A League of Extraordinary Gentlemen

Commentators like nothing more than to be presented with real life examples which neatly confirm the correctness of their commentaries. In this regard I am grateful to the board of directors at the Warriors Rugby League club for providing what looks like a highly illustrative governance case study.

The club has just been fined $430,000 Australian dollars and starts the season on minus four points for breaches of the NRL’s salary cap limits. The fine is damaging enough for a club which has struggled to produce profits. More damaging however might be the effects on attendances and sponsors. Furthermore, commentators note that the necessity to get under the overall salary cap next season, when combined with continuing contracts for headline players, will see fewer funds for investment in new players. All in all, this is a serious matter for the club. The chairman is quoted as saying he was bitterly disappointed when this was revealed to him and the board. What happened at board level to allow this situation to occur?

Media reports state that the board seldom met, that day to day affairs were overseen by the majority shareholder and its CEO appointee, that the NZRL minority shareholder appointed director did not attend board meetings and when he resigned, the NZRL did not appoint a replacement for 18 months.

What is one to make of all this from a governance standpoint? The most powerful moral is that good governance exists for a reason. It is a system of accountabilities, duties and responsibilities best accompanied by a culture of diligence, candour and trust that exists to make the achievement of a company’s purpose likelier in prospect and greater in fact. Good governance exists to make corporate failure less likely and corporate success, for shareholders and stakeholders, more probable. It is a powerful means to generate successful corporate ends, it is not an end in itself.

At the most basic level, an effective board turns up. It conducts meetings and addresses business issues. It appears that this did not occur, or at least not on a regular and effective basis.

A board exists also to hold a CEO accountable. This does not appear from reports to have happened. The Warriors CEO appears to have answered to a majority shareholder and seldom, if ever, to the board. A board with a sole focus on the health of its company ensures that a rigorous system of reporting is in place to monitor the key drivers in a business and the key risks facing the business. This does not appear to have happened. After the 2002 salary cap fine and points loss visited on the Bulldogs, an effective board would have ensured that the same could not happen to the Warriors. The Warrior’s CEO would have had to sign off on salary cap compliance to the board and the board could have checked itself, if it had any doubt. This does not appear to have happened.

One might ask the question here of how precisely the directors’ acts and omissions were in the best interests of the Warriors? Under the Companies Act directors must always act in good faith and in the best interests of the company. Directors of a partly owned subsidiary can act in the interests of a majority shareholder at the expense of the subsidiary itself, provided the subsidiary’s constitution allows it and other minority directors agree. If that was the case here, and we do not know this, it is nevertheless difficult to see how any shareholder, including the majority shareholder, benefited in this case. In normal circumstances a shareholder considering present and possible future losses to the club might consider legal proceedings against the directors and any person deemed to be a director by their actions. Whether that is possibility here is an unlikely question given that of the three shareholders in the club, it appears from reports that one liaised directly with the CEO, another seldom turned up and the third had and still has a seat on the board.

Diligence, rigorous oversight, effective team work and acting decisively when required are all characteristics of an effective board of directors. It appears that they have all been less than obvious in this case. The Warrior’s theme song is entitled “It’s a matter of faith”. Unfortunately in matters of governance, faith alone is not enough.