Clause 20 - Mandatory licence conditions

Football Governance Bill – in a Public Bill Committee am 10:00 am ar 21 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Virendra Sharma Virendra Sharma Llafur, Ealing, Southall

With this it will be convenient to discuss the following:

Amendment 19, in schedule 5, page 95, line 36, at end insert—

“8A Where a club’s fans have established legally registered Supporters Trusts, clubs must have regard to whether these bodies should become the appropriate representation in its fan consultation process under paragraph (8).” Amendment 7, in schedule 5, page 95, line 40, at end insert—

“(3) Persons selected as representing the views of the club’s fans should be appointed through a process that is democratic and independent of club control.

(4) Where the club’s fans have established a legally registered Supporters Trust, that body should have appropriate representation in the club’s consultation processes.” Schedule 5.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

Clause 20 requires the regulator to attach the four mandatory licence conditions to the provisional and full operating licences of all licensed clubs. These are basic and fundamental requirements of the whole regime, so apply to all licensed clubs, regardless of their individual circumstances. The mandatory conditions vary in what they attempt to achieve, and are set out in schedule 5, which I will discuss after amendments 19 and 7.

In our view the amendments risk undermining the key intention to implement a proportional and flexible system for fan engagement. Mandating specific forms of fan representation may lead to clubs being required to implement an entirely new way of engaging with their fans, even where existing frameworks are working well. Should it be deemed necessary, the regulator already has the power, established in schedule 5, to specify the means by which clubs are required to consult those representing the views of fans, which may include how a representative group of fans should be constituted. The regulator may specifically choose to require a club to implement a mechanism for the independent selection of fan representatives. On that basis, I hope that Opposition Members will not press the amendments.

The conditions set out in schedule 5 are related to core areas of financial management, corporate governance, fan engagement and reporting, and will form the foundations for the overall improved standards and sustainability of a club. Long-term financial sustainability is at the heart of the Bill, and is vital to make clubs more resilient to financial difficulties. The financial plan condition allows the regulator to understand the risk profile of the club and its plans for mitigating risks if necessary. To do this, the regulator needs detailed financial information about clubs. This allows it to establish the risk profile of a club and then, if necessary, to make a considered, proportionate intervention to reduce the risk of that club getting into financial difficulty.

As well as allowing the regulator to assess the risk profile of a club, a detailed financial plan will help clubs to establish their funding requirements over a period of time. Clubs need to have sufficient funds, or access to such funds, to support their intended level of spending. Clubs will need to model their financial plan against different scenarios and over different periods. They will also need appropriate contingency plans that they can enact if their finances worsen, in order to get them back to a sustainable state. This is to ensure that clubs can be ambitious and, equally, to prevent the failure to achieve those ambitions from putting the club’s long-term financial sustainability at risk.

The process of financial planning, calibrating the downside risk and putting in place plans to mitigate it is basic and is common practice among well-run companies in other industries. It is also true that well-run football clubs already do it, and the process will go a long way to help those that currently do not to achieve long-term financial sustainability. If, having considered all the information in the financial plan, the regulator considers that the club does not meet the financial threshold requirement outlined in schedule 4, it can use discretionary licence conditions—as detailed in clause 22, which we will discuss shortly—to further mitigate risk and allow the club to meet the financial resource threshold requirement.

A key tenet of a well-run business is good corporate governance, and the regulator will instil that into all licensed football clubs through the corporate governance statement condition. Corporate governance standards in the industry need improving. Many clubs lack even the most basic good governance arrangements, such as a proper functioning board. In consultation with the FA and other relevant persons representing those likely to be affected, the regulator will prepare and publish a code of practice about the corporate governance of regulated football clubs. Through that condition, licensed clubs will be required to submit a statement detailing how they currently apply the code of practice.

Given the rich variety of clubs and fan bases, good supporter consultation will look different from one club to another. The fan consultation condition has been designed to reflect that, and will empower the regulator to impose specific requirements on the form and frequency of supporter consultation where necessary. The mandatory licence condition works in tandem with the fan engagement threshold requirement in schedule 4. The mandatory licence condition will be the minimum requirement for all clubs. All clubs must regularly consult a representative group of fans on relevant matters listed in the Bill. The regulator can, if necessary, specify how that is to be met for a particular club—for instance, how a club selects the representative group of fans. That relates to the point that the hon. Member for Sheffield South East made.

