I want to set out a clear analysis of Everton’s performance in recent years on and off the pitch and the role the club’s owner and leadership have played in it. In Part I, I want to look at governance, its importance and how it sets the scene for the last 6 years in particular but also the preceding decades.
There is an absolute and clear relationship between governance and corporate performance. There is extensive evidence across all sectors of commerce that the best run businesses exercise the greatest governance standards. This is not a coincidence.
In recent months there have been growing questions as to the performance of Everton Football Club on and off the pitch. As we approach the final quarter of the sixth year of Moshiri’s effective ownership, questions are being asked by increasing numbers about his role as owner, about his board of directors and executive teams, in addition to the performance of our core “product” our football team and its management.
Just like any corporate entity, a football club cannot and does not stand in isolation. It must have meaningful relationships with its stakeholders. A football club, especially one with such a lengthy history as ours, as the fan led review will state, is embedded into local communities, being a fundamental part of whichever town, city or area it occupies. In many cases it speaks more loudly than anything else as to the well-being (or not) of an area. In a football mad city like Liverpool, it defines regional and local identity more than any other single institution. Thus the club has to acknowledge that importance and therefore its own obligations. How a football club is run really matters to the people surrounding its location and particularly the fans whether local, national or international. That responsibility (i.e. its performance) falls fairly on the shoulders of the owners and directors.
To be fair, before analysing the football club any further, Everton in the Community excel in its work in this area. It would be churlish not to acknowledge its success and importance. But, and to use a word much in vogue at present, the performance of the charity and that of the football club should not be “conflated”. They remain two separate legal entities with different legal identities, management structures and very different objectives.
What is governance?
So, let’s start with governance. What is it? It can be defined as “the system by which companies are directed and controlled.” The differentiation between being directed and being controlled is extremely important. The owner and the directors perform two different roles within governance.
Boards of directors are responsible for the governance of their companies. The shareholders’ critical role though, in governance is to appoint the directors and to satisfy themselves (the shareholders) that an appropriate governance structure is in place.
The shareholder or owner role in governance is essential to how we perform, to our future strategies and our attractiveness to lenders and potentially new investors. New investors, or put it another way, a succession plan is critical also as that determines what type of owner Everton may attract in the future.
If we determine that our governance is poor, then the shareholder is responsible for not recruiting the correct board of directors to govern his (our) club. As might become a theme in this series, recruitment either solves or creates problems. Get the recruitment of directors wrong, or choose to neglect recruitment of new and independent talent, guarantees poor performance across the business. Inexperienced, ineffective or simply unambitious directors create poor strategy and are usually not equipped to see that strategy executed properly regardless of how good or not it might be.
So if I, or others, believe the board to be inadequate for its purposes (that of making Everton a successful, sustainable football club, an organisation helping to lead the development of the game) then it is down to the shareholders (assuming they agree) to make the changes to the board to deliver against the objectives set.
It is not too strong to say that in this respect, Farhad Moshiri has been wholly negligent of his duties to the club, its minority shareholders and all other stakeholders.
What are the key principles of good governance (modified for a football club)?
Board leadership and company purpose – A successful football club is led by an effective and entrepreneurial board, whose role is provide the resources for the long-term success of the club, generating value for shareholders, meeting fans objectives for success on the pitch and contributing to the local community and environment. The long term success of the club must include winning trophies at home and in Europe, competing with the very best club sides.
Generating sufficient resources to meet objectives – Self evidently it is the legal responsibility of the board to ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. It is also their duty to establish a framework of effective controls, enabling accurate assessment of risk.
Purpose, values and identity – it is the responsibility of the board to establish (or maintain/improve) the club’s purpose, values and identity. From establishing these vital components strategy can then be determined. If a board does not determine purpose, values and identity how can it build or execute strategies? Equally if the purposes, values and identity are not apparent to those outside the organisation, how can the board be held to account?
Legal obligations – a board must ensure that the club meets its responsibilities to shareholders stakeholders, and of course, its employees.
The structure and roles within an ideal board
“The board’s position is, therefore, to act as the link between owners and management, directing and controlling the company on the owners’ behalf. Put another way, the reason owners grant such authority is to enable the board to act as the ownership in microcosm.” ―
The Chair – The Chair leads the board and is responsible for its overall effectiveness in directing the company or club. Ideally he or she should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair is responsible for constructive board relations and the effective contribution of directors including non -executives, and ensures that directors receive accurate, timely and clear information. The Chair also has the primary role in dealings with the major shareholder.
Executive and non-executive directors – Best practise calls for a combination of executive directors (i.e. those employed by the club in executive roles – CEO, CFO etc) but most importantly non-executive directors. Even better practise would be the use of independent non-executive directors – independent meaning they have not had a former employment or contractual relationship, not are related to any significant shareholder or stakeholders. Their role is very much to bring oversight and external expertise to the benefit of other directors.
Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and most importantly, hold
management to account.
There should be a clear division of responsibilities between the leadership of the board and the executive leadership of the company’s business.
Everton’s poor governance structure
“I believe the Everton board is revered throughout football…and I know that our board is what other clubs aspire to. In fact, one very famous football club said to me two or three days ago “whenever we have a problem” he said “what would the Everton board do? As they always get it right”
Quality speaks for itself”
Bill Kenwright, Chairman Everton Football Club speaking at the annual general meeting of the club in January 2021
Unfortunately, in Everton’s case, our board does not follow best practises. Composed entirely of executives, there is no separation between the board and the leadership of the business. This is an extreme weakness in Everton’s governance model and it is directly the responsibility of Farhad Moshiri to address this issue.
There are so many elements of what a board does, what it should do and the decisions it has to make that are compromised by having a small, all executive board. Who makes an objective analysis of individual performance? Who makes an objective analysis of strategy? Who provides the robust challenge necessary to ensure good decisions are made? Who determines remuneration and reward? Who decides who is competent enough, skilled enough, ambitious enough to remain an executive in a fast moving sector like professional football with all its challenges (and opportunities)?
If we are to improve?
If we are to improve as an organisation, if we are to become truly competitive on and off the pitch, return to the top of the European club game, build a magnificent academy, successfully complete Bramley-Moore and grow our identity, commercial attractiveness and brand then Moshiri has to act. He has to look firstly at our governance and recognise the current model, structure and individuals at board level are not going to achieve what is required.
To not do so in the face of over-whelming evidence (footballing performance, financial performance, loss of stature within the game) will be grossly negligent not only to himself as major shareholder, but to minor shareholders, fans (most importantly) and every other stakeholder that values our football club. He, alone, has the power and authority to act. He must do so now.
This is the first in a series looking at the challenges the owner and the board face. I’ll be looking at our finances, our commercial performance, the performance of our director of football, recruitment and Moshiri’s role in this.