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Setting the Standard: Improvements in the Boardroom


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After a break for a couple of months, the 'Setting the Standard' project reaches its final stages with a couple of closing articles.

 

The first one from 'Lord Nelson' below is a fascinating look at how Rangers could benefit from changes in the boardroom and is especially relevant with various rumours surrounding the ownership.

 

The final STS article (which offers independent academic credibility for supporter opinions) will be published later this week before the overall expanded report is released next week for download. This expanded report has been printed and will be provided to Rangers FC for official comment.

 

Anyway - onto the penultimate article

 

Setting the Standard: Improvements in the Boardroom

(Written by Lord Nelson)

 

This article is going to look at one of the most important areas of the club - the place where the decisions that affect the running of the club - the boardroom. It proposes that two independent directors are appointed in a non-executive position to assist in the decision-making process.

 

It was only 4 and a half years ago that the club was �£74 million in debt and in a great deal of financial difficulty. We got out of that debt following the rights issue that was supported by Sir David Murray (SDM) and the cash from the JJB deal, but yet again the club finds itself in financial difficulty after such a short period of time.

 

Our debt could be in excess of �£30m in January, which is a lot when we consider that we only have facilities of �£36m from the bank, and our outgoings will exceeded our incomings in the months prior to the receipt of the season ticket money. We were in the position that we were unable to even bring one player in on loan during the recent winter transfer window.

 

Both situations arose due to overspending which the club can�t afford, but was authorised by the directors nevertheless.

 

It is because of this situation arising twice that it is believed that the Board of Directors of Rangers would benefit from having independent non-executive directors appointed, who may force SDM to at least question and re-examine the level of spending and other decisions and bring a freshness and alternative outlook that can only benefit the club as a whole.

 

Background

 

For the purposes of good corporate governance, listed companies on the major UK exchanges are required to have independent non-executive directors. They do not work on a day-to-day basis but attend board meetings. They have no connection to the company but are involved in strategy and have an oversight of management (see Appendix A for a more in-depth description of their responsibilities).

 

There is currently no requirement for Rangers to have such directors as the Plus Markets exchange where Rangers shares are listed do not have the same level of requirements as other, more primary exchanges.

 

Our rivals across the city are listed on a more senior exchange and as such do have independent non-executive directors - Ian Livingstone, Chief Executive of BT and Thomas Allison, Chairman of Peel Ports as well the well known John Reid, and it believed that the former two would benefit their club�s decision making with their vast business experience.

 

The need for a strong set of non-executive directors was highlighted recently with the biggest loss in UK history following the Royal Bank of Scotland�s near collapse, requiring support from the UK government. One of the causes of this is alleged to have been the inability of the non-executive directors to stand up to Sir Fred Goodwin, which highlights the need for a strong board, who are able to make their feelings known.

 

If RBS can be close to collapse then what is to say that Rangers could not run into serious trouble? That is why as strong board of Directors as possible is required.

 

The new directors should be independent of SDM so that they can stand up against him if they believe that he is incorrect and should not feel threatened or intimidated to give their opinions. They must be able to have his respect and should perhaps be regarded as ââ?¬Å?Captains of Industryââ?¬Â.

 

 

The current position

 

The blame for the current financial problems has to stay with the directors of the club. Matching the supporters� expectations and keeping the club on a financial even-keel is admittedly an extremely difficult thing to do but with strong leadership, it can be done.

 

We appeared to be in the position where we had to sell our top scorer in the winter transfer window and it is worrying to the support that the club finds itself in this position, and means the outlook remains extremely bleak even with Champions' League qualification for next season.

 

 

Misleading statements

 

It is believed that it was during the 2001 AGM that someone questioned the increasing debt level which was sitting at �£28 million at that point. The shareholders were reassured by the Chairman at that meeting that it would be irresponsible for the board of directors to allow the debt to increase above �£40 million, but in less than 12 months it had increased to �£52 million, and eventually ended up at the well-publicised �£74 million.

