13Corporate governance at Arsenal football club-final report 2005.pdf

CORPORATE

GOVERNANCEAT

ARSENALFOOTBALL

CLUB

PreparedbyCorporateGovernanceLimited

fortheArsenalSupportersTrust

A review of

Corporate

Governance at

Arsenal Holdings plc

- 1 - Corporate Governance Limited 2013

EXECUTIVE SUMMARY

The Arsenal Supporters Trust has asked us to examine the way that the Arsenal Board is structured and run in

the context of modern corporate governance best practice. Discussions with the Trust identified the following

five key areas. Each is followed by a brief explanation of the underlying governance challenges.

Concern 1: Board Composition

An ageing Board, lacking in new blood and the breadth of professional skills required to run a modern, publicly

quoted football club with a first rate pedigree; no Directors have professional football experience.

Average age excluding Ivan Gazidis is 72.6 years, well in excess of accepted public company practice

Peter Hill-Wood & Kenneth Friar have been Board Members continuously for over 30 years, which is highly

unusual, although also reflects their life-long commitment to the club.

No member of the board has experience as a professional football coach, player or manager, despite that

being the Clubs main business.

No regular refreshing of the Board; no apparent succession plan

Concern 2: Conflicts of Interest

Only majority shareholders views are represented on the Board; obvious presence of potential major shareholder/

Director conflicts of interest

To our knowledge, there is no Relationship Agreement in place with major shareholders regarding potential

conflicts of interest. However, an authorisation process is covered in the Articles of Association

No commentary in 2012 Annual Report on how conflicts, or potential conflicts, are managed

Concern 3: Shareholder Accountability

Limited accountability to minority shareholders or fans. More effective 2-way dialogue required with them.

Chairman should be responsible for ensuring effective communication with shareholders

Non-Executive Directors should meet major shareholders: AST/Arsenal Fanshare and members effectively

comprise both the 4th largest shareholding in Arsenal Holdings plc and the lead representative role

No Senior Independent Director available to minority shareholders in the event that normal channels do not

function effectively

Despite regular meetings with the CEO, and despite representations made at the time of KSE UK Incs Offer

the Club, the majority shareholder has not met the AST (or any other supporters) since then

No apparent substantive dialogue with Arsenals second largest shareholder, Red & White Securities Ltd

2012 AGM proceedings imply a Board which is dismissive to minority shareholders

Good Corporate Governance and Investor Relations practice require transparency and proper dialogue with

shareholders, in turn generally reducing disquiet among shareholders/ fans

Concern 4: Power and Accountability of the Manager

Too many responsibilities and too much power is vested solely in the manager, reinforced by a lack of proper

decision-making processes and too few independent board members have professional football experience to assist

/ support the manager

No disclosure of Matters Reserved for the Board / Delegated Authority

No explanation of which matters are delegated to management; no formal identification of Group Executive

as referred to in 2012 Annual Report

No evidence of Non-Executive Directors scrutiny of whether management meet agreed goals and objectives

No disclosure of number of formal board or committee meetings, or attendance

Concern 5: Strategy

Major strategic decisions (eg focus on Financial Fair Play) do not appear to properly take into account the views of

all stakeholders, the company/ clubs short- and long-term interests, the appropriate balance of risks (including the

risk that FFP will not significantly change the landscape). Concentrated focus on FFP increases risks.

Shareholders are concerned that there is an excessive focus on a single self-sustainability/ FFP strategy,

which does not take into account shareholders non-financial objectives, ie football success

There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as

a whole has responsibility for ensuring that this takes place

To be robust, this dialogue should include discussions about the alternatives to the Boards strategy,

including the merits of alternative capital structures, the likely results and the inherent risks

The elected strategy should be most likely to promote the success of the company for the benefit of all

shareholders

Directors must also have regard to the impact of their actions on stakeholders including the community and

customers, and the likely consequences of any decision in the long term


INTRODUCTION

Background

A basic principle of the UK Corporate Governance Code makes clear that Boards of Directors are responsible for

the governance of their companies. The shareholders role in governance is to appoint the directors and the

auditors and to satisfy themselves that an appropriate governance structure is in place.

The Arsenal Supporters Trust (AST) has asked Corporate Governance Ltd to examine concerns about the way

that Arsenal Holdings plc (the Club, Arsenal or the Company) is run, in the context of modern Corporate

Governance best practice.

