Nil Satis Nisi Optimum, the governance and cultural changes required for it to become a reality at Everton
"Corporate culture eats strategy for breakfast". A look at the governance and cultural changes required at Everton for NSNO to ever become a reality once more:
Following on from the 6 December episode of Talking the Blues podcast, I want to look further at Everton’s board from two perspectives: (i) Governance and (ii) Corporate culture.
As will be well known by most Evertonians, Everton’s board of directors comprises of four individuals – Bill Kenwright, Executive Chairman; Denise Barrett-Baxendale, Chief Executive Officer; Marcel Brands, Director of Football; and Sasha Ryazantsev, Chief Finance and Commercial Officer.
Whilst not unique in solely comprising of executives, ie, those that derive some or all of their income from their position as board members and executive roles within the club, the absence of independent directors (ie, those with no financial interest or previous association with the club) can be viewed as not being best practice from a governance perspective.
When is a board not a board?
Answer, when it has no oversight function. When a board is made entirely of executives, then it ceases to be a board other than in name. It becomes a management committee, nothing more. Oversight at board level is (among other things) monitoring the actions of the executives in executing the wishes of the board. If the board and the executive are one and the same, then how do they monitor themselves? Simply put, they cannot.
I ask the question because governance generally is an issue in football, but particularly, as I will argue, at Everton Football Club.
Governance rests on three dimensions: authority, decision-making, and accountability. In other words, who makes decisions, what processes are involved in making the decisions, and how account is rendered thereafter.
Corporate governance as a concept includes the separation of roles and responsibilities, communication channels, and behaviour between shareholders, board(s) of directors (both executives and non-executives) and the CEO. It is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.
The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business, and reporting to shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and it is to be distinguished from the day-to-day operational management of the company by full-time executives.
The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.
Given that Farhad Moshiri has a 78% majority shareholding, he effectively determines the composition of the board, the governance structure and governance actions. The minority shareholders have the same rights to put forward their views on board composition and governance, but ultimately will only ever be subject to Moshiri’s approval. However, I believe the question needs to be asked as to whether at Everton, governance is as strong as it ought to be?
Why does corporate governance matter?
It matters because there is an abundance of empirical evidence to suggest strong correlation between governance and performance.
In an analysis (2019) of academic studies over a period of 16 years on this subject, Grant Thornton found “that companies with strong governance financially outperform those with weak governance”.
Furthermore, Grant Thornton found that strong governance supports the board and the organisation in its decision making in six key areas, namely:
- Business Model Clarity and Connectivity
- Culture and Value Integration
- Risk Management
- Internal Controls
- Board Effectiveness
- Succession Planning
Even those with only scant knowledge of Everton’s internal workings can see that improvement in all of those areas would generate key benefits to the club. Let’s remember that the club exists to generate the resources to build the best possible football team, coach and maintain the team, and to provide the facilities in which fans can watch their team play and ultimately win trophies. Over the last 5 years, we have grown used to being funded by Moshiri’s generosity as a shareholder and his connection with USM acting as an increasingly important sponsor.
Unlike the so-called “big six”, we have not developed and therefore palpably failed to build a sustainable business model that meets the running costs of the organisation, and provides the capital to invest in the team’s future development. The accounts for the year to June 2020 will yet again produce a significant and unsustainable loss as costs far outstrip income and a heavily reliance on shareholder debt and connected party sponsorship.
The board, comprising of executives, have no oversight in this regard. Without the addition of independent directors to question the actions of the executive (ie the board) then it’s difficult to see how this self-policing of the organisation and its performance can realistically result in improved performance, sustainability, growth and ultimately success on the pitch.
Ideally, from my perspective, apart from changes in the executive team (Chairman and CEO), I would like to see the addition of two independent directors – one with extensive commercial experience to oversee the business side of the organisation, and one with extensive football experience to oversee Marcel Brands and the running of the football club itself.
