The fall of the
Glasgow Rangers:
Ethical
ramifications and lessons to be learned
By: Greg M.,
Michael N., Mark M., Michael I., and Anna M. (a mix of Rangers and Celtic supporters
and non-football followers)
Abstract
In
this article we apply business ethics theories (justice, ethics of care,
deontology, and utilitarianism) to the actions of Scottish football’s Glasgow
Rangers FC prior to its 2012 liquidation. In the authors’ opinion, justice was
not done in Rangers’ case. Previous owner David Murray got off relatively
lightly; there were no arrests in relation to the tax fraud involving Rangers. Rangers’
punishment did not fit the crime; even though it was demoted in the league (to
the fourth-division backwater of League Two), it climbed relatively quickly to
be one of the biggest clubs in Scottish football again. In our opinion, we
could make a case for Rangers to be stripped of name and history as a deterrent
to other football clubs. Using
utilitarianism, we can see that Murray’s actions caused short-term happiness in
the club; there was no concern for the longer term which ultimately saw the consequences
of these actions cause more unhappiness than good. A further lesson that can be
learned is that individual boards of directors must remain independent of the
owner.Introduction
In 2012, shockwaves were sent through
Scottish Football when Rangers FC owner Craig Whyte formally filed for the club
to enter administration, during a court battle over a tax bill owed to HMRC
totalling £49million, including penalties from failing to pay tax previously.
This tax bill Rangers faced arose from a row under previous owner David Murray,
in which it was discovered that Murray had been using Employee Benefit Trusts
(EBTs) between 2001 and 2010 to pay his players’ and staffs’ wages. HMRC argued
that Rangers had managed to avoid paying substantial amounts of tax whilst
using this scheme. This decision made by Craig Whyte left Rangers fans confused
and concerned as to what would happen to their club and left fans of other
Scottish clubs concerned about the future of Scottish football without one of
the biggest clubs. In June 2012, a Company Voluntary Agreement set out by new
prospective owner Charles Green was rejected by HMRC which left Green to buy
Rangers’ assets and form a new company, whilst liquidating the old business and
confining Rangers to the lowest tier of professional Scottish football, the fourth- division (League Two).
Sir David Murray must also be in
consideration for the blame for Rangers’ demise, due to the massive financial
crisis he left the club in. Under his ownership, Rangers was hugely successful
with Murray’s extravagant spending; however this led to the club reporting
massive debts and large annual losses during this period. Rangers even reached
a net debt of £82million in 2003 during the peak of Murray’s ownership. Fans
did eventually realize the cost this success meant for Rangers, as in 2009 they
urged Murray to sell his share in the club, with Lloyds Banking Group looking
to recover debts owed to them, which were estimated to be £25-£30million.
Walter Smith, manager of Rangers at the time, even said that effectively Lloyds
Banking Group were in charge of the club’s spending, which also meant
uncertainty involving the future of the club’s players.
Rangers’ demise has not gone unnoticed;
one of the most successful football teams - in terms of trophies – had failed
and collapsed despite assurances from many influential figures that the club
would be safe. Players and staff were left facing uncertain futures and
supporters potentially having no team to support. This article looks into detail
how ethically Rangers acted during this period and how the club’s owners’
actions pre-administration and during administration had effectively pushed a
financially sinking ship underwater.
Justice
Justice, according to the
Cambridge dictionary (Cambridge Dictionary, n/d), is the fairness in which people are dealt with. By using tax
avoidance schemes, Rangers Football Club gained an unfair sporting advantage
and therefore acted in an unethical manner. Therefore, it must be considered
whether the company was punished fairly for acting unethically and whether the
company was punished in line with the other football scandals that happened
previously.
Any company that uses
understatement or concealment can be punished by up to 200% of the tax due.
This includes companies which move money to secret bank accounts and companies
which use false contracts to facilitate paying less tax (Anon., n/d). In fact,
the penalties for tax avoidance can be as severe as lengthy prison sentences,
as occurred in various cases in 2016. For example, four men were sentenced to a
total of twenty-nine years for falsely inflating company expenses by more than
£275million. In another case, two men were sentenced to a total of 19 years
when they fraudulently claimed more than £5million in gift aid payments (HMRC,
2017). Therefore, it can be seen that the punishments for tax avoidance can be
very serious and severe.
