Analysis of Governance of FIFA - Case Study Example

Analysis of Governance of FIFA Name Institution Course Date Synopsis Sports industry is one of the largest business industries globally. In most countries, sports have become a big business that contributes significantly to the economic growth and development. In Australia, the sports industry contributes about $10 billion to the economy every year and employees more than 95,000 persons (Wood, 2016). However, the sporting industry has become under sharp focus in recent years due to persisted emergence of governance issues. Corporate governance denotes the relationship between the board, management and the shareholder (Arnwine, 2002). Good governance requires that that the board and the management act in the best interest of the owners through responsible management and accountability (Football Governance Research Centre, 2004). However, in recent years, the sporting organizations have come under increased focus due to the rising cases of corporate governance issues, such as mismanagement, corruption and match-fixing issues among others. FIFA is one of the sporting organizations that have had governance issues in recent years. With reference to the concepts of board governance and culture, election and appointment process and board structure and purpose, this case study will review FIFA’s governance issues. Findings The Federation Internationale de Football Association (FIFA) is the world’s football governing body. The organization was founded in 1904 in Zurich, Switzerland to manage and ensure improvement in football (Baker, 2015). FIFA has over the years seen its membership grow and currently has 211 member associations. As the world’s football governing body, FIFA is responsible for organizing football games, such as world Cup and ensuring that there are proper rules that guide football sporting industry. FIFA is headed by the President who also chairs the Executive Committee. The elections of the chair are done every four year through voting by the FIFA Congress members, which is the supreme body of the organization. Sepp Blatter has been the longest serving President of the organization having served as president for 17 years beginning 1998 (Leadership Foundation for Higher Education, 2016). Analysis indicates that Blatter made significant achievement s as the president of the federation having made football become one of the most popular games in the world. At the same time, earnings from football sports grew significantly during Blatter’s tenure. Additionally, the number of World Cups has also increased significantly. Problem 1: Corruption Despite the increased popularity and earnings in football, FIFA’s successes have been overshadowed by corporate governance issues which have damaged the reputation of the board members and FIFA as an organization as well. The first major governance issue has been the widely publicized corruption involving its former President Sep Blatter and some members of the board (Baker, 2015). Early in 2015, Swiss authorities conducted a raid on Zurich Luxury hotel, which resulted in the arrest of seven top executives of FIFA officials at the request of the U.S. Department of Justice which had already indicted 14 current and former FIFA officials for engaging in deep-rooted and systematic corruption (Leadership Foundation for Higher Education, 2016). It was alleged that, for the last 24 years, the FIFA officials who had been indicted plus their accomplices corrupted FIFA by indulging in criminal behaviors that includes bribery, fraud and money laundering. The indictment also indicated that two generations of FIFA officials had abused their trust positions for self gain. Overall, the indicted officials were charged for corruptly receiving US$150 million as kickbacks and bribes in exchange of the FIFA board’s support for commercialization of media and marketing rights and for receiving kickbacks and bribes in relation to CBF sponsorships (Press Association, 2015). The scandal forced FIFA President Sep Blatter and other executives linked to this corruption to resign. The deep-rooted corrupt activities at FIFA are evidently a matter of board behavior and culture that has permeated in the organization for a long time. Culture is defined as a pattern of behavior that develops in an organization. Culture is has been defined as “the way we do things here.’ The case facts indicate that corruption has for over 24 years been a practice that is deep-rooted in the board to the extent that it become part of FIFA’s culture (Press Association, 2015). This is because the officials of the organization believed on getting kickbacks and bribes in order to support contracts, such as marketing and advertising. For this reason, corrupt practices at FIFA were a behavioral thing that had become part of the boards’ culture. Problem 2: Cronyism and Favoritism Cronyism and favoritism is another corporate governance issue at FIFA. There are many incidences of cronyism and favoritism that have been reported at FIFA. One such pertains to the manner in which FIFA awarded the 2018 World Cup to Qatar. Investigations have since found that awarding Qatar the World Cup 2018 host was done out of favoritism and not on merit as it should have been (Wrage, 2015). Another evidence of cronyism and favoritism within FIFA board is demonstrated by the fact that FIFA has continuously ranked African Teams below European countries without taking into account their performance improvements. Critics