Corporate governance typically describes the way corporate power is exercised within business organisations. Good corporate governance practices are typically defined in terms of practices, processes, and sound economic performance (Turnbull 2010). The present report examines the implementation of sound corporate governance management practices in William Hill, a U.K. sports betting company. Particular attention will be paid to the practices and processes prescribed by the Corporate Governance Code (2014), the leading template for good corporate governance practices in the U.K. The goal of this report is to enlighten Institutional Investors as to a potential investment in the company.
BRIEF COMPANY BACKGROUND
William Hill is a global sports betting and gaming company, and one of the most trusted brands in the sports gaming industry. According to the company's latest available key financial statistics, total revenue ascends to Â£1.61 billion, gross profit is Â£1.32 billion, while EBITDA is Â£385 million (Yahoo Finance 2015a). The company's EBITDA is revealing as to the company's financial soundness. The above-mentioned sound financial statistics are clearly reflected in Figure 1 (Yahoo Finance 2015b), which depicts the 5-year stock price trajectory of William Hill. The company's share price has almost tripled in value since January 2011. Notwithstanding, it should be pointed out that, for the sub-period between 2011 and 2013, the stock price soared; whereas, for the period 2013-2015, the stock price is relatively stable, which might point to the existence of impending regulatory shifts conditioning a potential demand weakness for its gaming products (e.g., the company is currently being affected by a significant decrease in profits accruing from gaming machines, in view of tougher gaming regulation (The Economist 2014)). Figure 1: Stock Market Price of William Hill (5-year chart)
Source: Yahoo Finance; 5-year stock market prices (closing prices Â£)
WILLIAM HILL: A CORPORATE GOVERNANCE ANALYSIS
The present section focuses on the following main five (5) topics of analysis that are relevant to the William Hill, where a more thorough examination of its corporate governance structure and practices are concerned. The first topic addresses the composition of the company's Board of Directors ("Leadershipâ€); the second topic refers to the company's governance structures and Boardroom Practices ("Effectivenessâ€); the third focuses the reporting to shareholders and/or external audit procedures ("Accountabilityâ€); the fourth topic refers to the pay level of the company's Directors and Senior Executives ("Remunerationâ€); finally, communications and relations with shareholders are also examined ("Relations with shareholdersâ€). These topics are quite crucial to our assessment pertaining to the implementation of effective and sound governance procedures and mechanisms at William Hill.
Leadership - The Board of Directors
William Hill's Board of Directors is composed of nine Board members (7 men and 2 women). The current Chief Executive Officer (CEO) is Mr. James Henderson, who heads "the Group's overall strategic direction, the day-to-day management and profitability of the Group's operations"(Hill 2015a). Mr. Henderson possesses extensive industry experience, having climbed the company's corporate ladder through his appointment through several company roles. Moreover, the company's CEO is seconded by the Mr. Neil Cooper, the Group's Finance Director. Mr. Cooper possesses extensive finance experience, having performed various roles outside the Group. The Board is also composed by the Chairman, Mr. Gareth Davis, who is responsible for the company's best corporate governance practices. Finally, the Board is also composed of a set of five independent non-executive Directors and a Company Secretary. The company had, in 2013, a number of female Board members compliant with best practices associated with fair gender treatment at the Board level (The Guardian, 2013). However, in the current year, the number of female members seems to have fallen below best industry practices (Tonello 2010), but care should be taken to further increase the percentage of women on Board beyond the prescribed legislation (according to U.K.'s Governance Code, that minimum percentage should equal 25% of women on Board). This might be a temporary setback, but it currently stands as a non-compliance issue (Financial Reporting Council 2014). The above-mentioned corporate governance structure is compliant with the best practices currently being promoted in the UK, in strict accordance with the UK Corporate Governance Code of 2014 (Financial Reporting Council 2014). The Board's composition seems to ensure that compliance with the Code is adequately assured. For example, there is a clear division of corporate responsibilities within William Hill, with no function overlap nor unfettered powers of decision held by any specific Board member. Moreover, the percentage of 'outside' Directors ensures proper oversight.
