A collective sigh of relief was released from football fans this week as six high-profile English clubs withdrew from plans to launch a new European Super League. The plan, involving 12 clubs in total, was launched on Sunday but had collapsed by mid-week following an outcry from supporters, footballing authorities, pundits and politicians (even UK prime minister Boris Johnson).

Now one of the UK’s leading business institutions believes the ill-fated league is evidence that the UK needs to reform key legislation that sets out directors duties—the much debated section 172 of the Companies Act.

According to Amin Aboushagor, policy adviser at the Institute of Directors (IoD), the super league debacle points to a need to push ahead with reforming director’s duties along the lines of the Better Business Act campaign launched last week.

Backed by businesses such as John Lewis and Innocent Drinks, as well as the IoD and Green MP Caroline Lucas, the campaign aims to change the key director’s duty in section 172 from promoting the “success” of a company to advancing the “purpose of the company”.

“Although a reform of section 172 would be a significant change in the focus of company law,” says Aboushagor, “it is aligned with developments in corporate governance which we support: which is basically a growing emphasis on ESG factors in corporates and decision making, and the importance of a broader stakeholder orientation.

“And the events of the European super league this week only serve as further impetus for such changes to section 172.”

The super league plans caused consternation after it became clear it would run as a closed shop without meaningful competition—none of its founding members would face relegation, while no consultation had taken place with fans or European football’s governing bodies FIFA and UEFA.

The proposal came in for eye-watering criticism for being driven by greedy owners looking for extra cash to support weakened balance sheets burdened by debts.

English clubs involved included Liverpool, Arsenal, Chelsea, Liverpool, Manchester United, Manchester City and Spurs. They were joined by Italian icons Inter Milan, Juventus and AC Milan, as well as lead Spanish teams Atletico Madrid, Barcelona and Real Madrid.

Better Business Act and governance reform

The IoD is not alone in believing the super league events underline the need for change in corporate governance. Rob Hayward, chief operating officer at Principia, an advisory firm that researches corporate ethics, says the super league controversy is “an example of where company law can guide companies in doing the right thing”.

He adds: “The Better Business Act campaign’s proposal to amend section 172 of the Companies Act… could prompt a transformative shift in the role of purpose in corporate governance, and enshrined in law the requirement to consider measures of success beyond short-term financial returns.”

“Purpose” and its introduction into boardroom thinking has become a cornerstone discussion in corporate governance circles in recent years. In 2018 it was written into UK Corporate Governance Code which says in Principle B that a board should “establish a company’s purpose, values and strategy and satisfy itself that these and its culture are aligned”.

However, there have been concerns at the clumsy approach of some companies at fully integrating purpose into company policies and strategy. A report from the Financial Reporting Council in November revealed concerns that some companies were either using “marketing slogans” or “vague” declarations as a purpose statement.

Purpose has received much attention from academics too. Colin Mayer, an Oxford University professor, has produced a series of papers for the British Academy attempting to add substance to the concept of purpose. In one paper Mayer writes: “The purpose of the corporation is to produce profits. The purpose of the corporation is to produce profitable solutions for the problems of people and planet. In the process it produces profit, but profits are not per se the purpose of the corporation.”

Hayward sees the super league proposals as “yet another example of the gulf that can emerge between organisations and the communities they serve, and a reminder of the importance of a common purpose in guiding strategy and decision-making.”

In the case of the super league clubs, the communities in which they operate and their fans are some of their core stakeholders—a key ingredient when companies define their purpose.

One governance observer told Board Agenda that if the super league clubs had put in place “suitable mechanisms to engage fans” then the trouble could have been anticipated. It is has been noted in numerous commentaries that top German clubs are 51% owned by fans, an arrangement that echoes the appointment of employee directors to the supervisory board of German companies.

Purpose and public interest

Many newspapers carried stories suggesting the government might consider legislating for similar fan ownership rules.

But governance proposals may have the answer already. In 2019 the British Academy set out a list of principles for “purposeful business”. The second principle says: “Regulation should expect particularly high duties of engagement, loyalty and care to public interests on the part of directors of companies which perform important public functions.”

It would be hard to argue football is not a critical part of the UK’s public life, especially after elite teams were given the go-ahead to continue playing while the rest of the population, including amateur sport, was in lockdown.

The pandemic had its own effects. Rob Hayward says it caused business leaders to become more “conscious” of the need to shift gear and ensure their “organisations can live their stated purpose and values through every decision and every action”.

For others this is part of a shift that was already under way. According to Barry Johnston, founding partner of Purpose Union, a specialist advisory firm, it has been clear for a decade that the “era of shareholder primacy” is ending as other stakeholders—investors, consumers and sectoral interest groups—demand a say in the way companies are run. And that will continue with new generations.

“Looking ahead, these trends are only going to grow,” Johnston says. “Younger consumers, investors and activists have exceptionally high expectation of business and are motivated to act where they see them falling short.”