The ethics of Rangers’ collapse
are very similar to that of Enron, as that company’s collapse had huge
financial implications for its staff and the taxpayers. The case of Enron
occurred in 2001 and it is still one of the most famous cases of tax avoidance
in the world. Enron had grown to become one of the largest companies in America
and this was partly due to the fact that it was using Mark to Market accounting
procedures, whereby the company would measure the value of an asset based on
its current market value rather than its book value. Enron would transfer any
losses to its subsidiaries, allowing the company to look more profitable (Segal,
2018). It was found out that the company had paid no income tax between the
years of 1996 and 1999, which, although it wasn’t explicitly illegal, was still
hugely unethical (Teather, 2003). As the company went into bankruptcy most of
the company staff were unable to sell their shares because of 401K
restrictions, leaving many of them without life savings (CNN, 2017). However,
what is different about Rangers’ situation is the fact that none of the
directors has been sentenced to any prison time. Therefore, in that sense justice
hasn’t been done. Although Enron had much higher debts than Rangers, the
comparison is still relevant as both companies cheated the taxpayer.
Gretna was a small club which
came from playing in the non-professional Unibond League in England to
representing Scotland in European competition within a matter of six years.
With the financial backing of millionaire Brooks Mileson, the team had three
successive promotions and took its place in the final of the premier cup
competition in Scotland before representing Scotland in the Uefa Cup. However, as
Mileson took ill, the finances of the football club began to crumble with the
club eventually being liquidated. The new club had to start form the very
bottom as Gretna 2008 (Macpherson, 2015).
This Gretna case is significant
for the Rangers’ situation as the punishments that were handed out to Gretna
were not handed out to Rangers. Rangers FC have not been stripped of the
trophies that it won in its period of gaining an unfair advantage and it was not
automatically demoted to the lower divisions (below League Two). In fact every
club in Scotland was given the right to vote as to whether the new Rangers club
should remain in the top division after its liquidation (Evening Times, 2012).
One could argue that, had Rangers been allowed to stay in the top division, it
would not have been punished at all for its wrongdoing.
Therefore, although the use of
Employee Benefit Trusts (EBT) was not illegal, it still allowed Rangers to
attract a higher calibre of player that it could have otherwise afforded.
Furthermore, the use of EBTs has subsequently been outlawed to stop other
companies using them. Rangers cheated the taxpayer and many creditors out of
millions of pounds and therefore it was hugely unethical. The question as to
whether it was punished fairly is harder to answer. But by looking at the
evidence for tax avoidance and the punishments handed out in the previous
footballing cases, it could be argued that Rangers was not punished in line
with the standards that had already been set.
Ethics
of care
The two moral demands placed by the
ethics of care theory within a business setting are:
(a)
preserving
relationships with all stakeholders; and
(b) exercising
special care with the stakeholders by attending to their needs, values, and
desires.
And within these there are four
elements of care ethics as noted by Tronto (n/d):
(a) Attentiveness
- the requirement to recognize stakeholders’ needs and to respond to them;
(b)
Responsibility
- although ambiguous and not the right of obligation (situation where a
reaction or action is due), it does however allow for ebbs and flows between
gender roles and class structure, that ties responsibility to those befitting
the roles;
(c) Competence
- to provide the necessary care, not to simply acknowledge it but to accept
responsibility to provide it; and
(d) Responsiveness
– another method to understand vulnerability inequality by understanding what
has been expressed by stakeholders.
When asking how an institution
such as Rangers could end up in liquidation we have to look at the ethical
dilemmas faced by this and ask if all was done to protect the stakeholders
within the company. Rangers had been carrying debts to fund its success and
ambitions and, while trying to maintain these, it ran into serious tax problems
resulting from the payments of employees through Employee Benefit Trusts, of
which over £50million back tax was due and this resulted in the current
process of liquidation being carried out.