Effectiveness - Governance and Boardroom Practice
According to Tricker (2012), there are a number of factors that decisively influence the effectiveness of a company's governance, the most relevant of which are related to the necessary skillset of the top management team, as well as functional flow of both internal and external communications with stakeholders. On both counts, William Hill possesses the necessary requisites in order to comply with the outlined good practices of governance. As previously described, the company's composition is quite diversified and experienced so as to effectively pursue the company's ambitious goals (the previous section describes in more detail the profiles pertaining to the main Board members); at the same time, the inclusion of non-executive Board members vis Ã -vis the executive members clearly points out to a proper balance of powers within the sports betting group. That is, good governance practice dictates that 'inside' (i.e., executive) vs. 'outside' (i.e., non-executive) members co-exist, so that the latter typically do not possess a previous link to the company which might jeopardise their autonomous and independent business judgement. On the other hand, the flow of information to outside investors seems to be quite proficient, most notably where the structure of communications through the Internet and social media is concerned. For example, the company's website provides accurate and in-depth details pertaining to the company's governance structure, balanced Board composition, the company's articles of association and the company's latest available annual accounts (for 2014), and the professional details of the company's auditor and corresponding Annual Report and Accounts. Online transparency seems to be a major company policy, which thus sustains the argument in favor of an effective and balanced governance practice (Hill, 2015b). It is hoped that this strategy of good corporate governance might also be applicable to the case of institutional investors, who typically require a greater insight into the company's operations and accounts, information which is normally not available online. This topic might be of importance in the subsequent investment decision making process of institutional investors, insofar as this class of investors typically undertakes a significant proportion of equity into the company and require detailed company information. A major caveat associated with this report concerns the fact that such a subsequent investment position assumed by the institutional investor might be less positively construed by the company's current management (i.e., it might be seen as a potential takeover of William Hill). Finally, a formal and rigorous annual evaluation of the company's top management team is also regularly conducted. The Report on Corporate Governance reveals that good corporate governance is linked to the performance of William Hill. The measures ensuring good corporate governance at the company, in compliance with the U.K. Governance Code, are the following: the induction of Board members through a bespoke program; Board members have full access to all the required information about the company; the Board members are subjected to re-election at least every three years (conditional on effective performance); and the Nomination Committee ensures the nomination for the Board constitutes a transparent process (Hill 2015c).
Accountability - Reporting to Shareholders /External Audit
The Financial Reporting Council prescribes that a truly effective corporate governance structure relies on a number of components, namely: accountability to shareholders and their rights; the full availability of information pertaining to the company's performance and corresponding governance framework; finally, an ethical framework supporting a certain type of irreproachable behavior pattern by the companies, as evinced by either codes of conduct or statutes. In this respect, a distinction is maintained between the law as a stalwart of basic standards of conduct and corporate transparency and statutes or codes that are more efficient in encouraging best governance practice (Financial Reporting Council 2011). Accordingly, William Hill's website provides accurate and timely information to existing and prospective shareholders. This information is quite detailed in the 'Investors' area of the company's website, a fact that reveals the company's concern with upholding best governance practices. On the other hand, full details pertaining to the company's auditor has also been properly disclosed, as well as the company's latest accounts (Hill 2015c).
Remuneration - Directors and Senior Executives
The company's levels of remuneration to top executives should be sufficiently attractive to attract, retain and motivate Board members with the necessary quality to manage the company successfully. Simultaneously, the pay level should not be substantially above current market prices. A further point concerns the fact that the latter pay level should be adequately linked to both corporate and individual performance (Tricker 2012). Furthermore, pay levels should be subjected to a transparent and formal procedure, so that the executives involved are not directly responsible for deciding his or her remuneration. According to publicly available information on this topic, the remuneration level of the leading Board members is available through the 'Directors Remuneration Report', which has been included in the company's annual accounts for the latest year. A detailed breakdown of the accrued remuneration benefits is explicitly detailed in the report. This practice of publicly divulging remuneration levels of William Hill's top management is quite compliant with U.K.'s best governance practices. Moreover, the remuneration decision process, although somewhat complex, is fully transparent as the existence of mechanisms that ensure that the pay level is not determined by the interested party, and is effectively linked to individual performance (Hill 2015c). A potential area of non-compliance resides in the fact that the 'Remuneration Report' does not fully disclose the remuneration levels for all the Board members, as well as in the fact that the disclosure of remuneration information pertaining to its CEO, although explained, is not entirely formulated in a simple and effective manner.
Relations with Shareholders
Effective governance practices dictate that relations with shareholders should be adequately based on the mutual understanding between the company's top management and the heterogeneous set of interests pertaining to existing shareholders. Moreover, a transparent process of communications between these two structures should also be implemented, properly taking into account the pursuit of the company's organisational goals (Tricker 2012). According to publicly available information, The Board remains strongly committed to maintaining good relationships with external investors, through constant dialogue, presentation of financial results, and adequate availability of top management to discuss governance issues, thus indicating efficient governance procedures (Hill, 2015d).