In addition, ideally a non-executive Chairman, both to provide leadership within and representation externally, would significantly improve the performance of the company and therefore the club. It would hugely improve the corporate governance, oversight and appearance of the club.
Corporate Culture
All of which leads nicely into corporate culture. The culture of an organisation is intrinsically linked to its leadership. Culture is not something just outsourced to the human resources department. It should never be a secondary concern for any business – culture is the beating heart of an organisation from which all strategies, decisions and the effectiveness of executions derive. Culture is highly powerful and dynamic. As someone once said “corporate culture eats strategy for breakfast”.
One of the most important aspects of corporate culture is how enduring it can be, especially when the leadership of an organisation has remained constant and/or insufficient attention has been given to monitoring culture and making the necessary changes if the culture doesn’t meet the objectives of the business. The academic Benjamin Schneider introduced the attraction-selection-attrition model which says people are drawn to organisations with similar characteristics to their own. Organisations choose people who “fit in” and those that don’t tend to leave. Thus a social pattern is created which may be resistant to change. It can materially affect strategic thinking and the execution of such.
NSNO as a corporate culture?
It’s my belief that the culture across the club has to change in order to become successful once more. That doesn’t mean we need to dilute some of the more attractive values associated with Everton Football Club, but it does mean we have to become more single minded, more focused on success on and off the pitch. As I said on the podcast, the culture across the club has to become re-aligned with the principles of NSNO. We have to excel at everything we do. I say 're-aligned' because there have been periods in our history when the club has absolutely adhered to “Only the best is good enough”.
Interestingly, and I believe backing up the intrinsic link between culture and leadership, our periods of success, dominance and influence in football have been driven by the outstanding leadership of an individual or individuals. Our early dominance of English football, both on and off the pitch, can be attributed to the excellence and leadership of Will Cuff; our great side of the late 1920s and early'30s through the greatest English goalscorer in history, WR Dean; our dominance through the '60s driven by the obsessive excellence of John Moores; and the short-lived dominance driven by the brilliant man-management of Howard Kendall in the '80s. Each period was defined by individuals who truly understood the meaning of NSNO (even though Cuff and Dean predate the motto).
The question is: Who takes us to the next period of achievement and alignment with what should always be our corporate and club culture? Clearly Ancelotti has the curriculum vitae to demonstrate he has and can operate at such rarefied levels. Brands too has a track record that suggests, in the right circumstances, he can create the footballing infrastructure (scouting, recruiting, training, sports science, medicine, player trading etc) to match that standard.
Beyond that though, regrettably the evidence is thin. If the corporate and club culture is to match our motto, and if Moshiri believes and understands the relationship between culture and leadership, he has to act. The NSNO culture can only be achieved by a change of leadership, by bringing in skilled, experienced individuals who have achieved corporate, perhaps sporting, success around the world. Moshiri is the rightful and legal majority owner of the club. But he is also a custodian of our long-term interests in Everton Football Club. Our emotional investment in our club is perhaps of more value to us than his financial investment in Everton is to him.
Part of our emotional investment is the belief that Nils Satis Nisi Optimum is an accurate representation of how the club behaves and what it achieves on and off the pitch. For it to be genuinely the case, there has to be a massive change in culture and there has to be a governance model to ensure that the change is made and maintained. To do so requires a change of leadership at the top of the club, particularly with the Chair and CEO, and an extension of leadership in bringing new independent oversight to the board.
The status quo will not achieve NSNO at our club…
Reader Comments (38)
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2 Posted 08/12/2020 at 23:52:20
TBF - for many a year I have felt we are just not professional enough and hard nosed enough. We are a medium sized business with the profile of a major multinational. Perhaps some on the board who could (have) run a multinational but I think the levels below them would struggle. And the levels above are not prepared to take the hard decisions of shape up or ship out.
3 Posted 08/12/2020 at 23:57:20
The outcome has been a series of poor decisions and hence poor outcomes. For example, at no point during the chaos of 2017 did it appear that anyone at Board level questioned the thinking behind the expenditure of massive sums of money on recruitment. Money was thrown down the drain for average players with no clear vision of how they would fit into a team pattern or style of play.
