. Reliance on insurance ought to only come into play once you have done everything you can to minimise risks in the first place. Most sporting organisations are likely to want to ensure that those within the organisation are protected from liability, injury or loss and that the organisation’s equipment and property are protected in the event of damage. Most organisations will therefore have some level of insurance to cover public liability, property damage and director’s liability.
Final comments
Risk management ought to not be a daunting prospect for an organisation. With adequate controls and processes, a proactive risk management program can assist in the early identification of risks to an organisation, helping an organisation to take early action to address the risk and prevent it from causing significant or even irreparable harm to the sporting organisation.
Should you have any questions specific to your organisation, please do not hesitate to contact Paul Horvath or Ned Puddy at info@sportslawyer.com.au or give us a call on 9642 0435.
Any information conveyed in this newsletter is of a general nature only and is not to be considered legal advice for your sporting organisation.