We have reviewed the corporate governance of the Club, in conjunction with some key concerns expressed to us

by the AST. These concerns have been agreed with the AST Board and are not intended to be exhaustive. We

summarise them below. Each area is followed by analysis, expressed either in terms of the UK Corporate

Governance Code (UK Code) (which the Arsenal Board, according to the 2012 Annual Report, considers1 to be

the appropriate benchmark), or the requirements of the UK Companies Act 2006. Other corporate governance

best practice, such as the 2013 Quoted Companies Alliance Code specify a broadly similar approach, but are

generally less prescriptive and therefore a less useful benchmark.

In carrying out our review, our work has been based on published documentation and information provided by

AST. However, the absence of disclosure by Arsenal on certain key areas has restricted our ability to examine

governance practices in detail. The absence of this information in the public domain represents, in itself, a

contrast to best practice corporate governance.

About Corporate Governance Ltd / Conflicts Policy

CGL was established in 1990 and has considerable experience of working with and advising Boards on all

aspects of quoted company regulation and practice. CGL seeks to ensure that clients comply with statutory

requirements and best practice, thereby maximising trust and investor confidence within the quoted company

market.

CGL maintains absolute confidentiality over its clients affairs and treats every client independently. It is CGLs

standard practice to declare to clients all areas which it may consider to be a conflict of interest. CGL and AST

believe that CGL is entirely independent in the matters discussed herein. CGLs Directors are not members of, or

affiliated to, any UK or International football club.

Benchmarks

As a company listed on the ICAP Securities & Derivatives Exchanges (ISDX) Growth Market, Arsenal is only

required to comply with the ISDX Rules which have relatively light corporate governance provisions2. Arsenal

appears to comply with these rules. However, in its 2012 Annual Report, Arsenals directors acknowledge the

importance of the 2010 UK Corporate Governance Code and endeavour to comply with its requirements so far as

the directors consider is appropriate to a Group of the size and nature of Arsenal Holdings plc. For this reason,

the Code has been used as the main governance benchmark in this analysis.

We have not addressed aspects of Board Remuneration that may be more relevant in non-football companies.

Board remuneration does not appear to be a substantial concern of the AST and fans, particularly given the

relatively high levels of player salaries compared to Board members.

Being a football club, as well as being nearly 97% owned by two shareholders, does mean that certain rules may

be inappropriate or impractical. However, the Club is considered as setting a benchmark in football standards,

with a long tradition of respectable behaviour and leadership among its peers. Often termed the Bank of

England club of football, it would be reasonable to expect Arsenal to adhere to best practice in corporate

governance, as it does in other activities.

We consider that further areas of the Code could reasonably be adopted by Arsenal, particularly in the context of

a quoted (publicly-traded) company with a high public profile and a stock market value of around 1bn. While

strictly only a requirement under the Listing Rules (to which Arsenal is not subject), it would also be reasonable

to expect that a company adopting the Code voluntarily would disclose, within the spirit of the Code, those areas

with which it had chosen not to comply, and the reasons therefor. Taken together, we suggest that additional

disclosures and reasons for non-compliance would significantly enhance both the corporate governance at

Arsenal and its perception by shareholders and fans alike.


ARSENALS BOARD

There are no detailed biographies of the Board on Arsenals website or in its Annual Report. The following

information is extracted from publicly available information:

Peter Hill-Wood, 77, has been Chairman since 1982. He is a former vice Chairman of Hambros Bank and is the

third generation of his family to serve as Chairman of the Club. Most of his family shareholding was sold to

former vice-Chairman David Dein in the 1980s and 1990s, and the rest subsequently to KSE UK Inc (wholly

owned by fellow Director Stanley Kroenke).

Ken Friar, 78, is Acting Managing Director. He has served the Club in various capacities for over 60 years. He

was Company Secretary from 1973 and became Managing Director from 1983 to 2000. He stepped down from

this role to concentrate on the project of moving the Club from its previous stadium at Highbury to the Emirates

Stadium. He took up his current role in May 2008.

Ivan Gazidis, 48, is Chief Executive Officer. He is a lawyer who practiced in the USA and became, in 1994, a

founding member of the management team for Major League Soccer. He subsequently became Deputy

Commissioner. He joined Arsenal in 2009 and is a Law graduate from Oxford University, where he was twice

awarded a Football Blue.

