CORPORATE GOVERNANCE IN THE AUSTRALIAN FOOTBALL LEAGUE: A CRITICAL EVALUATION

Julie A. Foreman Bachelor of Business (Accounting) SIT Master of Business Administration (Melb)

A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy

June 2006

ABSTRACT
Corporate governance has received considerable attention from academics, regulators and the wider business community for several years. This attention intensified following significant corporate failures such as Enron and HIH Insurance. These failures, as well as general perceptions of lack of effective oversight, lead to increased regulation and a heightened awareness of the role of the board of directors and their responsibilities.

This study uses the Australian Football League (AFL) as a means of exploring several themes emerging from the nonprofit literature including the increasingly deliberate recruitment of volunteer boards and the desire for corporate expertise. This study examines the extent to which these themes are present in the AFL clubs and identifies any idiosyncratic governance processes of those clubs. It further investigates the impact these governance attributes and processes have on club performance.

The objectives of this study were to firstly, identify governance practices in AFL clubs, secondly, determine club performance, thirdly, examine potential links between governance and performance, and finally, to identify common governance features of successful clubs. The field work involved semi-structured interviews with randomly selected directors from each AFL club and a comprehensive document analysis. A grounded theory methodology was employed in the study and the results of the field work, together with the literature, were used to formulate a governance-performance framework to facilitate data analysis.

The results of the study were multi-faceted. The first set of results indicated a high level of awareness of governance by AFL club directors, and provided detailed insights into board processes at each AFL club. The identified governance practices were compared to the literature in an attempt to identify a best practice. The second set of results presented club performance over a range of measures utilising theoretically informed frameworks to determine effective or ineffective clubs.

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Finally, governance attributes, common to effective and ineffective clubs, were identified.

This study contributed to the body of knowledge in several ways. It is the first major study to identify detailed governance processes of AFL clubs and significantly, it explored the link between governance practice and club performance. These outcomes will inform both future academic enquiry and provide guidance for practitioners. The study developed a robust framework for the evaluation of governance and presented and populated innovative measures of performance. Finally, the study provided significant scope for further examination of detailed aspects of governance.

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STUDENT DECLARATION
I, Julie Foreman, declare that the PhD thesis entitled Corporate Governance in the Australian Football League: A critical evaluation is no more than 100,000 words in length exclusive of tables, figures, appendices, references and footnotes. This thesis contains no material that has been submitted previously in whole or part, for the award of any other academic degree or diploma. Except where otherwise indicated, this thesis is my own work.

Signed:

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TABLE OF CONTENTS
Page Number Abstract Student Declaration Table of Contents List of Tables List of Figures Appendices Acknowledgement ii iv v x xii xiii iv

CHAPTER 1 INTRODUCTION Background Definitions of Governance Governance and Performance Business Sector Nonprofit and Sport Sectors Governance in the AFL Governance as a problem for AFL Clubs Objectives of the thesis Research method Organisation of the study 1 2 3 3 5 7 10 13 14 15

CHAPTER 2 LITERATURE REVIEW PART ONE: BUSINESS AND NONPROFIT GOVERNANCE Theoretical Perspectives of Corporate Governance Summary Governance in the Business Sector Effective Governance Governance in Nonprofit Organisations Governance of Business versus Nonprofit Nonprofit Governance Models of Nonprofit Governance Structural-Process Models of Governance 18 24 25 28 28 28 30 30 41

Integrated Models of Governance Summary CHAPTER 3 LITERATURE REVIEW PART TWO: SPORT GOVERNANCE Corporatisation of Sport Challenges for Sport Governance Sport Governance Governance in Amateur Sport Organisations Governance Principles in Sport Sport Governance Model Summary Governance Issues in Professional Sports Rugby Union Association Football (Soccer) Australian Football AFL Club Management and Governance Summary

47 60

65 68 73 74 85 86 86 88 89 93 102 106 110

CHAPTER 4 LITERATURE REVIEW PART THREE: ORGANISATIONAL PERFORMANCE Theoretical Perspectives of Organisational Effectiveness Goal Attainment Approach The Systems Approach Strategic Constituencies Approach Competing Values Approach Nonprofit Governance links to Performance Board Performance Linking Board and Organisational Performance Summary Models of Organisational Performance Evolution of Performance Models Alternative Multi-dimensional Models Performance Based Compensation 115 116 116 118 119 122 122 126 132 134 134 137 142

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Summary Sport Organisation Performance Resource Based View Multiple Constituency Approach Competing Values Approach External Performance Reviews Summary CHAPTER 5 METHODOLOGY Qualitative Research Grounded Theory Research Design Data Collection Data Ordering Data Analysis Literature Comparison Operationalisation of the Governance-Performance Framework Board Characteristics Board Processes Outcomes Evaluation of the Framework

144 145 147 150 151 152 154

158 159 162 163 166 166 172 172 173 173 173 174

CHAPTER 6 RESULTS: CLUB GOVERNANCE ATTRIBUTES Review of Governance-Performance Framework Part One: Board Characteristics Section 1:Legal Frameworks Section 2: Presence of Skills Section 3: Recruitment Processes Section 4: Board Demography Summary Part Two: Board Processes Section 1: Director Effort Section 2: Use of knowledge and skills 176 177 177 178 182 186 188 189 189 192

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Section 3: Board Debate and Cohesiveness Summary Part Three: Board Tasks Role of the Board Summary Summary

