1). Risk and corporate accountability
Corporate accountability, in the simplest terms, can be defined as the responsibility of the companies or other bodies, towards the different stakeholders. It is the performance of companies in areas like environmental performance, social responsibility and sustainability (Cambourg, 2006). Corporate accountability provides that the financial performance is not to be the sole objective of the company, and the company does not have to be responsible towards the shareholders only. They need to be focused towards the stakeholders as well, to be truly accountable. Corporate accountability thus is focused on the interests of all of the stakeholders affected due to the actions undertaken by the entity, be it the past, present or future ones (Zadek, 2013).
When it comes to risk management, accountability is deemed as a crucial concept due to the notion that the risk can be minimized by maximizing accountability. In the present challenging economic time, and the heightened regulatory and legislative scrutiny, the companies which are across of the industries, have been forced to put risk management at the top in their priority lists. The success of it depends on the confidence of shareholders and consumers in terms of the ethical standards followed by the company, along with the ability of the company in making the reasonable decisions when it comes to the handling of risks. Irrespective of the fact that the risk management framework of the company is centralized, in middle, or decentralized, the crucial aspect continues to be the individuals in such framework, i.e., the ones who identify and manage the risks on daily basis (Grosslight, 2010).
Only when a culture of accountability is followed, where a clear understanding is attained that the identification and management of risk is the responsibility of every person, can the compliance commitments and risk management be truly met, for delivering the same to the shareholders and consumers. This requires bringing forth such a culture which focuses on accountability as being the priority and as being essential, along with assessing the risk management model and framework of the company. This requires each person to know who has the responsibility of understanding and addressing the risks in every part of the company. The leaders need to understand the risks which are being faced by the businesses, and for which they are responsible. There is a need for the risk professionals to support the managers and the employees in process of mitigating risks. Apart from the enterprise oversight, it is important o analyse the risk as an aggregate across the company. The significance given to risk management in accountability can be further elucidated through some examples. For instance, the leader often do not communicate their mistakes or the ones which are externally, as it is taken as a punishment or sense of failure by the leader. However, there is a need to realize that open communication is a big opportunity for sharing the risk awareness and in assisting others from falling in the same pit. Another potential example is where the employees are not clear on the risk tolerance of the company, which results in them getting mixed signals regarding risk; this is a major threat towards the culture of accountability (Grosslight, 2010).
When it comes to the conduct undertaken by FIFA, it becomes clear that they have put their focus on the concept of accountability. The particular area where the accountability is given supremacy by FIFA is the commitment of the body towards transparency and principles of good governance across all of its operations. Aligning with the concept highlighted above, FIFA has put its focus on transparency. This is the reason why the reforms were adopted by FIFA back in 2016, where the clear separation between the management and political functions was attained. This was done so that there was no conflicting interest, and mergence of interests of the political and management functions of FIFA. Where such happens, it results in the loss of accountability, due to the priority shifting towards personal aspects, in place of being towards the different stakeholders. In order to enhance the transparency, in order for the executives of FIFA to be more accountable, the reform included the introduction of term limits for the council members and president of FIFA, along with the same for the judicial bodies, audit committee and compliance committee of it (FIFA, 2018).
2). Executive decision making related to risk management and stewardship of company resources
In backdrop of the shocks of the 2008 financial crisis, the global competition and the recession, risk management has become a priority across the globe. The board and the top management are taking a tighter control in risk management, setting direction for it, integrating it with the overall strategy of the company and inserting risk management in the corporate culture. Due to the prioritization of risk, the leading thinkers and executives of the key companies are accepting the role of direction and leadership (Dinçer and Hacio?lu, 2016). The role of the executives is also important in stewardship, due to the responsibility imposed on them to manage the entire organization and work towards the interests of the different stakeholders. They have to manage everything in the organization, be it the nature, property, information, environment or the other aspects of the company. From this stewardship only, the responsibility of risk management is imposed on the executives and they have to take decisions in a careful manner (Hill, Jones and Schilling, 2014).
As per one of the surveys conducted by the Harvard Business Review, it was held that the risk management is becoming more and more concentrated at the very top levels of the company. The figure presented below presents details on the same.