Sir John Chips Keswick, 73, is a Non-Executive Director. He is a former Director of Hambros Bank, the Bank of

England and several listed UK companies. He is a graduate of the University of Aix-Marseilles.

Stanley Kroenke, 65, is a Non-Executive Director. He owns KSE UK Inc, which has been a shareholder in

Arsenal Holdings Plc since 2007, and now has a majority shareholding of 66.83%. Mr Kroenke also owns

Kroenke Sports Enterprises, which has interests in several US sports franchises and also owns the Pepsi Centre

in Denver and a regional television network.

Phillip Harris, Baron Harris of Peckham, 70, is Chairman of Carpetright plc and has over 40 years experience

in carpet retailing. He was appointed to the Arsenal Board as an independent Director in 2005. He was a non-

executive Director of Great Universal Stores plc for 18 years to 2004 and was a Non-executive Director of

Matalan for 2 years until 2007.

SUPPORTERS CONCERNS AND CORPORATE GOVERNANCE CHALLENGES

CONCERN 1: BOARD COMPOSITION

An ageing Board, lacking in new blood and the breadth of professional skills required to run a modern, publicly

quoted football club with a first rate pedigree; no Directors have professional football experience.

The average age of Arsenals board is 69, which would increase to over 72 by excluding the relatively young CEO.

The average age of the Non-Executive Directors is 72, and the Chairman is 77. Regardless of any football-related

merits, this approach is not considered normal for large listed companies. The average age of the Chairman of

the top 350 UK companies is around 63, and of the Board as a whole is around 58. 3 Age, in itself, should not be a

barrier to a companys successful development (the oldest Non-Executive Director of a FTSE-350 company is

864). However it may constrain a Board from adequately relating to all its stakeholders in this case the Clubs

fans, who span several generations.

The appointments of Mr Kroenke and Mr Gazidis over 4 years ago belie the fact that Arsenals Board has

remained relatively unchanged for many years, with average tenure of 11 years and 2 out of 6 Directors serving

on the Board for more than 30 years. The Code requires5 a company to apply a particularly rigorous review to

reappointing a director for any term beyond six years and to take into account the need for progressive

refreshing of the Board. Beyond a term of nine years on the Board, Non-Executive Directors should be subject

to annual re-election. The AGM notice should contain sufficient biographical details and any other relevant

information to support their re-election.

The Clubs latest Annual Report6 states that the Nomination Committee is involved in an ongoing assessment of

the overall balance and performance of the board and its individual members Given that most of the

Directors have held office for more than the six year timeframe, and two Directors have been on the Board for

five times as long, shareholders could reasonably require greater disclosure from the Nomination Committee

regarding its evaluation processes and its opinion on the need to progressively refresh the Board. To further


reflect the nature of its supporter base, and corporate governance best practice, the Nomination Committee

should also consider the diversity of the board, including gender.

The near life-long commitment and loyalty to the Club of Mr Hill Wood and Mr Friar is not, in any way,

questioned by the AST. However, given their long tenure, it would be perceived as better practice for these two

Directors to stand for re-election every year at the Clubs AGM and also for Arsenal to explain the specific

rationale pertaining to the longstanding appointments.

The Code requires a Board to have plans to be in place for orderly succession 7, to maintain an appropriate

balance of skills and experience and ensure progressive refreshing of its composition. The first point is dealt

with later, but we note that, despite the relatively static nature of the Boards composition, there is no disclosure

of whether the Nomination Committee has plans for orderly succession or progressive refreshing8 of the board.

While we would not expect publicly traded companies to publish such plans in detail, it would be reasonable to

expect the Nomination Committee to expand the disclosures in the Report and Accounts on this area.

Composition / balance of skills

While the Board may well possess a broad and deep balance of the skills which it (or its Nomination Committee)

believes are required to successfully meet its strategic objectives, there is little biographical information in

Arsenals governance disclosures on its website, Annual Report, or AGM notice. This gives rise to reasonable

questions over the independence9 of Non-Executive Directors, the Boards performance evaluation10 processes,

and the Boards analysis of its performance, effectiveness or balance of skills11 which are not answered by the

Clubs own disclosures.

There is no disclosure as to which Directors are considered independent, nor reasons stated as to how

independence is determined. Instead, shareholders must rely on external 3rd party sources to determine such

matters. We note that no member of the Board appears to have on-pitch experience as a professional football

coach, player or manager, despite that being the Clubs main business. Shareholders might therefore question

the effectiveness of, and balance of skills on, the Board.