It would appear that, as a club, we repeatedly roll the dice hoping the next managerial appointment will succeed without ensuring the building blocks for success are in place.
4 Posted 09/12/2020 at 01:31:01
"Let's remember that the club exists to generate the resources to build the best possible football team, coach and maintain the team, and to provide the facilities in which fans can watch their team play and ultimately win trophies."
Does it really? - or is it now just a handy tool to add value to, via a new stadium build and eventual sell-off to the 'Next Fool'...(Google 'The Greater Fool Theory')???
Ownership & Board; what we have is 'An Organ Grinder' 78% shareholding absentee owner – who leaves 4 paid staff (called in the trade 'Monkeys') to supervise (and I use the term loosely) other paid staff.
NSNO; A worthy target to aspire to, but not seen, except briefly in the mid-80s, since the day Alan Ball was sold.
"Over the last 5 years we have grown used to being funded by Moshiri's generosity."
Again, really? IF... and heaven forbid it should ever happen and Mr Moshiri were to fall under the proverbial bus or, even worse, Bramley-Moore Dock becomes a total non-starter, all that 'generosity' will become 'debt'.
Well, I would wager such 'generosity' would then be found in the debit side of Everton's books and not as a liability on the estate of our ex-owner.
Accountants, especially billionaire Accountants don't get to be billionaires without keeping the dreaded D-word well away from them.
You're right about one thing though... "The status quo will not achieve NSNO at our club…"
Moshiri must rue the day he let Bill talk him into all this. It seemed at the time it was a win-win for everybody. Bill got his investment (and a nice return on his investment); we got a new ground; and Moshiri would make profit in the eventual sell-on.
That said, down the line, he seems to have been poorly advised and made some (in hindsight, I know) 'it seemed like a good idea at the time' expensive decisions.
The latest may yet be Ancelotti... but let's give that the benefit of the doubt for another year.
As always with The Ev – more questions than answers!
5 Posted 09/12/2020 at 09:43:53
#3 I agree John, it is a form of rolling dice, all the chips on the next manager, there's appears to be no effective long term planning even with the appointment of Marcel Brands
#4 Derek - from a shareholder perspective, yes the club is there to generate capital appreciation, of course I understand that entirely, but beyond that its purpose is surely football and challenging to win trophies?
Re Moshiri's generosity, yes of course, he or his estate could look to recover his funds at sometime in the future - I assume that will be done at the point he decides to dispose of the club to another purchaser rather than liquidate the assets (players) to repay himself - that would be wholly counter-productive.
Agree totally with your last line (apart from the use of Ev :) )
6 Posted 09/12/2020 at 10:24:03
As always your posts are always very interesting and always well researched, and thought provoking. I think the whole package of Farhad taking a majority shareholding in Everton was sold to him by BK painting a picture of a club who had a relatively large and loyal fan base, and a club that had regularly finished in the top half of the table on limited funds. Where if we had someone to invest in the club as well as build a new stadium then we could again take our seat at the very top of the table.
Moshiri has only recently said that he is having to spend a lot more of his time looking after club business than was originally envisaged. What involvement his boss Alisher Usmanov has in the club is shrouded in mystery. Some even believe that Moshiri is only a front man and that its Usmanov who is pulling the strings. The one thing we know is both men are successful business men who know how to set up successful companies. But as we know football isn't like any other business, as Alan Sugar commented his business head went out the window when he became Chairman of Spurs.
I don't know what the answer is to our problem but I know changing managers every 2 years is certainly not the way to make this club successful again
7 Posted 09/12/2020 at 10:25:08
It may be that the SPA or similar that is probably in place has a time limit on Bill's tenure as Chairman. It would be unwise for it to be open ended, and Moshiri would be entirely familiar with such arrangements.