The threshold requirement then empowers the regulator to go further on fan engagement if needed. It allows the regulator to impose discretionary licence conditions on clubs relating to fan consultation in order to meet the fan engagement threshold requirement. The annual declaration condition requires a club to submit an annual declaration to the regulator that sets out all the notifications that the club has made or should have made to the regulator in the preceding 12 months. Broadly speaking, the notifications relate to changes in circumstances affecting the club that the regulator needs to know about in order to regulate effectively. That includes any non-compliance relating to the club. That will create a formal touchpoint each year in lieu of any licence renewal. The emphasis is put on clubs to declare all relevant changes of circumstances and compliance against which they can be held accountable.

Photo of Clive Betts Clive Betts Chair, Levelling Up, Housing and Communities Committee, Chair, Levelling Up, Housing and Communities Committee, Chairman of the House of Commons Members' Fund 10:15, 21 Mai 2024

On corporate governance, I do not want to name names, but this relates to a club not too far from me. Is the Minister saying that in the future it will not be appropriate to regulate the corporate governance of a club if it merely has an owner who is the chairman, and no board of directors to run the club?

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

The hon. Gentleman makes a really important point, which is why one of the mandatory conditions is good corporate governance. Some clubs do that extremely well, and he gives an example of one that may not be doing so well. For it to get a licence, the regulator would expect a minimum level of corporate governance.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport)

Clause 20 and schedule 5 provide us with the building blocks of a licensing regime. The Minister set out the mandatory licence conditions that all clubs must comply with in order to obtain a provisional or full licence. That will ensure that base-level requirements are fulfilled on key areas such as finances, corporate governance and fan engagement. I will speak briefly to each area in turn, and then address the amendments.

The first condition relates to financial plans. I will not spend too much time on it as we have already discussed financial resources. However, I believe that the requirement to submit a financial plan would be fundamental for clubs wanting to exercise best practice.

The second requirement is on corporate governance. As we just discussed, good corporate governance can help to deliver better business outcomes, improve the efficiency of decision making and demonstrate to stakeholders that a club is well managed, to the benefit of both fans and investors. Furthermore, as the Government’s White Paper says, poor governance can exacerbate financial issues, allowing reckless decisions to be made without challenge or scrutiny. Many clubs already engage in good corporate governance, and for those that are not, the introduction of requirements should genuinely help to move them towards best practice.

However, I have some questions about the content of the corporate governance code of practice, which will be published by the regulator and reported against by clubs. In particular, Fair Game and Kick It Out have questioned whether issues such as equality, diversity and inclusion will be included in the code. Indeed, the Government chose not to pick up the recommendation of the fan-led review to mandate EDI action plans through the licence regime, pointing instead towards enhanced industry assessments in that area.

I understand the need to ensure that existing structures that are working well are not disrupted, and to give the regulator a well-defined scope. Given the explicit focus that the regulator will have on good governance, however, it seems slightly odd to divorce the concept from the issue of EDI. The fan-led review said:

“Aside from a clear moral case, improving diversity is also a key aspect of driving better business decisions by football clubs. Diverse companies perform better”.

A football that welcomes everyone, then, is a football in which clubs have the best possible chance of success. But change is needed at almost every level for that to happen.

Kick It Out’s reporting statistics from last season show that it received a record 1,007 reports of discriminatory behaviour across the professional game, including a 400% increase in reports of sexism and misogyny. Meanwhile, in 2019, the law firm Farrer & Co found that across all professional football clubs only 7% of board directors were female. Just one club met the 30% target set for other industries, and only 7% have a woman in a leadership position on the board. Work must be done to address the problem across the board. I am keen to hear from the Minister about how whether issues such as EDI will form part of the governance code will ultimately be decided, and whether he has a view on whether they should.

I have spoken about fan consultation in detail during our discussions on schedule 4, so I will save repeating how important it is. However, I would like to raise some further concerns. Namely, I am disappointed that the Bill makes no provisions regarding supporters’ trusts, as noted by my amendment 19 and amendment 7 tabled by my hon. Friend the Member for Liverpool, West Derby.