CONCERN 2: CONFLICTS OF INTEREST

Only majority shareholders views are represented on the Board; obvious presence of potential major shareholder/

Director conflicts of interest

Potential Conflicts

The Board has a legal duty12 to avoid conflicts of interest. There is no suggestion that Arsenal is in breach of any

law on this issue. However, with more than two thirds of the issued shares being ultimately owned by Mr

Kroenke, a Director, and the remaining shares owned by Red & White Securities or minority shareholders, it is

clear that conflict could arise between the interests of individual Directors and those of the Board or other

shareholders. In situations where shareholdings are concentrated it might be reasonable to implement a

Relationship Agreement with major shareholders to deal with potential conflicts of interest. To our knowledge,

no such Agreement exists. A process for authorising conflicts is covered in the Articles of Association13 and it

may be that this process is sufficient. However, there is no disclosure in Arsenals 2012 Annual Report on how

conflicts, or potential conflicts, are managed.

Representation of all Shareholders

A main principle of the Code is that the Board is responsible for ensuring that a satisfactory dialogue with

shareholders takes place based on a mutual understanding of objectives. From information provided by the AST,

it is far from clear that Arsenals relationships with minority shareholders are sufficient for the Board to form an

opinion of the views of its full shareholder base. This is analysed in more detail in the next section.

While one Director represents a shareholding of 67%, there is no indication that the views of members owning

the remaining 33% of shares are adequately taken into account in the Boards deliberations. Best practice would

be to disclose to the public how frequently, and in what way the Companys Board meets with major

shareholders, and takes into account their views. Arsenal does not provide such disclosure in its Report &

Accounts.


CONCERN 3: SHAREHOLDER ACCOUNTABILITY

Limited accountability to minority shareholders and fans. More effective 2-way dialogue required with them.

Good Corporate Governance and Investor Relations practice requires transparency and proper dialogue with

shareholders. It is a feature of good practice (and human nature) that dialogue, transparency and engagement

tends to reduce disquiet among shareholders14 (and fans). There follows an assessment of Arsenals general

dialogue with shareholders, and its Annual General Meetings.

Shareholder Dialogue

It would be rare for a publicly traded company to hold private meetings with small shareholders who are private

individuals. However, it would be normal practice under accepted governance standards to engage formally

with the companys largest shareholders, and best practice to ensure that dialogue is representative of all

shareholders. Arsenal does not disclose the range or nature of meetings held with shareholders (in particular

smaller shareholders).

Under the Code, the Chairman is responsible for ensuring effective communication with shareholders15. The

Code requires a Chairman to discuss governance and strategy with major shareholders16, and he is responsible17

for ensuring that all Directors are made aware of major shareholders issues and concerns. The concentration of

Arsenal shares into two large shareholdings means that AST/Arsenal Fanshares relatively low holding make it

the Clubs 4th largest shareholder. Furthermore, the AST also acts as a representative body for many of the

remaining small shareholders. It would therefore be best practice for the Chairman to meet AST representatives

regularly.

We understand that meetings do take place between the AST and Mr Gazidis at relatively regular intervals, and

that the AST has also met with Sir Chips Keswick twice in the past seven years. It is usual18 that major

shareholder contact is mostly with a Chief Executive - the AST has a good relationship with Mr Gazidis.

However, the Code specifically provides19 for the Chairman to discuss governance and strategy issues (such as

conflicts with another major shareholder or the strategic direction of the Company) with major shareholders. It

may not always be appropriate for such issues to be channelled through the CEO since the CEO is, by definition20,

accountable to and reports to the Board.

Furthermore, the same Provision of the Code states that Non-executive directors should be offered the

opportunity to attend scheduled meetings with major shareholders and should expect to attend meetings if

requested by major shareholders. It appears that, despite Mr Kroenkes position as majority shareholder and a

Non-Executive Director, AST requests to meet with him have not been granted. The absence of meetings

between the AST and Mr Kroenke since KSE UK Inc.s Offer for the Club, despite ongoing requests, also contrasts

with the following commitment21 made at that time:

Mr Kroenke has made it a priority to meet with supporters and fan groups in formal and informal settings. He recognises that fans are at the heart of the Club. Their opinions and involvement are important to him. Mr Kroenke fully expects himself, the Arsenal Directors and Club executives to continue to engage with supporters for the long-term good of the Club.