195 209 210 211 215 215

CHAPTER 7 RESULTS: CLUB PERFORMANCE Club Context AFL Club Performance: Goal Attainment Approach Off Field Performance On Field Performance Comparative Club Performance Discussion AFL Club Effectiveness: Goal Attainment Approach AFL Club Performance: Strategic Constituency Approach Balanced Scorecard Club Balanced Scorecards Relative Club Performance Performance Ranking Analysis Overall Effectiveness Rating Effectiveness: Strategic Constituency Approach Dual Effectiveness Ratings Summary 218 221 221 223 226 229 232 234 235 241 254 254 259 260 263 266

CHAPTER 8 GOVERNANCE-PERFORMANCE LINKS Governance Attributes of Highly Effective and Ineffective Clubs Board Characteristics Board Processes Board Tasks Common Governance Attributes Concluding Comments Implications for Theory 268 268 270 272 273 277 278

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Implications for Governance Models and Frames Implications for Practice Governance Guidelines Limitations Implications for further research AFL Extension of Governance-performance Framework Contribution of the Study

281 290 292 296 298 298 300 301

REFERENCES APPENDICES

304 324

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LIST OF TABLES
1.1 2.1 2.2 2.3 2.4 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 4.1 4.2 4.3 4.4 5.1 5.2 5.3 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 AFL Performance Results Organisational Theory Perspectives Differences between Corporates and Nonprofits Roles and Responsibilities of Cupped Hands Model Forbes and Milliken: Hypothesised Relationship Professional Sports Franchise Indeterminate Sports Franchise Trends in New Zealand Sports environment Cohesion Factors Summary of Literature Stakeholder Issues for Rugby Union Governance Compliance of Listed Premier League Clubs Compliance of all listed companies Governance Compliance of Listed Premier League Clubs versus all Listed Companies Club Key Success Factors AFL Clubs categorised on performance Strategic Constituents Approach Competing Values Approach Organisational Effectiveness Theory Management and Program Performance Grounded Theory Quality Criteria The Process of Building Grounded Theory Comparison of Governance Models and Respondent Data AFL Clubs Legal Frameworks Respondent Recruitment Method Respondent Prior Involvement Board Nomination Process Respondent Demography Comparative Structures Board Meeting Attendance Board Sub-committees Role of the AFL Club Board Role of the AFL Club Off-Field Performance Goals On-Field Performance Goals Club Performance versus Self-Defined Performance Goals AFL Club Effectiveness Rating: Goal Attainment Approach Strategic Constituents Approach AFL Club Balanced Scorecard Relative Ranking: Financial Performance Relative Ranking: Customer Relative Ranking: Internal Business Process Relative Ranking: Sustainability Effectiveness Criteria: Strategic Constituency Approach AFL Club Effectiveness: Strategic Constituency Approach AFL Club Effectiveness Rating Quartile Rankings of Effectiveness 8 23 29 50 59 66 67 70 76 88 91 100 101 102 104 105 118 120 121 140 160 161 170 178 182 184 185 187 188 191 194 212 220 222 224 227 233 236 240 256 257 258 259 261 262 263 265

8.1 8.2 8.3

Common Governance Attributes: Effective and Ineffective Clubs AFL Club Archetype Features Governance Guidelines

275 277 296

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LIST OF FIGURES
1.1 2.1 2.2 2.3 2.4 2.5 2.6 3.1 4.1 4.2 4.3 5.1 5.2 5.3 8.1 Representative Governance Structure of an AFL Club Hierarchy of Nonprofit Governance Literature Cupped Hands Model Miller-Milleson Governance Model Relationship between Governance, Board Performance, and Organisational Performance Board Intellectual Capital Framework A Model of Board Processes and their impacts on Board Effectiveness Roles of the Amateur Sports Board Performance-Effectiveness Relationship The Balanced Scorecard Mission, Money, and Merit Excerpt from Interview Transcript Development of sub-codes Governance-Performance Framework Extension to Governance-Performance Framework 10 42 48 52 53 55 59 80 115 137 139 166 167 171 301

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APPENDICES
1 2 3 4 5 6 7 8 9 Letter of Introduction Request for Interview Club Respondent Data Respondent Semi-Structured Interview Questionnaire Respondent Consent Form Document Analysis List Final Codes Definition of Performance Measures Ethics Approval 324 326 329 331 333 336 338 341 343

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ACKNOWLEDGEMENT
In an undertaking of this magnitude, there are several people without whom this thesis could not have been completed. It has been in many ways a labour of love, and a way to make a contribution to the sport for which I have a passion, and I am grateful to have had the opportunity. My first and obvious thanks must go to my supervisor, Associate Professor Bob Stewart, who was happy to accept me as a student and while always encouraging, has been invaluable in the latter stages of this study. His responsiveness was impressive and I am so grateful for his insights and positive reinforcement.

I owe a debt of gratitude to Professor Louise Kloot, Mr. Keith Turpie and the Faculty of Business and Enterprise at Swinburne University for their ongoing support and their approval of a period of six months study leave, without which this thesis would be still be limping along. Their support at a time of serious understaffing was a demonstration of the collegial atmosphere within our discipline and I am most appreciative. Within the Faculty, my colleagues have been interested in my study but I would like to make special mention of Associate Professor Irene Tempone who has given great support and encouragement.

To my friends and family, particularly Judith, you have lived a great deal of this thesis over recent times, and I am so lucky to have had your support.

To the respondents from the clubs, who surprised me with their enthusiasm and generosity in giving their time, I hope that this study will be of interest to you and will hopefully have some impact on governance practice. Finally, my heartfelt thanks to: Maria, Rachel, Deb, Di, Joanne, Libby, Anna, Julie, Linda, Tracey, Sally, Lyn, Melissa, Amanda, Chris, and Rebecca, the executive assistants from each of the clubs, I thank you so much for your facilitation of the field work and your interest and good wishes.

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