Stakeholders within a football
company can be split into two groups:
(a)
a
group that is primarily concerned with the ability to provide success with no
emphasis placed on sustainability (fans etc.); and
(b)
a
group that is concerned with the club as a business and its ability to continue
as a profit-making entity (this includes shareholders, directors, employees
from playing staff to admin staff, creditors etc.)
When looking at the collapse of Rangers
the ethical questions posed to these two different groups of stakeholders will
have differing answers.
It can be argued that the ethics
of care was initially provided to this first group of stakeholders as the main
focus was on the success of the club (Attentiveness to the fans’ wants and
needs). Enabling the club to obtain far superior players is giving the fans
what is required to be able to provide the success, but then you have to question
the price to be paid.
Inevitably the use of EBTs and
subsequent tax demands which led to liquidation, eventually breached the care duty
owed to the fans (Responsibility, Competence, and Responsiveness) as a result
of the death of the club (the club-versus-company debate is one for the legal
teams of HMRC to sift through) so the ethic of care was breached by the
directors, owners, and shareholders in that respect due to their decisions in
allowing the club’s finances to be perilous, and leaving the fans with an
inferior team languishing in the depths of the football leagues with very
little opportunity to increase revenues and become successful.
So how could the club have acted
morally and ethically to provide the care to maintain a sustainable business?
Well, the main issue would have been to operate within its financial limits,
with the addition of playing staff and their remunerations being within
financial constraints and also being legal within the tax system.
Deontology
Deontology is an ethical theory
that uses rules to distinguish right from wrong. It is based on the work of the
famous philosopher Immanuel Kant, who believed that ethical actions follow
universal moral laws. These laws dictate where the ethical limits stand and
simply require that people follow the set rules and do their duty. The theory
does not require weighing the costs and benefits of a situation because, unlike
consequentialism, it does not judge actions by their results and therefore
avoids uncertainty and subjectivity. However, there is also a significant
limitation in following deontology, which is the fact that many people find it
unacceptable. A classic example illustrates this point: suppose an engineer
learns that a nuclear missile is about to launch and start a war but he has the
skills to hack the network and cancel the launch. Although breaking into any
software system without permission is against the employee professional code of
ethics, letting the missile launch will lead to thousands of deaths. According
to the theory it is right not to violate this rule; however personal moral
values may dictate the person to act otherwise.
In the case of the liquidation of
the world-famous Rangers Football Club, a breach of ethical codes happened. The
road to disaster started in 1988, when Sir David Murray, one of Scotland’s
greatest self-made businessmen, bought Rangers and instantly pumped the
football club with money. The 1990s turned out to be very successful for
Rangers, with just a few minor voices expressing their worry at the road being
taken by the club. The owner was wealthy and this wealth was very much built on
debt. Murray never worried about bearing hundreds of millions in debt viewing
the problem instead as a necessary stepping-stone to greater rewards. However,
it was soon proven that Murray overestimated the amount of debts which he could
bear.
Coming back to the example of a
software engineer who had a choice of preventing a nuclear war or following
professional code of ethics, it can be concluded that, in the case of Rangers
Football Club, the owners decided to launch the bomb, and they did this
continuously. Murray’s ideology reflects the fact that he has viewed debt as a
means to success and tax avoidance as a way to prosperity. Although he followed
his own set of rules, he could not foresee the danger of his actions and the
outcomes they were leading to. If he was more concerned with the potential
results, in line with consequentialism theory, he would be in a position to
measure the advantages and disadvantages of his decisions, which would perhaps have
led to different and more responsible actions. So, although following the rules
makes deontology easy to apply, it also means disregarding the possible
consequences of our actions when determining what is right and what is wrong.
Utilitarianism
Utilitarianism
theory is based on a moral code; acts should be judged as right or wrong based
on their consequences (Glover, 1990). Everything else achieved is only good or
bad according to its tendency to produce happiness or unhappiness. Individuals
using this theory consider an action to be right if it maximizes the overall
wellbeing of society and wrong if it does not. Businesses applying utilitarianism
will engage in activities that increase their profits while at the same time serve
the best interests of their customers, community, and the government (AWB,
2016).