The Directors of Red & White Securities, the second largest shareholder, have also stated22 that they have sought,

and been refused, any meetings with Mr Kroenke.

The Code requires23 the Board to state in the annual report the steps they have taken to ensure that the

members of the board and, in particular the non-executive directors, develop an understanding of the views of

major shareholders about the company, for example though direct face-to-face contact and surveys of

shareholder opinion.

There is no disclosure in the Arsenal Annual Report on the Companys shareholder communication programme,

which is a Code provision. The Code also provides that a Senior Independent Director (SID) should be

available24 for shareholders if they have concerns which arent resolved through contact with the Chairman or

Executive Directors. Over and above the requirement for NEDs to be available to meet with major shareholders,

best practice would be for the Board to appoint a SID to be available to meet with at least the top 5 shareholders,

should they require.


Annual General Meeting

A main principle25 of the Code is that the Board should use the Annual General Meeting (AGM) to communicate

with investors and encourage their participation.

The 2012 AGM proceedings26 imply a board which is dismissive to minority shareholders, according to those

who reported upon the meeting.

We note from the Notice of 2012 AGM27, that the Board requested written questions in advance of the meeting

for selection by the company. We understand that some oral questions were also invited at the meeting. Under

the Companys Articles of Association, the Chairman has the right to determine the conduct of the meeting: in

certain contentious situations it may best serve the conduct of the meeting to avoid oral questions. Written

questions may also allow for a more considered response.

However, it is normal practice for members to have the right to speak and question the Board at an AGM,

without prior notice, and an experienced Board should be comfortable in addressing members concerns in this

way. The AGM is (by definition) a meeting of shareholders, and a Company is owned by its shareholders. Any

limitations on a members right to speak, risks unnecessarily damaging relationships with shareholders. While

written questions may continue to be productive where a detailed response is sought, we suggest that

encouraging oral questions to the Board, and providing sufficient time for those questions, will encourage a

more constructive dialogue at future AGMs.

In general, given the emotive nature of football, the role of the Chairman at the AGM is likely to be a difficult

balance between inviting constructive dialogue and maintaining order among those present. This is not

dissimilar to the AGMs of companies with a large number of retail shareholders who are also customers, and

where there may be hostile questions relating to individual shareholders personal experiences (the AGM of

Marks & Spencer plc is often reported in the press). At such AGMs, members rights to ask oral questions are

acknowledged by the Board and full opportunity is normally given, in the interests of an open dialogue with

shareholders. It would not be unreasonable for the Arsenal AGM to follow a similar approach.

CONCERN 4: POWER AND ACCOUNTABILITY OF THE MANAGER

Too many responsibilities and too much power is vested solely in the manager, reinforced by a lack of proper

decision-making processes and too few independent board members have professional football experience to assist/

support the manager

The Board has authority under the Companys Articles to determine how much power should be delegated to an

individual executive. However it is best practice to put in place formal processes to both ensure proper

accountability of company executives to the Board, and to detail which specific powers or topics are limited to

the Board itself to determine.

This would normally be done through a statement of Delegated Authorities and a formal schedule of Matters

Reserved for the Board, respectively. While it is not common for companies to disclose the latter, is it a Code

requirement28 for the Annual Report to contain at least a high level description of which types of decisions are to

be taken by the board and which are to be delegated to management.

Arsenal appears to offer no explanation of which matters are delegated to management (other than

management of day to day operational risk29), nor does it formally identify the individuals who make up the

Group Executive referred to in 2012 Annual Report. While we assume that this includes the Acting MD and the

CEO, often a Group Executive would also include executives reporting to the Board in this case, the Manager.

Non-Executive Directors are required, under a Supporting Principle30 of the Code, to scrutinise the performance

of management in meeting agreed goals and objectives and monitor the reporting of performance. This is to

evidence the accountability of Board members and other executives. It would normally be supported by an

explanation of the Companys evaluation processes, as part of the disclosure of the annual board evaluation

process. Disclosure of this information in the Annual Report & Accounts would assist transparency.

The need for clear guidelines regarding authority levels and evaluation processes becomes increasingly

important given that none of Arsenals Non-Executive Directors have experience of on-pitch professional football

(as a coach, player or manager) in order to hold the manager to account regarding football matters.