Perhaps a trigger for his leaving might be getting planning permission or some such milestone, when the value of the club would be increased, and give Bill a nice little bonus on his remaining shareholding.
Alternatively He just wants to keep Bill around as you suggest.
8 Posted 09/12/2020 at 10:44:34
9 Posted 09/12/2020 at 10:45:39
10 Posted 09/12/2020 at 10:47:40
11 Posted 09/12/2020 at 10:47:41
12 Posted 09/12/2020 at 11:04:08
the dictatorships at City and Chelsea long term
13 Posted 09/12/2020 at 11:40:19
We are just incredibly out of date/touch - - with little real "nous" anywhere in The Club.
I am 71 and still looking for a "fight"(metaphorically) in the Arts World which is still riddled/diddled/muddled/fuddled in Class.
Up The Blues.
14 Posted 09/12/2020 at 11:43:22
15 Posted 09/12/2020 at 12:05:33
16 Posted 09/12/2020 at 13:04:20
Since the business is not an owner manager model, I would have thought Moshiri is de facto acting as a non Exec director, albeit not in the traditional capacity of sitting on the board, not least because he has a placeman there in Ryazantsev.
Perhaps the core issue here is that Moshiri himself needs to be better advised and while a competent Chairman might be able to fulfil that role, I don't believe our current one is right for it. As for the CEO role, is it truly the case that Ryazantsev and Brands report into Barrett Baxendale? In theory they should but I struggle to see that. In which case, who do they report to?
Personally, I'd forget about non execs per se if I were Moshiri, other than a non exec Chairman who acts as my counsel, and find myself a CEO who properly runs the show and is accountable for the whole business. Boards are for strategy setting and barely need to happen even quarterly, maybe half yearly and should be Moshiri, his Chairman and CEO. The CEO and his team have management board meetings monthly or more often and I would say that management board, as currently structured, would need to add at least one to the existing 3. Probably split Finance/Admin and Commercial which are very different skillsets. As and when we get started properly on the stadium, it might need one more with that particular skillset.
17 Posted 09/12/2020 at 14:05:41
In all by years of involvement with sports teams it was a given that as well as good management on the pitch, good management off the pitch was necessary to achieve success. A winning Club has a winning Chairman as well as a winning Manager.
Not in a thousand years will Everton win anything with Kenwright as Chairman. The best Ancelotti can achieve is a better League position and a longer Cup run. It will a real lucky break to win the Carco or FA Cup. It might be even better not to win these Cups with Kenwright as Chairman, if consistent success is the objective, such would be the affect of his prolonged tenure.
Great article that shows the true drag on a successful Everton.
18 Posted 09/12/2020 at 14:05:41
In all by years of involvement with sports teams it was a given that as well as good management on the pitch, good management off the pitch was necessary to achieve success. A winning Club has a winning Chairman as well as a winning Manager.
Not in a thousand years will Everton win anything with Kenwright as Chairman. The best Ancelotti can achieve is a better League position and a longer Cup run. It will a real lucky break to win the Carco or FA Cup. It might be even better not to win these Cups with Kenwright as Chairman, if consistent success is the objective, such would be the affect of his prolonged tenure.
Great article that shows the true drag on a successful Everton.
19 Posted 09/12/2020 at 14:06:51
I know some will respond that weve spent a lot, and they would be correct. But we havent spent anywhere near and consistently as the best clubs. Until we do, the situation is unlikely to change, even if we manage to occasionally finish higher up the table or win a cup.
20 Posted 09/12/2020 at 15:40:44
21 Posted 09/12/2020 at 17:37:26
22 Posted 09/12/2020 at 20:31:51
I think a big issue has been that Moshiri and Kenwright have not given Brands full autonomy on the footballing side and they have meddled in transfers and the appointment of managers. We don't really know if he has the capability to lead on a committed strategy as Director of Football but his extensive prior experience suggests he can.