Often a key issue which is found in the executive decision making and risk management is the communication problem, or the problems of the CEOs and board not being on the same page. There is also the problem of the communication not taking place, and where the same does take place, it results in a lack of decision being attained. There is also the problem of the decisions made by the executives not being translated properly, resulting the risk still causing a negative impact on the business and the entire process of risk management being laid waste (FERMA, 2013). Where there is a mergence of personal interest in the business interest, the risk management policies fail in stopping the conflict of interest from being negative for the company. Basically, all such instances where the theme of accountability, stewardship and risk management is not upheld, it would result in issues being presented in the executive decision making (Fraser, Simkins and Narvaez, 2014) .
There are a number of contemporary risk management theories, which can be used to further elucidate on the role of executive decision making in context of risk management. These include the agency theory and the stakeholder theory.
The agency theory is related to the solving of problems which are present between the agency relations, owing to diversified aversion levels of risk, or the unaligned objectives. It helps in designing the governance, along with the controls in the companies. The agency theory involves one party being the agent and the other party being the principal. The principal is responsible for the acts done by the agents. Agency theory is undertaken for different aversion levels to risk. Agency theory has the key focus on handling the different levels of risk present between the agent and the principle. There are certain situations where the resources of the principal are used by the agent. Thus, even though the decision maker is the agent, they do not undertake risk as the loss is to be borne by the principal. There can also be a different level of risk tolerance between an agent and principal (Frenkel, Hommel and Rudolf, 2005)
When it comes to business scenarios, the risk management is used for managing the risks, and even when the decisions related to risk are delegated to risk management bodies, the ultimate responsibility continues to be in the hands of the top management. So, even when the decisions are made by subordinates, the consequences have to be borne by the executives, as if they had undertaken the decision. The failure of agent thus proves costly and this makes it crucial that the risk management decisions are undertaken by the top tier. Identifying these very needs, FIFA concentrated on providing a uniform set of reforms across its presence in the globe. For instance, the council members of the FIFA can be deemed as the agents of FIFA and any actions undertaken by them, becomes the liability of FIFA. Recognizing this, the election of council members of FIFA is supervised by them, and is done by the own electoral regulations of FIFA. Along with this, in order to avoid any conflicting situations, or such would pose a threat to the principal agent relation, the candidates are required to be comprehensively eligible and have to go through the integrity checks which are undertaken by the independent FIFA Review Committee. Even in this aspect of FIFA, it continues its focus on shareholders and this is the reason why FIFA recognizes and promotes women in football.
The stakeholder theory provides that instead of focusing on the interests of the shareholders, which is the traditional view for the companies, there is a need to focus on the other parties which are involved as well, and this includes the trade unions, suppliers, consumers, employees, government bodies, trade associations, political groups, communities and financiers. This theory focused on giving proper focus to the needs of all the stakeholders of the organization. This theory is based on the fact that the companies work as a dynamic, interdependent and complex network of relations which has a range of stakeholders (Zsolnai, 2006). From the standpoint of risk management, the advantages of consulting with such stakeholders cannot be emphasized enough. The first and foremost is higher level of trust amongst the different stakeholder groups. The others include high quality information for undertaking business decisions, the ability of the stakeholders in being able to contribute in the decisions which have an impact on their future, stakeholders feeling a part of decision making process, wider understanding in community of constraints on the company, shareholders understanding the risk, and greater collective responsibility in the process of managing risks (Loosemore and Phua, 2010).
The adoption of stakeholder theory can be seen in the FIFA’s new set of reforms which are focused on principles of good governance and transparency. FIFA adopted a range of governance reforms in order to reflect on the football community views, as it has identified the need of working with the stakeholders. And for their needs only, the focus on transparency has been put. Another example of putting focus on stakeholders, in context of risk management, is its focus on human rights (FIFA, 2018).
3). Risks identified within FIFA
FIFA Officials
The reason for putting so much focus on the principles of governance and transparency stems from the history of FIFA. Just a few years back, 14 officials of FIFA were indicted on charges of money laundering, wire fraud and racketeering. The ones in the field of risk management did not take this as a surprise. This was due to the risk of failure in complying with the legislations like the UK Bribery Act and the Foreign Corrupt Practices Act. Even with the high transparency, financial control and accountability being adhered by FIFA, there was a miss on the compliance policies, governance and risk management (Verver, 2015).