argue that this is done deliberately by the FIFA executives out of shear cronyism. Cronyism and favoritism at FIFA has been promoted mainly by lack of transparency and accountability that is promoted by board structure and purpose. The board has a hierarchical structure with the President at the top who is also the chairman of the Executive Committee (Rose, 2015). This kind of structure leaves little room for participation by other stakeholders as the decisions affecting football fraternity is made by the board and communicated down for implementation (Duca, 1996). Besides, the FIFA board exhibits a structure that does not allow even the Congress room to question how the organization is being run. Accordingly, this gives the President and Executive Committee members’ room to engage in cronyism and favoritism which impact negatively on the football industry. Problem 3: Lack of Membership Term Limit Analysis of governance issues facing FIFA indicates that lack of term limit for members. The executives and independent members of FIFA have no term limit and this creates room for the board and the executive members to engage in unethical practices. For instance, Sep Blatter served as the Chairman of FIFA for 17 years and still ran and won elections (Baker, 2015). This meant that Blatter was bound to serve as President for 20 years and even more if he could not have been forced to resign. Lack of term limit for the board and executives points to election and appointment process issues. How the board and the executive members are appointed has a huge impact on how organizations work. At FIFA, the executives and the board is appointed by FIFA members of Congress (Baker, 2015). However, the Congress has no power to fire any member of the board as a tribunal has to be formed in order to investigate the matter. This implies that the board has virtually no one to keep its actions on check and this allows the board the opportunity to engage in unethical behaviors without fear of being held accountable. Problem 4: Conflict of Interest One of the accusations that led to Blatter’s resignation is was in the fact that he made payment to his fellow executive, Michel Platini without any written contract. It was alleged that Blatter paid Platini £1.35 million after falsifying accounts and this act amounted to a conflict of interest on the part of these two board members although Blatter has maintained that the amount was paid out of a gentleman’s agreement (Press Association, 2015). The involvement of Blatter in conflict of interest payment violated the agency theory that states that the agent (Blatter) should act on the best interest of its principal (owners) (Donaldson & Davis, 1991). Unfortunately, Blatter violated this by engaging in personal interest issues that are costly to FIFA and its owners. Discussion Summary of Major Problems The analysis above has highlighted a number of governance people at FIFA that needs to be addressed to ensure growth and success of the organization in achieving its mandate. First, corruption within the board has been a serious problem that has permeated in the federation to the extent that it has become a culture in the organization (Press Association, 2015). For more than 24 years, the executives have been found to have repeatedly sought bribes and kickbacks and this unethical practice has not only cost the federal financially, but also damaged its reputation in the eyes of its stakeholders who no longer have the trust and failed in the board. Second, the analysis found that cronyism and favoritism has been a common practice at FIFA. The executives of the company have form the habit whereby contracts such as marketing rights and sponsorships partially by through favoritism (Wrage, 2015). The analysis also showed that FIFA ranking of countries is not being done based on merits; rather some countries, such as African countries are ranked low notwithstanding how much they improve in favor of countries from Europe, Latin America, North America and Australia. Perpetuating cronyism in sports is impacting negatively on the football industry as it demoralizes countries that are unfairly being ranked low, such as Ghana despite their consistent good performance both regionally and on the international stage. Solutions to Major Problems As indicated above, corruption is one of the biggest corporate governance issues facing FIFA. Fortunately, there are a number of strategies that FIFA can adopt to resolve the problem of corruption within the board. First, corruption being seen at FIFA has become a culture and this implies that, to resolve the problem, there is a need for a total culture change. In this respect, FIFA can begin by replacing the entire members of the board with a new board that is not tainted with corruption (Baker, 2015). In addition to changing the entire executive, FIFA will have to ensure that it promotes ethical leadership within the board. In this respect, the organization’s ethical stand should be made clear through its vision, missions and values and communicated to the entire staff of the organization as this would ensure a total culture change, thus helping address corruption (Fletcher, 1991). At the same time, the rampant corruption at FIFA can be addressed by instituting stronger control mechanisms to prevent corruption. It is notable that, as much as FIFA’s financial reporting is of high standards, there are some gaps that increase the risk of corruption. The gaps include the fact that