USSF Nominating and Governance Committee

What are we doing?!

You said it, bro…

The basic purpose of a nominating and governance committee at any company is to provide stakeholders (shareholders in my world, members in USSF’s) comfort that key corporate governance decisions, especially decisions about who should be on the board and how it functions during the trickier / stickier moments, are being reviewed by a select group of directors trusted to advise and to make recommendations to the board with impartiality and with the company’s (or the organization’s) best interest in mind. At the largest US publicly traded companies, the nominating and governance committee must be composed exclusively with “independent directors.” That means that committee members can not have any direct or indirect material relationships with the company. They can’t be employed at other businesses that have significant transactions with the company. They can’t be current executives of the company. Those facts (among a host of other types of relationships) would disqualify a director from serving on the committee.

How’s USSF doing with this stuff, you ask? Not good, Ted!

In fact, the Nominating and Governance Committee of USSF’s Board of Directors looks like a total sham. Not only has the former President of USSF served on the Committee, but the Committee has been chaired by Board member Don Garber, who happens to be the head of both Major League Soccer (MLS) and Soccer United Marketing (SUM). Respectively, MLS is a league whose business depends on USSF sanctioning it as division 1 and benefits from USSF de-sanctioning it’s competition at the lower levels, and SUM is a marketing business owned by the MLS team owners that happens to derive significant revenue from USSF relationships and also happens to be the source of roughly half of USSF’s revenue.

Think about that. Don Garber is without a doubt the least independent or impartial (i.e. the most conflicted) member of USSF’s Board, and yet he has been installed as the head of a key committee of the Board that is somehow trusted to put the interests of the organization above all else. In the words of Taylor Twellman, “What are we doing?!”

To understand one way Garber’s influence on the Committee could have a wide-ranging impact, you need to consider the structure of USSF’s Board and the central role of the Committee. First, the Board is set up to include a balance of representatives of the federation’s most powerful membership factions, the athletes, pro leagues, youth organizations and adult organizations. By design, the board’s baseline is a deadlock, which ideally would promote collaboration and compromise among the various factions for the greater good. However, over the years, additional Board seats have been added, including the Executive Vice President position, three “independent” director seats and an “At Large” representative.

Those five additional seats on top of the core 11 (which except for the President are determined by the member factions acting separately) definitely have the potential to upset the balance of power on the Board from the baseline deadlock. And that may be where Garber’s position at the head of the Committee wields the most influence. Pursuant to Section 5 of USSF Bylaw 431, the Committee has responsibility to “oversee the selection and nomination of independent directors” — that’s really the primary task of any nominating committee.

So, cynically, the Committee is poised to promote three additional Board votes for MLS (four if you consider that Cordeiro became EVP after initially serving as an independent director) on the issues that matter most to Don Garber. Factoring Sunil Gulati’s ties to MLS and the links of various representatives of the Athletes to the league and its marketing partners, it’s not hard to see how decisions on things like NASL sanctioning and the USSF’s SUM relationship broke from the baseline deadlock and somehow went MLS’ way.

And if you’re wondering if USSF is receiving fair value in the SUM relationship, don’t worry because the Committee is also responsible for reviewing conflicts of interest of the directors and for implementing processes to deal with them. Oh, and from USSF’s side of things, its top employee, well, the Committee is in charge of his performance evaluation and for setting his compensation. That’s right, Section 5 of Bylaw 431 puts Garber (who is absolutely conflicted with respect to SUM) in charge of navigating the SUM transaction on USSF’s behalf and of setting the compensation of the USSF employee with responsibility for negotiating USSF’s side of the deal against Don’s own company. That’s marvelous.

“What are we doing?!”

Working in a corporate governance role for an NYSE listed company and watching the recent USSF presidential election unfold, I found myself bench-marking the federation’s governance practices against the standards we set in the US for the largest publicly traded companies.

You could argue that it’s a pointless exercise because nonprofit organizations like USSF are completely different animals than S&P 500 giants. Then again, both sets of entities are corporations governed by boards of directors with fiduciary duties established under essentially the same body of state laws…

And the governance requirements imposed on the largest corporations by securities exchange listing requirements (like lose included in the NYSE Listed Company Manual), statutory reforms like the Sarbanes-Oxley and Dodd-Frank Acts, rules enacted by the Securities and Exchange Commission, the Internal Revenue Code, institutional shareholder governance policies, voting guidelines from proxy advisory firms like Institutional Shareholder Services, external pressure from activist hedge funds and legal precedent from the Delaware Court of Chancery amount to the most comprehensive body of corporate governance principles in the history of the world.

So since we’ve reached peak governance, why not use it?

And why shouldn’t a federation with such a massive responsibility to the youth in this country be held to the highest standards? And why shouldn’t a federation trusted to allocate such a large stockpile of financial resources strive for excellence at the board level, and set that tone from the top? And why shouldn’t a federation with a federally-granted monopoly over the governance of the world’s most popular sport, which now faces a multitude of conflicting interests due to burgeoning interest in the game — why shouldn’t it try to position itself to be beyond reproach in its dealings with its members and while navigating their multitude of conflicting interests?

Carlos Cordeiro, based on his vast experience as a bulge bracket investment banker and as a board member of a publicly traded global company, knows the value of an independent board that is both engaged and composed with the right mix of skills and experience. A strong board can be a competitive advantage. This is sports. Competitive advantages are perhaps marginally important…

There are lots of bases to benchmark USSF’s governance practices against those of the largest corporations — things like the board’s involvement in succession planning and risk mitigation, voting dynamics and director elections, delegation of authority from the board to management on key strategic matters, the composition of the board and the board’s oversight of management performance and incentives come to mind — but the thing I’m thinking about today is the role of the board’s Nominating and Governance Committee.

And USSF comes up well short in this exercise.

“Aim higher!”