Although there is a reference to the holding of regular Board meetings in the 2012 Annual Report, the absence

of disclosure of the number of formal board or committee meetings, or directors attendance, as required31 by

the Code, is also not in line with best practice.


CONCERN 5: STRATEGY

Major strategic decisions (eg focus on Financial Fair Play) do not appear to properly take into account the views of

all stakeholders, the company/ clubs short- and long-term interests, the appropriate balance of risks (including the

risk that FFP will not significantly change the landscape). Concentrated focus on FFP increases risks.

A companys Board is entitled to determine its strategy. However, it is best practice to ensure that the elected

strategy is representative of shareholders views. This should be done through a dialogue with shareholders

based on the mutual understanding of objectives.32 It is the responsibility of the Board as a whole to ensure that

this takes place satisfactorily.33 A Board must weigh up the balance of risks and opportunities and determine the

strategy which best meets the objectives of the Company. Furthermore, Directors must have regard to the

impact of their actions on stakeholders, including the community and customers, and the likely consequences of

any decision in the long term. This requirement is enshrined in UK company law.34

We note there is concern from shareholders, including the second largest shareholder, Red & White Securities,

that35 Arsenals chosen strategy is leading to the loss of our best players [and causes] players themselves to

question their future it just does not allow [the] manager to fully realise his managerial talent and deliver success

for the fans who are paying the [UKs] highest [ticket] prices. They further state that success means winning

trophies.

The Directors of Red & White Securities also note that the Boards strategy has resulted in the Club having tight

finances. [Dealing] with the Clubs tight finances comes at the expense of performance of the pitch. They

continue by suggesting that winning trophies are key to the commercial success of the Club. Red & Whites

Directors further explain their solution as the stated policy for the major shareholders [is] to inject equity

into the Club to reduce the debt

While it is not our role to question the Boards strategy, the above views, combined with the views of the AST

and others, suggest that shareholders are concerned that there is an excessive focus on a single strategy of self-

sustainability/ and focus on FFP, which does not adequately take into account shareholders views, ie non-

financial objectives such as football success.

While Arsenals Board may have conducted detailed financial and strategic analysis and scenario planning

(including discussions regarding capital structure) before embarking on a particular strategy, it would be best

practice for a listed company to share a summary of such analysis with its major shareholders and engage in

discussion with them regarding this strategy, particularly where a major shareholder expresses dissatisfaction

with that strategy, or the level of disclosure of it.

Shareholders may reasonably challenge a Board if its chosen strategy appears to not be fully justified as being

the most likely to promote the success of the company for the benefit of its [shareholders] as a whole

including the likely consequences of any decision in the long term. We also note that under the version of the

Code which becomes effective later this year, the Directors should state that they consider that the Annual

Report ... provides the information necessary for shareholders to assess the companys strategy 36.

Furthermore, we note that parts of the community and customers (in particular, fans and supporters groups

such as the AST) consider that the Clubs strategy carries significant risks. Absence of regular communication

with such groups leaves the Board open to challenge by those groups and to suggestions that it has not properly

considered the impact of its strategy on the community and customers, and the long-term consequences for the

company.

We note the disclosures on Strategy and Risk & Uncertainties in the Annual Report. However, in the context of

contrary opinion from the AST and fans, it would benefit the Companys relationships with its shareholders to

increase the level of disclosure in this area and evidence dialogue with all shareholders.


CONCLUSIONS

In our view, there is room for greater disclosure and transparency of Arsenals corporate governance practices,

considering the size and nature of Arsenal Holdings plc. Such an approach would strengthen and improve the

relationship that the Club has with its shareholders and fans alike, and support the discipline of being a listed

company. Properly executed, it should reduce shareholders and fans perception of poor governance at the

Club. In a modern environment, greater engagement and transparency is expected by shareholders and fans

alike, particularly for an organisation which seeks to set an example of behaviour to its competitors and the

public.

1. UK Corporate Governance Compliance

We consider that further areas of the Code could reasonably be adopted by Arsenal, particularly in the context of

a quoted (publicly-traded) company with a high public profile and a stock market value of around 1bn.

While strictly only a requirement under the Listing Rules (to which Arsenal is not subject), it would also be

reasonable to expect that a company adopting the Code voluntarily would disclose, within the spirit of the Code,

those areas with which it had chosen not to comply, and the reasons therefor.