23 Posted 09/12/2020 at 20:34:04
24 Posted 10/12/2020 at 09:26:33
Most of the larger clubs have non-executive directors, people who have achieved success in other fields. Manchester United have 3, Tottenham have 1 etc.
Re a non-exec with oversight on footballing mattes, someone like David Beckham, Gerard Pique or Oliver Kahn – people who know the game inside out and have gone on to establish successful businesses for themselves. They're just examples.
25 Posted 10/12/2020 at 09:38:36
I'm a bit surprised that the power of the Chairman of the Board is a bit down played. Leaving aside the personalities, he/she runs the Board, can appoint or get rid of Directors, can only be removed by the Shareholders. It is a position that carries a great deal of power in an organisation.
Where a Chairman is also a Shareholder, that can be a further issue and, unless transparent, can lead to conflicts of interest.
If a Chairman is resistant to change, or favours a particular direction, the chances are that is the way a business can be steered.
26 Posted 10/12/2020 at 09:59:11
27 Posted 10/12/2020 at 10:01:50
A continuance of that situation will see Carlo's job safe, whether or not he wins trophies or a place in Europe prior to the move to Docklands.
28 Posted 10/12/2020 at 10:01:59
Ex-Director Keith Harris hinted at these conditions being a barrier to a takeover, prior to Moshiri coming on the scene. Moshiri has agreed to these conditions, which would have been formalised in a Shareholders Agreement.
This agreement could set out the Corporate structure of Everton and the rights of Bill Kenwright regarding staff recruitment, transfer policy, staff promotion, security of tenure as Chairman, and Board size. If so, this agreement would be a barrier to any of the reforms proposed by Paul in this article.
29 Posted 10/12/2020 at 10:29:20
Bill and his Luvies are here to stay until Bill decides to sell his shares, which he will be in no rush to do as they are likely to increase in value with proposed developments or when Bill drops off his perch.
Moshiri's involvement could be as a party in a long-term property investment, with Usmanov in the wings, as their share values have increased and will increase.
Both Bill and Moshiri are quids in anyway at this stage.
30 Posted 10/12/2020 at 10:41:37
Too right – negativity from top to bottom, what makes anyone in Authority want to watch players playing just outside their own area, giving the ball away, and conceding a goal???
When Allardyce came, he said the first ball has got to be forward. He didn't say that, then the players have to turn round and pass back all the time – which is the stock-in-trade of this team.
31 Posted 10/12/2020 at 10:43:56
Whatever the Agreement is called, it covers the requirements of both parties to the Sale and Purchase of the shares.
Moshiri will also have had a very big say in how this was structured, and as the man with the big bucks, that Bill clearly wanted a piece of, he will have structured in his own requirements. It is usually a huge document with all sort of cut-offs, sanctions, penalties – and is legally binding.
I'd be astounded if there was no time limit on Bill's tenure, or some sort of milestone triggering his departure. But you never know.
He might think Bill's a genius, or did at the time at least.
32 Posted 10/12/2020 at 10:47:42
As I said above, for the first 3 years, I held the view that such an agreement was in place. When Moshiri made his most recent share purchases, I felt confident that the agreement period had probably lapsed but that Moshiri was content to leave Bill in situ (for reasons I still can not fathom).
What is absolutely true, though, is that we will not see governance improvement nor more importantly cultural change within the club whilst the board remains as it is and, in particular, the Chairman and CEO remain at the club.
Does Moshiri have the desire to make the changes that, with the right replacements, will allow the club to move forwards?
33 Posted 10/12/2020 at 11:09:16
From memory (not a good thing), the timing of the further share transfers were pre-agreed, and I think I remember seeing that the documents had already been set up, at the time of the initial sale. It may even have been on here.
All except the last tranche, of course. Which is why I'm thinking the final tranche is linked to a milestone, which will give Bill a nice little terminal bonus, rather than a specific date.
My thought was the granting of planning permission, when the share price would be expected to increase. That would have been a requirement of Bill's in the Agreement.
