Board composition, roles and powers

Principle 1: Board composition, roles and powers

Different sporting organisations operate under different governance structures. While not
advocating the adoption of any single model, the ASC does advocate that each structure should
be clearly documented with a clear delineation of the roles, responsibilities and powers of the
board, management and each body involved. Further, there should be no overlap in the powers of
any two bodies or individuals in a governance structure.

The organisation's framework of governance should:

• enable strategic guidance of the entity
• ensure the effective monitoring of management by the board
• clarify the respective roles, responsibilities and powers of the board and management
• define the board's accountability to the entity
• ensure a balance of authority so that no single individual has unfettered powers.

Principle 1.1:

That management powers be formalised, disclosed and placed in a board which has the power to exercise all the powers of the organisation, except those powers that the Act or Constitution requires to be exercised in general meeting.

Commentary and guidance

The ASC does not endorse a governance structure featuring both a board and another body,
whereby this other body (usually called a council) assumes some board functions. The nature of matters reserved to the board and delegated to management will necessarily depend on the size and complexity of the organisation, and be influenced by its tradition and culture and the skills of directors and managers.

Principle 1.2:

That national sporting organisations be incorporated as a company limited by guarantee under the Corporations Act 2001 (Cwlth).

Commentary and guidance

It must also be noted that, regardless of the Act (Corporations or Associations) under which the
organisation is incorporated, if a national sporting organisation carries on business in a state other
than that in which it is incorporated, it is required to be registered under the Corporations Act as a
registrable Australian body. This registration imposes additional administrative requirements on
the organisation. While there can be arguments for the adoption of various legal structures, and there are
limitations and benefits attached to each, the ASC encourages national sporting organisations to
adopt a company limited by guarantee organisational structure. The more comprehensive legislation entailed within the Corporations Act 2001 (Cwlth) provides for a very robust and structured platform for the operation of organisations and provides clarity in areas otherwise silent within the Association Incorporation Act. The key governance role of the organisation under each of the Acts rests with the board of directors, who must act in accordance with the requirements of the relevant Act, within other
federal and state laws, and the constitution of the incorporated body.

Principle 1.3:

That the incorporated body has a constitution, which embodies the following key sections:

• interpretation - objects and powers
• members -membership and meetings of members (general meetings)
• the board - powers, other roles (chief executive officer and secretary) and meetings of the board
• reporting
• accounts
• auditors
• winding up.

Commentary and guidance

The constitution should be written in a clear, unambiguous and succinct manner. It should not be overburdened with items that would be better served to be detailed in the organisation's by-laws or policies. These are usually items that can be expected to be changed and updated from time to time. In these circumstances the board should, through by-law and policy development, be empowered to oversee and manage the issues.

Principle 1.4:

That the members of an organisation should elect the majority of the board of directors. In addition, any issue on which a member vote is taken should require a majority of member votes for any proposal to be passed.

Commentary and guidance

Each sporting organisation should detail how people and/or organisations may become the members of them. The constitution of the incorporated body will state the voting power of each member in this regard. The ASC advocates that a 'one state one vote' voting system be applied to federal sporting structures. While a proportional voting system is an option, it is not recommended. Large member bodies should never be able to dominate the direction of an organisation. Where a board is made up of appointed and elected directors, it is recommended that at least a majority of the board membership is elected by the members. In addition, it is also advocated that votes taken at board or general meetings should be passed by a majority of directors/members and not be subject to a casting vote. This principle is based on the premise that if a majority cannot agree on an issue then the issue should be forfeited.

Principle 1.5:

That the governance structure should feature a clear separation of powers and responsibilities between the board (the 'mind' of the organisation) and the chief executive officer and their staff (the 'hands' of the organisation).

