Chris Brooke, Independent Non-Executive Director, Link Asset Management Ltd, shares insights from his diverse experience across sectors and explores how corporate governance principles can be applied to startups and sporting organisations.

Given my involvement with a range of listed, startup and sporting organisations, I have been fortunate to experience corporate governance from a number of perspectives. In light of the more common focus upon corporate governance within large listed companies, it might be helpful to offer a few thoughts regarding some of the considerations associated with governance in both startup and sporting organisations.

A foundation for long-term success

For a startup, the key focus of activity normally relates to market testing, product fit, the securing of funding and the growth of the business. As a result, governance is potentially not the first priority for a founder when establishing a new company. However, there are considerable benefits associated with setting a number of key governance principles from the outset of the evolution of a small business.

These benefits include the establishment of a basic governance framework that can evolve with the business and which ensures there is a clear process associated with decision-making, compliance with regulations and oversight of day-to-day operations. It can also assist with the formulation and execution of a business plan in a more strategic manner, as it creates a framework whereby alternative options can be considered from a more structured and process-driven perspective, with the rationale behind decisions being more transparent to both internal and external parties, and a clear audit trail existing in terms of key business decisions reached by the founder or founders of the company.

Based on my experience, the creation of a small advisory board upon the establishment of a startup represents a very effective approach through which to introduce an element of governance, whilst at the same time avoiding the generation of a bureaucratic or unwieldy structure that impacts the ability of the startup to remain agile from a business perspective. This advisory board could comprise a small number of experienced professionals in the relevant field of the startup who are able not only to provide advice regarding issues associated with strategy, oversight and risk, but who are also in a position to assist with marketing, networking and the analysis of use cases. Through this approach, a founder can secure both advice regarding how best to address longer-term governance considerations and short-term added value associated with the growth of the business.

Streamlined governance for agile growth

It is important that any governance structure in the early phases of development of a company remains small and focused. I have also witnessed situations where founders have tried to involve a large number of advisers in order to support fund-raising initiatives – primarily to look more credible from a marketing perspective – which has then resulted in confusion, inefficiency and a significant investment of time by the founder with very little practical return. It is also important to consider whether seed investors should form part of the advisory board as, whilst they are aligned with the founder in terms of common interests, it may be more difficult for these individuals to remain objective from a governance perspective if there is any difference of opinion with the founder of the company.

If a company adopts basic governance principles from the outset – which allows some form of independent input to key business decisions and processes – it then becomes far easier for this framework to evolve into a more formal governance structure. As a result, as and when appropriate, the advisory board can evolve into a more formal board with a clear delegation of authority between this board and the management team associated with the business. The company can then also develop a clear process associated with the formal appointment of board members, identification of board-reserved matters, delegation of authority and compliance, with a view to implementing a clear distinction between non-executive and executive roles within the business. This will also help to demonstrate the board’s role in both protecting the interests of the shareholders and in operating the company on a professional basis in line with best practice. 

Governance in sports: navigating complex structures

In the sports sector, governance is complicated by the fact that there are normally multiple tiers of governance entities involved in any specific sport. For example, in the context of the game of rugby, there are multiple governing bodies, including World Rugby, Asia Rugby, the Sports Federation and Olympic Committee and the National Sports Association in the form of Hong Kong China Rugby. It is therefore critical that stakeholder engagement is managed very effectively in order to not only ensure compliance with global and regional regulations, but also to avoid confusion and misunderstandings in light of the multiple parties involved.

Given this situation – and the very traditional approach to governance that has historically been adopted in the sports sector – there is now a move to adopt more streamlined and efficient processes, as well as to ensure that best practices are being adopted within governance entities overseeing sporting activity. This has involved the ongoing evolution of boards to become more akin to corporate boards, with a greater focus on strategy, oversight and risk management, as against operational and administrative activities. It has also included the adoption of initiatives such as independent directors, assessments of board performance via annual evaluations, and a more formal approach to the induction and training of directors.

Practical solutions for smaller sports organisations

Having said this, for smaller and less well funded sports organisations, it is not always possible to adopt some of these best practices due to financial and resourcing constraints. In this sense, there is some similarity between the approach that these organisations need to adopt and those of a startup, in that the structure needs to be kept relatively simple and agile, in order to allow decision-making processes to be efficient and to ensure that there is full transparency in relation to the way in which decisions are reached. This is particularly the case given that many of the board members of these organisations could be volunteers and not all will be familiar with formal governance practices.

Under such circumstances, it may also be beneficial to adopt a streamlined governance structure that focuses upon the key elements of governance, including strategy, oversight, financial risk management and athlete selection. This does not mean that the quality of governance should be any less than that of a larger organisation in terms of compliance and professional conduct, but it may be the case that certain practices are adopted to ascertain that they are effective and bring real value to the organisation. There may also be the opportunity for more established national sports associations to offer support in relation to best practice, resources and content, as well as via the sharing of practical experience.

Building governance capacity in Hong Kong’s sports sector

Given the recent policy objectives announced by the government of Hong Kong to develop a more professional sports sector and to increase the number of major events in the city, it is vital that national sports associations continue to develop their governance capabilities. In order for Hong Kong to truly emerge as an ‘events-driven’ economy, there will also need to be a focus upon both capacity building and the attraction of relevant talent and knowledge to the sector. Without such an initiative, it may be challenging to achieve some of the policy objectives that have been identified, as it will be imperative that governing bodies in the sports sector have the ability to guarantee that events held in Hong Kong are professionally delivered and executed. The relationships between governing bodies and event promoters will also need to be enhanced to confirm there is full alignment in terms of the way in which events are governed and the way in which they are delivered to the benefit of Hong Kong.

In summary, governance is critical in relation to both startups and sporting organisations as it provides the foundation for the long-term resilience and sustainability of an organisation. If activities are conducted in an ad hoc and piecemeal fashion, this can result in non-compliance with regulations, inefficiencies, confusion and misunderstandings. The adoption of basic governance principles, even if relatively simplistic at the outset, can help to address these challenges and ensure that an organisation can evolve and grow in a structured and successful manner.

Chris Brooke, Independent Non-Executive Director

Link Asset Management Ltd

In addition to his role at Link Asset Management, Chris is also a Non- Executive Director of IBI Group Holdings Ltd, Chairman of Hong Kong China Rugby, and a member of the advisory boards of Kerb Holdings Co Pty Ltd, VationX and Peace Inc.