Global demand for gaming products is typically growing, as the popularity of both gambling and online entertainment continues its expansion at a truly global level. This global expansion should stand to benefit William Hill, and its long-term growth expansion. There are, however, two caveats (KPMG 2010) that warrant an investor's attention. First, the online gaming market is undoubtedly a very attractive area of expansion for software developers, casinos and other land-based gambling operators, related suppliers, and industry newcomers and investors alike. This might increase a given company's operating costs, dragging down future growth, as competitive pressures increase in the industry. Second, there are several quite unpredictable political and legislative hurdles in place in many countries, and those obstacles might also condition future global growth. Nevertheless, online gaming seems to have a promising foothold in many European markets. Under this perspective, an investment in William Hill is also an investment into the future of online gambling, and the risk-return payoff might be quite interesting from a financial point of view. The online gaming industry thus possesses enormous growth potential, especially in advanced markets such the U.S. and the U.K. Notwithstanding, an impending ethical governance issue within the company might be linked to the allegations that the company might be exploiting addicted gamblers, by further enticing them through the advertisement of credit services to problematic gamblers (news.co.au 2015). This might pose a serious legal risk that might ultimately result in the dampening of growth and should be vehemently addressed through the implementation of adequate governance procedures. The present report sustains that an institutional investment in William Hill is thus justified by the company's sound and promising financial standing, the existence of proper mechanism that ensure that effective and robust corporate governance procedures and mechanisms have been properly implemented, and, ultimately, by the very buoyancy of the sport gaming industry in advanced economies.
In view of the analysis provided by this report, it is our assessment that William Hill is quite compliant with the UK Corporate Governance Code of 2014 (notwithstanding the fact that some issues pertaining to the process of effectively communicating remuneration levels to interested external stakeholders should be made more transparent and the number of female members to the Board should be increased). Finally, an investment decision by our institutional investors should be pursued, taking into consideration the company's financial soundness and its medium to long term growth prospects, notwithstanding the existence of impending regulatory issues that might condition the global growth of the sports betting industry.
- Hill, W., 2015a. Board of Directors [Online]. Available: http://www.williamhillplc.com/about/board-of-directors/
- Hill, W., 2015b. Board and Governance. [Online]. Available: http://www.williamhillplc.com/investors/board-and-governance/
- Hill, W., 2015c. William Hill Plc Annual Reports and Accounts 2014. [Online]. Available: http://files.williamhillplc.com/media/1832/2014-final-results-accounts.pdf
- Hill, W., 2015d. Shareholder engagement. [Online]. Available: http://www.williamhillplc.com/investors/board-and-governance/shareholder-engagement/
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- Financial Reporting Council, 2014. The UK Corporate Governance Code. [Online] Available: https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf
- KPMG, 2010. Online Gaming: A Gamble or a Sure Bet? [Online] Available: http://www.kpmg.com/EU/en/Documents/Online-Gaming.pdf
- News.co.au, 2015. William Hill offers customers $1000 credit. [Online]. Available: http://www.news.com.au/finance/money/william-hill-offers-customers-1000-credit/story-e6frfmci-1227286743077
- The Guardian, 2013. FTSE 100 companies still 66 female directors short of boardroom target. [Online]. Available: http://www.theguardian.com/business/2013/oct/07/female-directors-boardroom-target-business-cable
- The Economist, 2015. A risky business. [Online]. Available: http://www.economist.com/news/britain/21598671-gambling-machines-are-controversialand-increasingly-unpopular-risky-business
- Tonello, M., 2010. Board Composition and Organization Issues. In: Baker, H.K. and Anderson, R., eds. Corporate Governance: A Synthesis of Theory, Research, and Practice. United States: John Wiley and Sons Inc., pp. 195-223.
- Tricker, B., 2012. Corporate Governance. Principles, Policies and Practices. Second edition. United Kingdom: Oxford University Press.
- Turnbull, C.S.S., 2010. What's Wrong with Corporate Governance Best Practices?. In: Baker, H.K. and Anderson, R., eds. Corporate Governance: A Synthesis of Theory, Research, and Practice. United States: John Wiley and Sons Inc., pp. 79-96.
- Yahoo Finance, 2015a. Key Statistics. [Online]. Available: https://uk.finance.yahoo.com/q/ks?s=WMH.L
- Yahoo Finance, 2015b. Basic Chart. [Online]. Available: https://uk.finance.yahoo.com/q/bc?s=WMH.L&t=5y&l=on&z=l&q=l&c=