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THE EUROPEAN SUPER LEAGUE, ONE FOR THE FANS OR THE SHAREHOLDERS? A SOUTH AFRICAN PERSPECTIVE ON A DIRECTOR’S FIDUCIARY DUTY TO MAKE A PROFIT
Nicholas Petzwinkler
12 May 2021

On Sunday the 18th of April 2021, 12 (twelve) of the world’s football giants announced plans to form a super star European league which could have ultimately been the major unravelling of elite European football. The reason for this is that these world renowned teams opted to play in their own league to the exclusion of a united European league which is organised through qualification requirements. These qualification requirements make it possible for any team that meets the criteria of the league to compete. However, the coin seems to have flipped and it is now the European Super League that is dangerously close to unravelling due to a massive public outcry from football supporters across the globe. Fans from various clubs spearheaded the charge, as well as ex-football pros such as Garry Neville, Jamie Carragher, Sir Alex Ferguson and Sir Kenny Dalglish who spoke out against the plans to create and compete in the elite league.

Legally the argument for joining the new league is far more complicated than it may seem on face value. This article seeks to explore the legal duty placed on directors in terms of their fiduciary duties and more specifically their duty to make a profit for their company as well as its shareholders.

A fiduciary relationship is a relationship which is based on trust. In terms of section 66 of the Companies Act, 71 of 2008 (hereafter referred to as the ‘Companies Act’), the board of directors of a company must manage the business and/or affairs of the company unless the company’s Memorandum of Incorporation (hereafter referred to as the ‘MOI’) states otherwise. The directors of a company owe fiduciary duties to the company as they are placed in positions of trust to manage the business and/or affairs of the company. These duties are imposed on all directors and directors may not opt out, nor may a company elect to not have their directors bound to such ethical duties of allegiance.

Fiduciary duties find their root in our Common Law as well as the Companies Act. As South African Common Law is based on English Law we take cognisance of English decisions. It is, therefore, apt to determine whether placed in the same position South African directors would act in a different way to the directors of many of these large clubs, which are, for the most part, private companies.

In Daniels v Anderson (1995) 16ACSR 607 (NSW) the court remarked that ‘the duty of a director may be to display entrepreneurial flair and accept commercial risks to produce a sufficient return on capital invested’. Traditionally, directors manage a business of behalf of its shareholders in order to maximise profits for the business and consequentially, the shareholders. The shareholders of the company are not just the current shareholders but also the future shareholders, see in this regard Miller v Bain Sub Nom Pantone 485 Ltd [2002] BCLC 266 (ChD). Directors must assess the risks of their decisions, not only on the consideration of immediate attainable gain, but also the potential impact to the company further down the line.

This comparative approach of weighing the interests of stakeholders against those of the shareholders is no phenomenon in our law and in fact finds application when directors must decide on whether a company should opt to make a profit at the expense of other business interests, such as the goodwill of the company, for example. The board of directors may consider the following approaches when deciding on issues of this typical nature: the ‘stakeholder’ or ‘pluralist’ approach and the ‘enlightened shareholder value’ approach.

The stakeholder approach considers the need for corporate social responsibility and a board that applies this approach would consider the impact of its decision on the company’s stakeholders alongside the of profit-making. In other words, a profit is not the only motivation that should influence a decision. The pluralist approach advocates for the disregard of shareholder interests in extended circumstances.

The enlightened shareholder value approach requires directors to maximise profits but permits stakeholder interests to be taken into account where this would further the interests of the company (i.e. by leading to a result which increases profitability).

In the United Kingdom stakeholder interests may be taken into account if in so doing the company’s shareholders are served. However, should there be a conflicting interest the shareholder interests must prevail. It would seem that this is in line with the aforementioned enlightened shareholder value approach.

Were we to apply the scenario of the European Super League to the different approaches we would find that the board of directors of the various teams would consider joining the league with circumspection if they applied the stakeholder or pluralist approach; yet if they were to apply the enlightened shareholder value approach they would no doubt favour joining the league as there is massive potential to make considerable profit. This is because the board is required to consider the possible negative outcomes of joining the league (as we are currently seeing). These negative outcomes include a damage to the team’s (company’s) goodwill which results in less support and consequently less revenue, for example, through the sale of merchandise and  ticket sales; the loss of community and employee support and the possibility of FIFA or UEFA applying sanctions against their team, which could see the team banned from competitions or even deny their players access to international competition. If the liberal stakeholder or pluralist approach was applied these factors would weigh heavily against the possible outcome of a boost in potential revenue (considering potential increase set off against potential negative consequences). If the conservative enlightened shareholder value approach was applied the clubs would see the possible increase in revenue as the most important consideration.

Established Common Law principles support the enlightened shareholder value approach. In Dodge v Ford Motor Co 170 NW 668 (1919) the court proclaimed that a company’s primary objective is to make a profit for its shareholders and may not, accordingly, reduce these profits in order to benefit the public. This does not mean that corporate social responsibility is not considered, but rather that it takes the back seat. If there is a way to generate sizeable profits and be socially responsible then this will of course be adopted as it will lead to increased goodwill which will consequentially increase profits in the long term whilst still building a business brand that the community supports.

With this in mind the court in Teck Corp Ltd v Millar (1972) 33 DLR (3d) 288 (BCSC) stated that ‘If today the directors of a company were to consider the interests of employees no one would argue that in so doing they were not acting bona fide in the interests of the company itself.’

It is submitted that if a company was to show that the interests of the shareholders as its primary concern – and these interests are best served by further considering other stakeholders in order to increase long term profitability – a court could find it burdensome to declare that the directors have not complied with their fiduciary duties.

Therefore, joining the European Super League would have to be argued on a widespread consideration of financial factors as well as socially responsible corporate factors. Arguments for the abandonment of the league could be that the stakeholders involved are tremendously affected and the social image of the teams has become greatly soured by the move for an elite league. Arguments for the joining of the league could be centred on the basis of pure shareholder interests outweighing the stakeholder interests as there is considerable financial gain for the shareholders and the football clubs do not operate as non-profit companies but rather as private companies.

The foreseeable litigation that will emerge will most likely centre around these vital principles and it will be interesting to see the development of the law in this regard.