Bribery Scandal
The 2018 World Cup is set to take place in Russia, which was selected as the location for the 2018 World Cup over nations like England, Portugal/Spain and Belgium/ Netherlands in joint bids. For 2022 World Cup, Qatar was chosen as the location over nations like South Korea, Japan, United States and Australia. What is interesting here is that just three weeks before the voting was set to take place, FIFA had suspended two of the executive committee members, Amos Adamu and Reynald Temarii, for accepting bribe in exchange of the votes (Gordon, 2017). This led to the FBI investigating into FIFA, regarding the awards of 2018 and 2022 World Cup (Buncombe, 2015). By 2017, three of the former South American football chiefs were accused of corruption and taking bribes, resulting in criminal trial and arrests into the regime of Sepp Blatter. This is the reason why this bribery scandal is relevant to this discussion. The very top of FIFA, Sepp Blatter, who was the eighth president of FIFA from 1998 and 2015, was at the centre of this entire scandal (The Guardia, 2016).
There were also others who were denying charges which included multiple acts which involved briber and racketeering, and these were related to the sale of Copa América, along with the other television rights. The other accused individuals were president of South American football confederation, Juan Ángel Napout, and president of Peru FA, Manuel Burga (ESPN, 2017). There were as high as twenty three of the former football administrators, as well as, marketing executives, who had accepted their guilt in the financial corruption crimes. The long list of the top most management of FIFA led to the coming two football world cups being deemed as world cup of fraud. Then there was Julio Grondona, the president of Argentina FA from 1979, who had been a major power broker in these bribes, till he died in 2014 (Conn, 2017).
This raises the questions on FIFA ever being a non-corrupt organization which upheld the principles of corporate governance, or that of the theories associated with it in terms of the agency theory and the stakeholder theory. In no way were the top managers, responsible for running the operations of FIFA, working as agents. More so, they were not at all working for the interests of the stakeholders, and were centred on their personal interests. FIFA was not wrong in suddenly coming up with the reform process; they had solid and needful reasons to indulge in this reform process. There was no need of identifying the risks faced by FIFA, as they covered every newspaper and sport magazines. These are the reasons why the reforms were brought and the concepts like corporate governance were born. Even after being such a crucial body, particularly having its fast presence, such scandals rocked FIFA and raised questions on its integrity.
Risks
On these bases, one of the key risks identified by FIFA was the lack of adherence to the statutory instruments. This is due to the rising awareness and statutes revolving around corruption and bribery. The present FIFA shows the evidence of the willingness of the body in stamping out the corrupt practices. The other risk which has been identified by FIFA is the sports injuries and this has resulted in the increased focused towards estimating and evaluating the level of risks in the process of risk assessment (Fuller, Junge and Dvorak, 2012). Another identified risk is the significant role of board and the need for separating the key functions. Stemmed from this is the key risk identified by FIFA, i.e., the possible merging of roles of political and management functions, which has resulted in FIFA separating its management and political functions. This is the reason why the General Secretariat looks over the commercial and operational actions, and the FIFA Council looks over setting of the overall strategic direction of the organization (FIFA, 2018). The biggest problem continues to be the issues surrounding the 2018 and 2022 world cups, as they are still charred with the images of bribery and corruption by the top officials of FIFA.
Corporate governance of FIFA and others
Corporate governance refers to practices, processes and rules which help the entities in being directed and controlled. It is the manner in which the companies are governed based on the purpose of it. It is basically the set of rules and practices which help the board in being transparent, fair and accountable (Tricker, 2015). The corporate governance of FIFA has been elucidated in the previous segments. To put it in summary again, FIFA has separated its political and management functions, it has imposed term limits on the key personnel, the election process of FIFA is properly supervised, the individual compensation of the key members is properly disclosed, the universal good governance principles are applied, and it stays committed towards the human rights enshrined in the statutes of FIFA.