2. Disclosure

We recommend that Arsenal should consider improving its disclosure, both in the Report & Accounts, and on the

website, in the following areas:

- Greater disclosure on the composition, performance evaluation and policy for refreshing the board

- Further disclosure on, and explanation of, the Boards strategic decision-making.

- Explaining in detail how power is shared between the Board and its manager, and where

accountability ultimately lies for key decisions taken.

- The policy for managing conflicts of interest.

3. Corporate Governance Review

In order to improve governance practice and perception, we suggest that Arsenal Football Club consider

conducting internally a full review of corporate governance based on existing policies and practices, compared

to best practice and the expectations of all shareholders. While the contents of that review might be confidential

to the Board, to maximise transparency, the Club should publish the high level results, the steps it will take to

make any changes required, and the timeframe for those changes.

Taken together, we suggest that additional disclosures and reasons for non-compliance would significantly

enhance corporate governance at Arsenal and improve perception of shareholders and fans.

4. Shareholder Engagement

Shareholders have a right to be consulted in relation to the Companys strategy and governance. Increasing the

range of Directors who would be willing to meet with the Clubs 5-10 largest shareholders, over the long term

would be in line with standard practice and would not present a significant time burden on those Directors.

At Arsenals AGM, members rights to ask questions orally should be formally acknowledged by the Board and

there should be an open dialogue, with the objective of improving perception of the Boards transparency and

responsibility to all shareholders.

Corporate Governance Ltd

May 2013


Footnotes

1 Source: Arsenal Holdings plc Annual Report 2012, page 34 The Directors acknowledge the importance of the 2010 UK Corporate

Governance Code and endeavour to comply with its requirements so far as the directors consider is appropriate to a Group of the size and

nature of Arsenal Holdings plc. 2 ISDX Growth Market Rules for Issuers October 2012. In the context of corporate governance, principally Rules 69 & 70, and Guidance Note 70.1 which states that in complying with [these] rules, and more generally, an issuer should have due regard to the principles laid

down by the [UK Corporate Governance Code], insofar as appropriate in relation to the nature and size of the issuer. 3 Source: Various data sources including (i) MWM Consulting Executive Search Market Update 2012 (avg Chairman age 63); (ii) RTF

Navigator/ Daily Telegraph Executive Pay Report 2010 (avg FTSE-350 Director age 58); (iii) Grant Thornton Corporate Governance Review

2012 (avg Chairman 63 / FTSE-350 Non-Exec 58.7) 4 Source: Grant Thornton as above

5 UK Corporate Governance Code (Code) Provisions B.2.3 and B.7.1. 6 Annual Report 2012, page 34 7 Code Supporting Principle B.2 8 Code Supporting Principle B.2 9 Code Provisions B.1.1 / UK Companies Act 2006 section 173. In this, and other, references, there is no suggestion that the Directors do not

comply with their duties under the Companies Act 2006. 10 Code Main Principle B.6 11 Code Principles B.1 & B.6 12 UK Companies Act 2006 section 175. Section 177 may also apply 13 Articles 92/93 of Arsenal Holdings plc Articles of Association 14 Investor Relations Society Best Practice 15 Code Supporting Principle A.3 16 Code Provision E.1.1 17

Code Supporting Principle E.1 18

Code Supporting Principle E.1 19

Code Provision E.1.1 20

ICSA Guidance on Role of Chief Executive 21

Letter from KSE, UK, Inc. to Arsenal Shareholders dated 6 May 2011, within the Offer Document for the Recommended Mandatory Cash

Offer by KSE, UK, Inc. for Arsenal Holdings plc. 22

Red & White Securities letter to Arsenal Board, dated 5 July 2012 23

Code Provision E.1.2 24 Code Provision A.4.1 25

Code Main Principle E.1 26 Source: Notice of AGM 2012 reference to written questions; previous AGM format; Report/Transcript on arseblog.com 27

Arsenal Holdings plc Notice of Annual General Meeting 2012 28 Code Provision A.1.1 29

Annual Report 2012, page 20 30 Code Supporting Principle A.4 31 Code Provision A.1.2 32 Code Main Principle E.1 33 Code Main Principle E.1 34 Companies Act 2006, Section 172 (1) (a) 35

Red & White Securities letter to Arsenal Board, dated 5 July 2012 36

UK Corporate Governance Code (2012) Provision C.1.1 to apply from 1 October 2013

Corporate Governance Limited

Registered (England) 2504789

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13Corporate governance at Arsenal football club-final report 2005.pdf