Commentary and guidance

This clarity of powers and responsibilities must also apply to the various board and management committees. The governance structure should also recognise that individual directors, the chief executive officer (or similar), their staff, board committees and management meetings hold no authority to act on behalf of the organisation by virtue of their position alone. All authority rests with the board, which may delegate authority to any person or committee. Each such delegation should be clearly documented in a delegations manual or similar. Normally there will be significant delegations to the chief executive officer. In their capacity as directors, directors have no individual authority to participate in the day-to-day management of the entity, unless authority is explicitly delegated by the board.

Principle 1.6:

That the board should:

• confirm the broad strategic directions of the organisation
• appoint, dismiss, direct, support professional development for, evaluate the performance and determine the remuneration of, the chief executive officer
• approve, monitor and review the financial and non-financial performance of the organisation
• ensure an effective system of internal controls exists and is operating as expected, and that policies on key issues are in place and appropriate and that these can be applied effectively and legally to those participants or persons for whom they are intended
• develop a clearly articulated and effective grievance procedure
• ensure financial and non-financial risks are appropriately identified and managed
• ensure the organisation complies with all relevant laws, codes of conduct and appropriate standards of behaviour
• provide an avenue for key stakeholder input into the strategic direction of the organisation
• ensure director, board and chairman performance evaluation occurs regularly.

Commentary and guidance

The board's primary responsibility is one of trusteeship on behalf of its stakeholders, ensuring that the legal entity, the organisation, remains viable and effective in the present and for the future. The board's role includes determining the organisation's strategic direction, core values and ethical framework, as well as key objectives and performance measures. A key critical component of this role is the board's ultimate authority and responsibility for financial operations and budgeting to ensure the achievement of strategic objectives. Where a sporting organisation does not have a chief executive officer or equivalent position, either paid or unpaid, management and operational tasks may be delegated to a range of people, including board members or committees. In this case, directors must ensure that they separate their strategic board roles and responsibilities from their individual operational responsibilities.

Principle 1.7:

That each board should be structured to reflect the knowledge of the sport and sports industry and the complex operating environment facing the modern sporting organisation. Normally, it is envisaged that a board will:

• comprise between five and nine directors
• have a sufficient blend of expertise and skills necessary to effectively carry out its role
• have all directors being independent, regardless of whether they are elected or appointed
• have the ability to make a limited number of external appointments to the board to fill skills gaps
• institute a staggered rotation system for board members with a maximum term in office to encourage board renewal while retaining corporate memory
• be broadly reflective of the organisation's key stakeholders, but not at the expense of the board's skills mix.

Commentary and guidance

The number of directors on a board should reflect the size and level of activity of the organisation. As such, the ASC advocates a board with the necessary skills to carry out its governance role rather than a representative board. Independent directors are those that are not appointed to represent any constituent body, are not employed by or have a significant business relationship with the organisation, do not hold any other material office within the organisational structure and have no material conflict of interest as a result of being appointed director. In relation to traditional federal sporting structures, the holding of state-level positions would be seen to be a material conflict of interest if held at the same time as national-level positions.In unitary sporting structures, where there is only one organisational entity with a direct relationship to individual members and/or their clubs, club-level positions may create a similar level of conflict to that of the state level in the federal structure. Similarly, sporting organisations whose operations are predominantly of a business-owner nature should avoid situations where the owners of those businesses are also the key decision makers of the organisation, where those decisions will have a material effect on the outcomes of those businesses, perceived or actual

Examples of material conflicts are: presidents of member bodies, representatives of select groups
(for example, umpires) and chief executive officers or senior staff. When directors do represent a constituency, they are bound by their legal responsibility to represent the organisation as a whole. External appointments (appointed directors) are appointments to the board that have not been elected by the constitutional members and are at the discretion of the existing board. An effective board has a proper understanding of, and competence to deal with, the current and emerging issues of the business and can effectively review and challenge the performance of management and exercise independent judgment.

Principle 1.8:

That national sporting organisations and their member bodies have aligned objects and purpose to ensure effective and efficient achievement of sport outcomes.

