Agency problems

The recent Daily Telegraph investigation that led to Sam Allardyce stepping down as England manager has put the spotlight back on the activities of football agents.

It is not just players that have agents, but managers as well. And clubs have agents to negotiate with all the other agents. The game appears to be awash with agents or – as the FIFA regulations they are governed by call them – ‘intermediaries’.

The term intermediaries was also used by John Kay in his 2012 report on the UK equity market to describe the long chain between savers and the companies in which their money is invested – asset managers, investment consultants, proxy advisers and so on.

To that list can be added the various ‘agents’ employed by companies to help them manage their affairs, such as executive search firms and remuneration consultants.

Recently I was at a presentation by some remuneration consultants who said that they regularly spoke to proxy advisers about their clients’ remuneration policies. And there are other examples in equity markets where agents negotiate with agents, rather than principals with principals, just as appears to happen in football.

What is the reason for this proliferation of intermediaries?

To some extent it may reflect globalisation and greater competition for resources – including talent and funding – at the top end of football and the capital markets.

Leading clubs would say that in order to compete that they can no longer just pop down to the local works team and pick out a horny handed son of the soil to bolster the back four. And companies can no longer just pop down to the Association of British Insurers’ offices to find out what the majority of their shareholders think. So they need some assistance.

Whether all of these intermediaries are necessary is another matter. Do football clubs really need to employ agents to negotiate player contracts on their behalf, for example? And do listed companies really need to employ consultants to tell them how much to pay their own executives?

But even when intermediaries are needed, and even when they are honest and professional as the majority of them are, there are still potential problems. They do not come free. Maybe more significantly, as John Kay pointed out, ‘the imperatives of the business model of the agents do not necessarily coincide with the interests of the principals’.

The greater the number of intermediaries, the greater the costs to companies and clubs, and indirectly to savers and supporters. And the greater the potential for misaligned incentives that distort behaviour.

Before joining ICSA's policy team as a consultant, Chris Hodge was the FRC Director of Corporate Governance.

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