Benjamin Thomas gives his thoughts on the issue at the heart of the European Super League: shareholder primacy.
On Sunday, 18 April 2021, the biggest football news story in decades broke out of nowhere. 12 of Europe’s elite clubs simultaneously issued a press release which announced the launch of an alternative to the Champions League: the European Super League (ESL). Founding clubs would be given a lifetime place in the league, with just a few spots up for grabs for those who could qualify through merit. The press release framed the ESL as the saviour of a sport which it said had been thrown into financial instability by the pandemic, and said that it would benefit the “entire European football pyramid.”
Of course, the ESL was short-lived. So short, in fact, that there was a dedicated Twitter account listing things that lasted longer (for example, the ship blocking the Suez Canal). The idea that the clubs had the interests of the football pyramid at heart was ridiculed and almost everybody saw the idea for what it was: a power grab intended to guarantee a profitable business model for the founding clubs.
The fact that such powerful clubs were forced to back down by public pressure was largely hailed as a victory. However, one should see this in context. The clubs involved were clearly motivated by frustration at UEFA’s expanding of the Champions League and this was essentially those clubs throwing their toys out of UEFA’s pram. There are no prizes for guessing what UEFA’s motivations are behind that expansion.
These events should be seen for what they are: symptoms of a wider disease, not just in football but in business more generally. That disease, as B-Lab co-founder James Perry has said, is shareholder primacy.
For the uninitiated, section 172 of the Companies Act 2006 (the main piece of legislation which governs UK company law) provides that the overriding duty of company directors is to “promote the success of the company for the benefit of its members.” It then lists various factors the directors must “have regard…to” – which include “the impact of the company’s operations on the community and the environment.” This means that directors can pay lip service to the community and the environment while making decisions which directly harm those interests. This is not just obvious in football; for example, think of fashion brands which have “sustainable” ranges – thus acknowledging that the remainder of their products are unsustainable but still for sale.
The Better Business Act is the answer to this problem. The Act is part of a campaign to make sure every single company in the UK aligns the interests of their shareholders with those of modern society and the environment. It proposes that section 172 of the Companies Act be amended so that shareholder interests no longer have primacy. Directors – liberated from their primary duty to shareholders – would be empowered to make decisions which instead benefit other interests, such as environmental or community interests.
This makes sense, when you think of what the purpose of a company is. A company does not exist exclusively to make money for shareholders. A company exists to provide a service to society. Even companies which exist to make money for customers, such as investment firms, do not operate in a vacuum; where they make decisions which have a detrimental impact on the world, their customers suffer, too. We all live in the same world, after all.
Now put yourself in the shoes of a director at one of the founding clubs of the ESL. At present, you know that your job is to make money for the club’s owners. You can “have regard” to the history, traditions, culture and role of football in society and communities, but your priority is to make money for the owners. Ask the average fan on the terraces what they think their club’s purpose is and you certainly will not get that as an answer. Thus, company law is divorced from reality.
This explains how decisions like the ESL arise. It is almost unanimously agreed that the ESL, in its present form, is a disaster for football and the wider purposes it serves in society. Would the directors of the founding clubs of the ESL have made the same decision had they been required to give parity to other stakeholder interests, as well as shareholder interests? Almost certainly not.
A final point: the only reason that the ESL was scrapped was because there is a passionate fanbase willing to speak out and because high-profile media personalities threw their weight against the idea. But football is unique in that way. Few other interests – such as environmental interests – are defended so vociferously by such a large number of people. As such, the status quo depends on a widely held sense of outrage which just does not exist for other harmful business practices.
It is time for a better business model. It is time for the Better Business Act.