Again from memory, Liverpool's value increased a lot once they had planning permission for Stanley Park, and in many ways was the trigger of the sale of the club to the Texans.
But of course it's conjecture. And of course the original planned date has already slipped.
34 Posted 10/12/2020 at 11:28:04
35 Posted 10/12/2020 at 12:09:49
Sorry, Paul, I missed your reference in the article to the possibility of a Shareholders Agreement. Of course you are both right regarding a time limit on the Shareholders Agreement. This would normally be 5 years, just like the probable Brexit Fishing agreement. I can't see Bill going without a bonus, so the buyout date could be by another formula, as Chris says.
A lot depends, as you both say, on Moshiri's objectives when buying the Club and why he accepted the terms Bill wanted, when no-one else would. There was also Usmanov in the background and a front seat on a lucrative Docklands development, with the Peel Group's dependence on their anchor tenant.
I think Ancelotti is here to stay the length of his contract and maybe beyond. Moshiri will see that area of the Club as having been sorted. He has enough to contend with, and off-the-field development and maybe with business away from Everton, without chasing dreams with the next up-and-coming manager. Kenwright may even suit now, but I can't see Bill or our Chief Executive Officer being up to running the business at the next level of development. But it's all up to Moshiri at the end of the day.
Moshiri and his mate are not orthodox in their methods, for whatever reason. I have always thought there was a element of wariness of regulatory authorities in Bill as Chairman and frontman.
36 Posted 10/12/2020 at 12:59:16
It set me thinking about what is the nature of Everton Football Club in the context of the modern game. In so doing, I was reminded for one reason or another about an observation by Harry Redknapp. On a visit to Goodison Park with his Tottenham side, he remarked in his post-match interview that he loved bringing his team to this ground because it still enjoyed the atmosphere of a proper sports club.
His view was expressed at the time, when Manchester United had fallen into the clutches of the Glazer family. Tottenham themselves were listed on the London stock exchange, at the time, but were delisted in 2012 by Daniel Levy.
The Glazers' approach to running Man Utd was sustained in the first instance by Alex Ferguson. The torrent of trophies enriched the already established global recognition of the club. Since his departure, the need to sustain the club at the front and centre of world football has become a burden for successive managers. It's as though the ethos of, what is essentially a club-based game, becomes drowned in the corporate drive for riches as the primary imperative.
So what do I take from all this? Well, careful what you wish for. I am not for one moment suggesting that, as a club, we do not strive to win things and sit on our hands, being content to enshrine to a greater degree than others the spirit of a sports club. Nor would I for one moment remain unmoved, Paul, by your shrewd observations about the governance of the club and how it could change for the better.
What I worry about is that, for many, such changes are needed in order to get up there with the other rich kids, as it were. If, in the short term, they have their way and a European closed shop is set up, the game for me would be the poorer for it. I would much rather witness games played in a league where all those competing have a chance of winning or falling short by reason of poor coaching, team selection etc.
Maintaining a Sports Club ethos, better managed and striving to win seems to me to be a laudable direction of travel. Others may disagree!
37 Posted 10/12/2020 at 13:18:46
On reflection... Nah, he might sell all his shares, but it'll be feet first for Bill.
38 Posted 10/12/2020 at 23:37:15
Thanks for your reply and the addition of such figures to the board would undoubtedly improve things. This has been discussed before but do you think the issue is that Moshiri seems to be more of a sensation seeker when it comes to investing in football?
Other clubs may be run in a better fashion because they are run to make a profit or to be self-sustaining. Moshiri seems happy to splurge cash around in place of a strategy.
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1 Posted 08/12/2020 at 23:15:16
Once again, another interesting thought-provoking article.
If we accept what you say is correct, why do you think Moshiri, who is far from a stupid man, does not initiate change at boardroom level? He has been here long enough now to see what has been, and is going on.
In his life, he must have experience of, or seen, other businesses excel and the format required to see the reasons why.
I appreciate a football club is slightly different from a commercial business but why continue with a model showing little sign of improvement?