At the time of the fan-led review, 73 clubs had a community benefit society in the form of a supporters’ trust. Community benefit societies are incorporated co-operatives that conduct business for the benefit of their community. They must follow certain rules, including operating on a democratic basis and ensuring that any profits gained by a trust can only be reinvested into the club or returned to the community. Those minimum standards mean that CBSs in the form of supporters’ trusts operate with a broad level of consistency and reliability. Many of them have a long legacy of connecting with the local area, liaising with their club and organising on behalf of fans. Many trusts should therefore be viewed as an asset to the community that clubs can learn from and engage with positively. We saw that at first hand in our evidence sessions, with the insight that Action for Albion, Supporters’ Trust At Reading and Arsenal Supporters’ Trust brought us in respect of their clubs and the view of their communities.

I understand why the Bill has sought to ensure that fan engagement measures are not a one-size-fits-all. However, where trusts are established, I believe that clubs should consider them when forming their consultation processes. Amendment 19 would ensure that where a club’s fans have established a legally registered supporters’ trust, that body is considered for representation in the club’s fan consultation process. Clubs would not be bound by any hard-and-fast rules, but would be encouraged to consider the benefits of engaging relevant existing trusts.

That brings me to the broader issue of how fans will be selected for consultation. Amendment 7 suggests that fans are given a democratic mandate if they are to be consulted by the club regularly. That way they would have the backing of fellow fans, helping to avoid scenarios in which the fans are seen as a mouthpiece for the club directed at fans, rather than the other way round. I am keen to hear how the Minister thinks we can ensure that fans are both selected and treated fairly. Will there be standards or guidance on that specific issue?

Finally, I am pleased to touch on the annual declaration condition. Given that there is no requirement for licences to be renewed, it is right that there is a touchpoint for clubs with the regulator to ensure that everything is in order, but I have one brief question. The schedule outlines that the annual declaration must contain a summary of any “material change” at the club over the year. That phrase is used 11 times throughout the Bill, but its definition is not clearly set out. Will the Minister provide a working definition today, or write to me with one?

Overall, I am broadly happy with the contents of the clause and schedule, albeit with a few questions that I would like answering on governance code and on supporter involvement.

Photo of Rachel Hopkins Rachel Hopkins Llafur, Luton South

It is a pleasure to speak in this debate on an important Bill. I would like clarification on a few points with regard to schedule 5, particularly—following the excellent remarks made by the shadow Minister, with which I wholeheartedly agree—paragraph 7(4), which states:

“Before publishing a code of practice or any alterations to the code, the IFR must consult…the Football Association, and…other such persons as appear to the IFR to be representative of persons likely to be affected by the code.”

Can I seek assurances from the Minister that fans and fans’ representative groups will be included as people who are likely to be affected by the code? They will take a deep interest in the corporate governance of their clubs, which is why we are here with this piece of legislation. Similarly, I would like to press for clarifications on reporting on equality and diversity and inclusion matters, which are a really important aspect of good corporate governance. Once again, I add my support to the remarks made by the shadow Minister.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

I wish to support the excellent remarks by the shadow Minister, who gave a very comprehensive overview of why we need amendments to the Bill. There is a real worry, as I have outlined, that the clubs will seek to dilute the power of the supporter’s voice by filling the boards full of stooges, shall we say. We need some sort of system to ensure that boards are appointed through a democratic and independent process. Supporters trusts are a ready-made option. There are over 130 of them in the football world. They are democratic, independent organisations that have the trust of the wider supporter base, mainly. It would be foolish not to utilise that expertise and the system that is already in place.

If a club has not got a supporters trust we need to have some sort of oversight to ensure there are independent fan voices holding clubs to account, which will be a crucial part of the independent football regulator. We have got to ensure that those boards are fit for purpose and, as I said, not diluted by clubs that want to disempower supporters and supporter voices.

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

I want to repeat the point I made on Second Reading about the corporate governance statement, which is part of the licensing condition. I think this is incredibly important—indeed, it will be important for the regulator, because it is part of the conditions of issuing the licence.

My right hon. Friend the Minister has said that the regulator will issue of a code of practice. It is important that we are clear what, in passing this legislation, Parliament intends this code of practice should contain. Competition organisers already require clubs to demonstrate many of the requirements discussed in this debate. For example, the Premier League’s own governance statement says that the Premier League handbook acts as the rulebook for all member clubs, which includes the clubs having to demonstrate

“minimum standards of governance and operation on a wide range of areas, from safeguarding and supporter relations to broadcaster access, stadium infrastructure and club academies”.