the financial reporting only covers consolidated firms but not FIFA’s fields of activities. For example, it does not cover confederation and members associations because these do not fall under FIFA control. This is dangerous as it makes control over funds disbursed to member associations, individuals and organizations which are closer to officials and member associations a big issue. Therefore, to address this issue, FIFA needs to catalogue and monitor critical payments, and enhance its anti-corruption controls (Blitz, 2011). Additionally, FIFA can address corruption by setting term limit for its members. For instance, the federation can consider setting a maximum term limit for the president and the entire board at two terms, non-renewable as this would address deep-rooted corruption that has been a problem at the federation. Cronyism and favoritism are the other big problem facing FIFA that requires immediate action. There are a variety of measures that can be taken to address favoritism and cronyism at FIFA. First, the organization by ensuring that there is a culture change by promoting greater accountability and transparency as regards how FIFA conducts its operations (Friedman & Phillips, 2004). Whenever there is accountability and transparency, it would become difficult for any member of the board to engage in favoritism (Baker, 2015). Second, cronyism at the federation can be addressed by introducing independent/non-executive members on the federation’s Executive Committee. Favoritism can also be addressed by promoting greater transparency in FIFA’s election process. Promoting transparency in the election process has the advantage in that it would ensure that officials who become the executive committee members are elected in a transparent manner and this would extent even to how the official would execute their mandates (Donaldson & Preston, 1995). Conclusion FIFA has been a reputed sport governing body until recently that investigations found that there has been a systematic and deep-rooted corruption and cronyism perpetuated by the board of the organization and this have raised governance questions about the federation that is still grappling with these issues. In addition, the organization experiences corruption and cronyism, the federation experiences the problem of lack of term limit for executive members an issue that allows long-serving members to engage in unethical behaviors. The analysis also found that conflict of interest is a major issue at the federation. The problems at FIFA are particularly related to board behavior and culture, election and appointment process and board structure and purpose. Therefore, to address the governance problems highlighted, FIFA needs to ensure that there is culture change, set term limit for executive members, introduce non-executive committee members, institute anti-corruption controls, as well as promote accountability and transparency in the organization and election process. Recommendations Although there are a number of solutions that have been recommended for addressing governance issues at FIFA, the alternative solutions that needs to be implemented include, adopting a complete organizational culture change, replacing the entire board with new people, setting term limit for executive members, introducing non-executive members onto the executive committee and promoting greater accountability and transparency on the federation’s election process (Arnwine, 2002; Hoye & Cuskelly, 2007). Culture change will ensure that the culture of corruption and cronyism/favoritism is uprooted in the organization. Replacing the entire executive committee with new people will ensure that the organization does not continue with people with questionable character (Dulewicz & Herbert, 2004). Setting term limit will ensure that executive members do not overstay at the organization, thus minimizing incidences of conspiracy and cronyism. Introducing non-executive members to the executive committee will help minimize incidences of corruption and cronyism because their activities can easily be put on check. Finally, accountability and transparency in the election process will ensure that no member is corruptly elected to office as this is what promotes corruption at FIFA. Implementation In implementing the proposed solutions, a number of things will have to be done. First, to introduce a new culture change, FIFA’s board will have to come up with a new code of conduct for the company and this will have to be communicated to all members to ensure that it is followed. Replacement of the new board will be done by the interim board that will be created to undertake the process. The Congress will be required to set term limit for the members. An independent audit will be conducted periodically to ensure compliance. Cost Estimates and Timeline Description Cost (US$) Time Board Replacement 1000,000 July-Sep 2017 Introduction of non-executive members 200,000 Oct-Nov 2017 Culture Change 150,000 Dec-March 2018 Independent audit 200,000 Every 6 months References Arnwine, D. L. (2002). Effective governance: the roles and responsibilities of board members. Proc (Bayl Univ Med Cent), 15(1): 19–22. Baker, J. (2015). The FIFA scandal: Lessons for the corporate world. Retrieved from https://www.acfe.com/uploadedFiles/ACFE_Website/Content/asiapac/2015/presentations/cpp/Jarrod-Baker.pdf Blitz, R. (2011, Nov. 30). Fifa lacks corruption controls, says report. 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