Commentary and guidance

To achieve effective outcomes for the sport it is essential, particularly in a federated model, that national and member bodies have aligned objects and purpose. It is critical that member bodies within a sport operate as if they were one body working towards the same outcome to deliver effective products and services to its members and stakeholders. The sport should have a single strategic plan that drives the overarching objectives, which are delivered consistently and effectively by the member bodies. The sport's strategic plan should form the basis of all local implementation outcomes and be developed with input and agreement from all stakeholders.

Principle 1.9:

That where two or more bodies are amalgamating, an interim board arrangement occurs in order for all parties to be confident about the future direction and priorities of the amalgamated body.

Commentary and guidance

In the interim arrangement, the board of the new organisation would include equal representation
drawn from the boards of the amalgamating bodies or representatives nominated by each of the
amalgamating groups' interests. This interim arrangement would operate for a finite period of time, at the end of which a new board structure as outlined in Principle 1.7 should be adopted. The ASC encourages like organisations to look into the benefits of amalgamation to ensure that sustained competitiveness, efficiencies and economies of scale are achieved to provide enhanced outcomes for the sport's members and participants.

Principle 1.10:

That the board outline the role of individual directors/board members,
including (at a minimum):

• the fiduciary duty of directors to act in the interests of the members as a whole and not to represent individual constituents. Thus, once elected, the board should have the ability to operate independently in the interests of the organisation as a whole, free from undue influence
• the legal duties of individual directors, including the requirement of directors to:
• act in good faith and for a proper purpose
• exercise due care and diligence
• ensure the organisation does not continue to carry on its business while insolvent
• meet the requirements of various other federal and state laws that directly impact on the organisation
• a code of conduct or policy specifying the behaviour expected of directors (see Principle 6)
• a conflict of interest provision that specifies:
• a director must disclose actual/potential conflicts of interest
• the process for disclosure of real or potential conflicts of interest
• a process that governs a director's involvement in any decisions with which they have a conflict of interest
• the requirement for a register of ongoing interest to provide a record of all potential conflicts
• a director should not hold any other official or corresponding administrative position within the organisation at any level that creates a material conflict of interest. This is to ensure no actual or perceived conflicts of interest
• maintaining a register of related party transactions
• the responsibilities of directors for continuing professional development as well as engagement in ongoing performance assessment (see Principle 4).

Commentary and guidance

The role of a director of an organisation is one of the key components of the governance framework to ensure the accountability, transparency and contestability of the direction, performance and conformance of the organization. It is critical that new directors are appropriately inducted to the board and the organisation and that they understand their roles within the organisation. In relation to a director's conflict of interest, a director should not hold any official position at state, regional or club level, or corresponding administrative position, that provides a material conflict of interest which is actual or perceived and that all endeavours to avoid this should be pursued (see Principle 1.7). Directors should have appropriate personal qualities such as loyalty, honesty, the courage to ask
tough questions and should exhibit high ethical standards. As a minimum, directors should embrace fairness, respect, responsibility and safety as key guiding principles of ethical behaviour
within their organisation.

Principle 1.11:

That the roles of key positions in the governance system are documented and understood. Normally these positions should include:

• board
• chair/president
• directors
• company secretary
• chairs of board committees
• management
• chief executive officer.

Commentary and guidance

As it is expected that national sporting organisations will form a company limited by guarantee structure, then it will be necessary to appoint a company secretary to provide for the legal compliance requirements under company law.

Principle 1.12:

That the chief executive officer will not normally be a director of the board. This enables and supports a clear separation of power between the board and management.

Commentary and guidance

The ASC suggests it is good practice to ensure that a distinction between management and board
membership occurs and that the chief executive officer of the organisation should not necessarily
be a member of the board. However, in this circumstance it is also good practice to ensure the
chief executive officer is aware of, and present at, board meetings to provide information and
advice to the board on the operations of the organisation and to understand the direction provided
by the board.