By asking for this sort of information, the regulator would merely be repeating requests which the clubs have to fulfil for their competition organisers anyway. I agree with the evidence we received from Kick It Out, which said that it would be extraordinary that such a corporate governance statement would not include the club’s policies on equality, diversity and inclusion. I do not think we would necessarily be asking for the clubs to do more work than they do already. We would simply be asking that their own policies in these areas be clearly set out in the corporate governance statement they give to the regulator. That would mean that the regulator would have the power to hold the clubs to account for those policies. If necessary, the regulator could even audit or investigate clubs if it felt they were in breach of those conditions, which would almost certainly be a breach not only of the pledges they have made to the regulator but of the rules of the competitions within which they play.

Photo of Tracey Crouch Tracey Crouch Ceidwadwyr, Chatham and Aylesford

Will my hon. Friend clarify something? Is he saying is that there is no need to change any part of the Bill? This needs to be reflected in the intent of the corporate governance statement, and some of these things can be included without amendment to the legislation?

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

My hon. Friend makes a very important point. That is exactly correct. I think it is a question of being clear as to what the corporate governance statement should include, either in the Bill or at least in the explanatory notes. The explanatory notes already say that a description of all the operations of all the elements of the club should be included; it would be extraordinary if we thought that that did not include a statement on equality, diversity and inclusion, or on the welfare of the players. This has been requested throughout the passage of the Bill. In particular, we have heard that at present there is no requirement for an EDI statement, nor are players mentioned at all. As my hon. Friend the Member for Chatham and Aylesford says, without changing the structure of the Bill, or maybe even its wording Bill, we could make it really clear that these things are included through these important corporate governance statements.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities) 10:30, 21 Mai 2024

I thank hon. Members for their contributions. I agree with the hon. Member for Barnsley East that the guidance on corporate governance should be really helpful to clubs that are perhaps struggling with that, and puts it on a statutory footing. As my hon. Friend the Member for Folkestone and Hythe quite rightly points out, many of these clubs, by obligation of the leagues they are in, already have to provide a corporate governance code. However, as we go further down the pyramid, there are varying degrees of quality for that corporate governance code. That is why having a statutory requirement will, we hope, improve those standards. We recognise that some of those codes work well, but my hon. Friend is right: this will enable the regulator to hold those clubs to account for the way in which they are implementing those corporate governance codes.

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

My right hon. Friend makes a good point. The requirements will differ at different levels of the pyramid. It would be wrong for us to require a club in League Two to meet the same corporate governance standards as a Premier League club. However, the provision could be worded to say that the corporate governance statements must set out how the clubs meet all the requirements they are expected to meet by the competition organisers for the competition in which they play.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

I expect that clubs would have to work closely with the leagues as well.

On the issue of EDI, I hope that it is clear this is an area that I personally feel very passionate about. We have made sure that the Bill and the regulator are tightly focused on the finances of clubs, the sustainability of the pyramid and fan engagement. We recognise the importance of equality, particularly, as the hon. Member for Barnsley East mentioned, in light of unacceptable abuses. I regularly engage with the Football Association and the leagues to put pressure on them and to work with them to do more to make improvements in this area. We also work with organisations such as Sport England and UK Sport, because it is not just football where this is an issue.

Photo of Tracey Crouch Tracey Crouch Ceidwadwyr, Chatham and Aylesford

On the sports governance code, which I may have had a hand in helping to design and shape many years ago, is the Minister saying that when looking at the issue of corporate governance, he will draw on the experience of the sports governance code, which has specific EDI aspect it, or is it more about looking at the UK corporate governance code, which has elements of that but is certainly not as strong as the sports governance code?

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

My hon. Friend makes a really important point, which I was just about to come on to. I am glad that she did so—it was a perfect introduction. She is absolutely right. The regulator can consider all of those, and I would expect that it would do so. It can draw on established principles such as, as she rightly points out, the code for sports governance and the UK corporate governance code. It can also draw on the Wates principles on corporate governance for large private companies, and it can also draw on the regulator’s own state-of-the-game reports. There is a whole host of information which I hope will address those issues.

I can confirm to the hon. Lady for Luton South that the phrase, “likely to be affected”, includes fans, so I expect that they will be consulted.

Photo of Damian Collins Damian Collins Chair, Draft Online Safety Bill (Joint Committee), Chair, Draft Online Safety Bill (Joint Committee)

My right hon. Friend’s response is helpful. If the Government are not willing to amend the Bill, and do not feel the need to do so, would he consider writing to the Committee, setting out the guidance which he would give to the regulator when preparing the codes of practice on what the corporate governance code should include?

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.