What is happening at FIFA at the moment, with the arrests of a number of key officials in relation to allegations of corruption, should be a wake-up call for all international sporting federations. There has always been potential for trouble with the way these organisations are set up – and much trouble is now raining down on FIFA. One hopes that the organisation will clean itself up as a result and leave football to operate without murky goings-on in the background.
When it comes to governance, motorsport has only one international organisation, the Fédération Internationale de l’Automobile (FIA), headquartered in Paris. According to its statutes, the FIA exists to uphold the interests of its members, in matters relating to automobile mobility and tourism and motor sport. It is headed by former Ferrari F1 boss Jean Todt and is constituted as a non-profit making association under the terms of French law, specifically the Association Loi (1901). This provides for tax exemption for the organisation and the FIA is tied to Paris apparently because of deals struck with politicians in the past. The word is that if the FIA pulls out of France, there will be a hefty tax bill to pay.
However, things are not quite as simple as they appear. In recent years, in addition to the French FIA there is also a parallel legal entity in Switzerland, which has the same membership as the French association, but is regulated by the Swiss Civil Code, its legal status being the same as the other big sporting federations that are headquartered in Switzerland. This means that the organisation can make profits and has to pay far lower taxes than private sector corporations, which is why the sporting federations are queued up in Switzerland.
The FIA accounts that are presented to the General Assembly each year are a combination of the numbers produced by these two parallel bodies, with auditors Pricewaterhouse signing them off. If the results are made public in either country, I have yet to find them, but if one knows the right people in the General Assembly one can get an idea, although there is not much detail included.
The FIA, unlike the IOC and FIFA, uses local accounting standards, rather than the International Financial Reporting Standards (IFRS), which are designed to create common international rules in accounting. IFRS mandates a number of disclosures that aim to create complete transparency in both the organisation and the reporting, including such important elements as declarations of beneficial ownership (who actually owns what) and related party transactions, which highlight things being done by business associates and family of the management. Instituting such things would be very sensible, if only to stop people talking.
Transparency is basically a good thing, if you have nothing to hide.
So what is the FIA doing badly that might cause some worries in a post-FIFA scandal world?
The federation has made much of its recognition in recent years by the International Olympic Committee, but when one looks at the IOC’s Basic Universal Principles of Good Governance of the Olympic and Sports Movement, published in 2008, one sees some anomalies, which would best be removed. The IOC says that it is best to avoid “members of any decision-making body” being influenced by the decisions. This means that people with a personal or business interest in the decision-making should not be making any decisions. The F1 Strategy Group involves various parties that should not be making regulatory decisions, notably some of the competitors. The IOC code also says that it is recommended that there be “adequate procedures” to avoid any conflicts of interests. The same Principles of Good Governance says that “a clear and transparent policy for the allocation of the financial revenues” is essential and that disclosure of financial information should be made on an annual basis, which should be presented in a consistent way in order to be easily understood, and it encourages the application of internationally recognised accounting standards.
The IOC guidelines also suggest that “financial resources which are proceeds of sport should be allocated to sport and in particular to its development” and revenues should be distributed in a fair and efficient manner. The IOC says that this contributes to having balanced and attractive competitions.
There is much logic in all of this because transparency avoids problems. If everything is clear and in the public domain, the sport is healthy. And if the financial statements are in good order it is a good advert for the ability of the management.
It is worth noting, with some reservations, that during the 2013 FIA elections, the candidate David Ward commissioned an organisation called I Trust Sport to look at the FIA using as an assessment tool the Basic Indicators for Better Governance in Sports Organisations (BIBGIS) system, which was developed by the Swiss Graduate School of Public Administration (IDHEAP). It concluded that the FIA did many things well (scoring a maximum in 12 of the 63 governance indicators) but let itself down by not “openly publishing” financial accounts according to recognised international standards, not publishing remuneration details of elected officials and senior managers, not publishing an annual report, outlining the federation’s major activities and not having fully independent, non–executive members of the Senate and World Councils. It is worth noting that the FIA has since beefed up the Senate with four independent directors, although all are presidential appointees, which means that in practical terms the President still controls the Senate if his appointees support him.
Among the other reservations expressed by I Trust Sport were that there was no media partner representation at the FIA, supporters, volunteers and grassroots participants were not represented, there was no confidential reporting mechanism for whistle blowers and various other points that are not relevant to the current discussion.
One interesting point when one compares FIFA and the FIA is that the FIA is ultimately responsible for the commercial activities of the Formula One group, as the rights which this group have leased still belong – in legal terms – to the federation and the World Championship bears the FIA name. Thus, the federation should have a right to know and publish the figures involved. These are public to some extent, but following the F1 company structure leads one into offshore places where it is impossible to see who owns what and where the money goes.
There are other questions that will probably come up soon as a result of Jean Todt’s new role as Special Envoy to the UN Secretary General Ban Ki Moon. This role will involve a great deal of travel, as he tries to raise money for the UN’s road safety activities. The FIA has an expensive executive jet which Todt uses. Will the FIA be paying for his UN activities? As it is a personal appointment, will Todt himself be paying? Or will Ban Ki Moon be picking up the tab? Getting all these things into the open will stop questions being asked.
Who will suffer if there is total transparency at the FIA? Obviously there may be individual deals where the numbers should remain private for commercial reasons, but is it not better for a sport to have everything neat and in the open?
What is now happening in soccer is that the sponsors, the people who are paying the money, are saying that they will reassess their sponsorship arrangements unless FIFA makes changes. FIFA’s reputation is shot to pieces. It is doubtful that the FIA will ever face such a thing, but it is better that all is bright and shiny all the time, leaving no dark corners.