 

It is therefore a myth that many have said that nobody complained when the debt was increasing. The issue was raised but it appears that the shareholders, and therefore the support, were misled.

 

Following the cash that was received from the aforementioned rights issue and the up-front payment of Ã?£18 million received from JJB, the net debt was reduced to under Ã?£6 million in June 2006 and again the support were reassured by SDM in August 2006 that they would be ââ?¬Å?maintaining financial prudenceââ?¬Â.

 

It is not believed that anyone can argue that taking the club to within a few million of its borrowing limit in such a short period of time is maintaining financial prudence, and yet again what the shareholders of the club were told does not reflect the way the reality of the situation.

 

Having independent directors may result in more openness in the running of the club, which the support deserves, given the financial commitment they make each season.

 

 

Options

 

It would be in the club�s best interests to try and ensure that this level of overspending is made more difficult in the future. (It is impossible to prevent when there is a majority shareholder in place).

 

SDM has made it clear that he wishes to sell the club, but it is equally obvious that there are no potential buyers out there. Any solutions therefore have to be within the current set-up of SDM being the majority shareholder.

 

The support need reassurances that the club will be run on a sound financial footing and there appears to be an inability for this to happen and therefore something has to change.

 

What is required is for SDM to make a major leap and admit that mistakes continue to be made and accept that it would be helpful to have assistance in formulating the plans for the club.

 

 

Conclusion

 

The decision making of the directors of Rangers can only be enhanced with new, enthusiastic non-executive directors. It is acknowledged that SDM will always have the final say due to his shareholding, but additional, experienced businessmen could bring fresh and innovative ideas and perhaps help him prevent the club getting into a more perilous financial situation.

 

 

 

APPENDIX 1 - The role of an Independent non-executive director

 

An independent non-executive director should play the following roles:

 

1. Participating in formulating strategy of the company

 

The board of directors is responsibility for the management of a company. It does not directly take part in the routine management, but it has to participate in the drafting of strategy of the company. They must use the professional knowledge or common sense, experience and specialty, vision and the advice they get from outside or the people and business relations they have developed to help directors solve related problems.

 

2. Oversight of management

 

Oversight of management covers two aspects: one is to oversee the management and the company in implementing the rules, procedures and plans established, that is, to see whether the company operates along the established orbit; the other is to check the company to see whether or not it has established a proper and effective internal monitoring system, procedure and guide. The former to see whether the company follows its rules and system in force and the other is to see whether the current system is rational enough.

 

3. Independent stand

 

It is very important for independent non-executive directors to air their affirmative and objective views, take independent decisions. As an independent non-executive director, the law demands impartiality in taking decisions by taking into account all available information, instead of casting votes according to the views of shareholders who have appointed you. First of all, an independent non-executive director must study and get to know all the information provided by the company; secondly, the voting and decision taking are not influenced, directly or indirectly, by individual interests; thirdly, he must honestly ask himself whether any private interests have influenced his judgement.

 

4. Protecting the interests of all shareholders

 

As an independent non-executive director, an important task is to protect the interests of all shareholders.

 

 

APPENDIX 2 - Disclaimers

 

1. It should be made clear that this proposal does not supersede or replace the requirement for supporter representation on the board, which is a separate subject and is not covered by this proposal.

 

References:

 

1. http://www.cipe.org/

 

Further reading:

 

The Higgs report - http://www.berr.gov.uk/files/file23012.pdf

 

:rfc:

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Personally I think this is an excellent article with many valid points.

 

IMO, the club has been desperate for new blood in the boardroom now for many years. Not just necessarily a new owner but fresh talent surrounding him. We've all got our own ideas and suggestions for club improvement but I doubt most of us can back this up with the kind of experience (and finance) new board members could.

 

As such, if SDM can't find a buyer, perhaps one step on the road to obtaining one, is to create a few new director spaces to stimulate debate within the boardroom.

 

:)

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Like the others an excellent article that addresses and combats the problems of our club.

 

 

One thing i feel that hasnt been addressed though is the missmanagement on the park. Walter Smith has walked away from our financial disaster scot free.