Fortune 50 company Statoil is a leading example of effective board performance and also acts as an example of the key considerations which the chairman has to undertake for improving upon the board effectiveness (Emerald, 2011). Statoil has effective leadership which forms a team of dedicated consultants, who work towards development and improvement, along with highlighting the possible areas of risk, in addition to the underperformance which is raised from the gaps in culture, competence, or process. The company regularly reviews and measures board and leadership competence, which is not done in FIFA (Petri and Soublin, 2010). This is the reason why the officials of FIFA were involved in incidents of money laundering, wire fraud and racketeering. Instead of following the theme of governance issued by FIFA, the officials laid waste to it.
Statoil has overlapping of experience with management, where a common language and framework is shared between the management and the board, for generating credibility and trust (Petri and Soublin, 2010). FIFA too overlaps experience with management, where in order to continue to engravers, the key personnel are allowed to hold their post for twelve years. This allows the experience of such individuals helping in managing of the operations of FIFA. There is a right mix of functional and technical skills in Statoil, which is also true for FIFA. FIFA even goes beyond what Statoil has done and includes the broader stakeholder representation for improving upon its governance. This is particularly in the backdrop of incidents soiling FIFA’s image, and with such measures, FIFA attempts to correct its past mistakes. So, even when it has representations from different nation, there are attempts made to avoid instances of bribery and corruption as were discussed earlier.
Despite the commonality and convergence between the governance of Statoil and FIFA, there is a range of learning which FIFA can take from Statoil. These include building the critical mass in core competences, focusing on the team dynamics, implementation of constant learning and improvement, and continuing to reinforce the partnerships with the management, in order to avoid the problems highlighted in agency theory segment (Petri and Soublin, 2010). There is a strong need for restricting any such instances which happened, where 14 officials of FIFA were indicted on different charges. Such instances hamper the faith which the stakeholders have, and this is the place where FIFA lacks in comparison to Statoil. FIFA is nowhere close to Statoil, and its image is soiled due to the work done by the past president of FIFA and the presidents of FA of different nations. Their acts show the complete disregard to corporate governance and its spirit. Thus, there is a need for FIFA to learn from Statoil on how to effectively manage any company. Though, in this context, there is a need to consider the new reform which FIFA has adopted and see at the positive aspects of it.
Conclusion:
Thus, from the discussion undertaken in the previous parts, it can be concluded that risk management is a crucial aspect of governance. In the undertaken discussion, the part played by risk in corporate accountability was highlighted, where it was shown that by maximizing the accountability, risk can be minimized. This was followed by highlighting the role of the executive decision making in working towards the different stakeholders, stewardship and risk management. Particularly in the risk management aspect, it was highlighted how the top management gets the key reasonability in managing of risk, which included identifying, evaluating and putting strategies to manage the risk effectively. In doing so, the agency and stakeholder theory were used. The different risks which have been identified by FIFA and the manner in which FIFA dealt with them were also elucidated. Lastly, a comparison between the corporate governance of Statoil and FIFA was undertaken where key learning for governance of Statoil was shows to be the suggestion for FIFA, in bettering its corporate governance. By doing so, the risks which FIFA faced, could be effectively managed, and the theme of accountability can be upheld.
Risk is a word which has the capacity of reaping benefits and yet continues to be a risky aspect of the businesses. Not all risks are worth being undertaken and this makes it crucial for such risk to be analysed in a timely manner, and a plan is created to manage the risk. If the business is not prepared for the risk, the result of it is unplanned costs, reputation being on line, and loss of time (Sadgrove, 2016). Risk analysis relates to the process of identifying and analysing the threats to the individuals, the businesses and even the government agencies, owing to the adverse events, be it human caused, or natural ones. Risk analysis gains more significance when it comes to governance matters, since these matters ensure that the interests of the different stakeholders are protected. This makes it crucial to identify and analyse the risks, which could pose a threat to the proper or good governance of any business or other bodies (Aven, 2015).
FIFA, i.e., Fédération Internationale de Football Association, is at the centre of football across the globe and is almost a synonym of football. Due to the magnitude of significance given to FIFA, it becomes crucial that the principles of good governance are adopted by it. This is particularly in context of the executive decision making, due to the large number of stakeholders affected by the actions of FIFA. This report discusses these very aspects, where it highlights the nature and the relevance of risk in corporate accountability, the executive decision making, and the approaches adopted by FIFA in comparison to other entities.
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