Sir
David Murray’s running of Rangers defied this moral theory on several different
occasions with respect to the customers, community or government. Murray’s
spending had huge short-term gains but was the catalyst for the longer-term
problems which Rangers faced. Murray spent amounts of cash acquiring and paying
wages which were unheard of in Scottish football at the time. These assets
allowed Rangers to dominate Scottish football during the 1990s. Applying the
theory here was a good thing for the customers (fans) as it brought them
happiness when they saw their team take trophies. This hugely benefited the
community as with large wins comes in large revenues and Rangers could employ more
locals in their area of Ibrox; these wins were also beneficial for the taxman
for increased revenue equals increased corporation tax. However, this was a
dangerous cocktail of success as it led Murray to state that “for every five
pounds Celtic spends we will spend ten”.
The
long-term ramifications were starting to show as in 1999 the Bank of Scotland secured
a floating charge over the club, and two years later Rangers’ debt stood at £50million. It was around this time that Rangers employed EBTs. While these were
technically allowed, Rangers employed over 80 individual workers on these
contracts, compared to Celtic only having one person on this type of contract. Applying the theory, we feel that these EBTs did
break a “moral (utilitarian) duty”. This allowed Rangers to avoid taxation and
National Insurance for sorely the company’s benefit. This would have resulted in a loss of tax
receipts and national insurance for the government; you can see this would be
“bad” from the government’s point of view. This would eventually affect the
community and customers later down the line, as by September the taxman gave
Rangers a final warning over a £49million tax bill due. This eventually led to
administrators taking control and freezing the assets. The damages of the EBTs
now hit the fans (customers) as their trust was completely broken in their
club. The community was also badly affected by this as Rangers went into
liquidation. Ordinary creditors including small businesses received nothing
while HMRC is still in the process of trying to recover its tax bill.
Conclusion
In
regard to ethics of care within a business setting, the lessons that can be
learned from these breaches are that directors must stay within a reasonable
spending limit, which should be a main objective of all companies. However, within
Rangers, reviewing its downfall leads us to believe that its dream of
conquering the European Cup was more important to it than were wise restraints
on spending. The lesson learnt from this is that, while a company should dream
big dreams, those dreams should be acted upon in a sustainable and realistic
manner.
In
our opinion, justice was not done in Rangers’ case. David Murray got off
relatively lightly; there were no arrests in relation to the tax fraud
involving Rangers. To save this happening again there must be a united front
from HMRC and the governing bodies that make the rules for football. Rangers’
punishment did not fit the crime; even though it was demoted in the league it climbed
relatively quickly to be one of the biggest clubs in Scottish football. In our opinion, we could make a case for
Rangers to be stripped of name and history as a deterrent to other football
clubs. History is an important part of any football club; we feel the
stripping of this would be the strongest punishment for any club. HMRC fully
restricted EBTs, and the case created a precedent that tax and national
insurance must be repaid.
The
lessons learned from the ethics we have discussed are quite plain to see. Using
utilitarianism first we can see that David Murray’s actions caused short-term
happiness in the club; there was no concern for the longer term which
ultimately saw the consequences of these actions cause more unhappiness than
good. A strong ethical duty must be the backbone of a company, and instilled
from the owner and the board.
A
further lesson that can be learned is that individual boards of directors must remain
independent of the owner; Murray had too much influence and power over his
board, this led to decisions that were in the best interests of Murray’s dreams
and goals and not in the long-term best interests of the club. Decisions such
as the EBTs and financing debt with loans from his other companies should have
been scrutinized by his board more closely. An owner shouldn’t be able to spend
what he wants; a club should only spend based on its own revenues and serviced
debt, and not based on the owner’s wealth. This is what UEFA is trying to
achieve with its financial fair play.
This article was an essay submitted to the University
of the West of Scotland for the Business & Professional Ethics module,
2017-18 (posted here with authors’ permission).
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