 

It was his sqaundering of the transfer funds before the cl qualifiers and his poor tactics and team selections that led us to being knocked out of the CL by a pub team.

 

That resulted in the panic buying spree that have left us in the financial mess we are in now.

 

Smith has played a very large part in our clubs current predicament and it should be acknowledged at the highest level in our club.

 

It is the first step id take if i was responsible for moving the club forward.

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gisabeer:

 

The relative failure on the park and its effect on the financial issues is covered in the expanded report.

 

:)

 

Sorry, thought i read them all !

 

Once the report has been produced how can we gauge the reaction of the chairman and the board? I certainly can disagree with anything ive read and am impressed with the quality and professionalism of all the articles but i fear the only response from our chairman will be "thanks for the report, well take your points on board" and never hear from them again.

 

I hope steps are taken to ensure that dialogue is maintained by both parties as soon as the report is handed over.

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one of the best articles i've read in a while. the only obvious point is that because sdm owns such a high percentage of the shares, there is no personal motivation (and then, arguably moral) motivation to appoint someone in keeping with the higher markets. full listing costs more too, which may not be wise in a time of decline. while we might want more debate in the boardroom, i can't see what will make sdm want it. hopefully this and the rest of STS can persuade :D

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BMcK, I think you are correct that there is nothing to force Murray to change the composition of the directors. However he did bring in Paul Murray when he thought that they were going to have to raise finance in respect of the redevelopment as he saw him as being a specialist in this area, so hopefully he could be persuaded to see the benefits that new blood could bring

 

However he could see it as a lose of control and for that reason not go for L_N's proposal.

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Once the report has been produced how can we gauge the reaction of the chairman and the board? I certainly can disagree with anything ive read and am impressed with the quality and professionalism of all the articles but i fear the only response from our chairman will be "thanks for the report, well take your points on board" and never hear from them again.

 

I hope steps are taken to ensure that dialogue is maintained by both parties as soon as the report is handed over.

 

The expanded report contains all 12 articles (currently only 11 online) as well as article analysis and recommendations. There is also an introduction and conclusion.

 

One of the main recommendations is that the club accept the intentions of the report and comment fully on its content. Of course we can't force them to do that but the honest, positive and constructive nature of the project will hopefully see a response given in kind.

 

:)

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Guest enigmablue

Hi Frankie,

 

Enjoying the series and the report in it's entirety will be an interesting read.

 

When you say presented to Ibrox? In what capacity? As a fan? through an RSC? through a 'recognised' group e.g WWA, RSA etc?

 

A bit out the loop here in Oz but my dealings with Ibrox through ORSA have been eye opening and i'm fully supportive of the need for a concise, considered and clear picture of what needs to happen to ensure the current leadership raise their game.

 

In simple terms, you just don't realise how bad it is until you get involved with the club in an official capacity. The club are so out of touch with the fan base its untrue and although we've had a successful season it's not rocket science to see that we're not too far away from another bumpy ride financially.

 

Keep up the good work.

 

Cheers

EB

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EB:

 

Thanks for the reply.

 

The report has been put together by Gersnet and assisted greatly by RangersMedia so while I've collated it personally, the exercise will be submitted as an online group project. However, it is important to note, this isn't about one or two websites, one or two fans or one or two fan organisations but simply an exercise in pro-active supporter debate to stimulate the club.

 

I agree with your points about malfunctioning representation and that is one of the key parts of the report. We can all complain about the club but if we can't work together ourselves then it gives them an easy get out clause.

 

I'm hoping this report (although led by around a dozen people) can show we can work together - fans with fans and fans with club. As such, not only will the club receive a copy to reply to but every fan organisation, every RFC website (that I can find), the media and every individual fan interested in such matters.

 

Unfortunately the fact we have no budget means we can't have a large print run so, in the main, we're hoping the distribution of the report will be as wide as possible through electronic means.

 

Time will tell how successful the project has been but at the very least it has shown the talent amongst the support and that the club should be utilising that instead of actively working against it.

 

:)

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