Workers on boards would become part of a new, and better, normal
The Prime Minister used her speech to the CBI this morning to appear to dilute her previous commitment to put workers on company boards. If this is the case, it represents a huge missed opportunity to put in place a different model for British business, which would bring benefits for companies, for working people and for the country as a whole.
In many of Europe’s most successful economies, worker representation on company boards is an accepted and valued part of doing business. If introduced in the UK, it could bring significant benefits here too. It is worth recapping the reasons why.
Workers’ interests are well-correlated with the long-term success of their company, and their direct experience of working for the company gives them insights and a perspective that the non-executive directors round the table do not have. They are clearly well-placed to contribute to the development of positive employment relationships, on which all companies depend, and it is clear from experience in Europe that bringing the perspective of ordinary workers into the boardroom is particularly valued by other board members.
It has been widely recognised, notably in the Davies and Parker reviews, that boardroom diversity contributes to the quality of decision-making by helping to avoid groupthink; and including workers in the boardroom would make a significant contribution to boosting socio-economic diversity in the boardroom, which is much-needed. Again, this is a factor that European experience shows is valued by boards.
Research shows that other board members value the contribution that workers make within the boardroom. For example, a survey of business leaders in Sweden found that 60 per cent considered the role of worker board representatives to be positive or very positive, with just seven per cent finding it negative. And 81 per cent described the co-operation between the worker representatives and other board members as good, compared with just four per cent describing it as bad.
It is particularly significant that this survey is from Sweden, as the Prime Minister said this morning:
“This is not about creating German-style binary boards which separate the running of the company from the inputs of shareholders, employees, customers or suppliers.
Our Unitary Board system has served us well and will continue to do so.”
Fortunately, worker representation is entirely compatible with a unitary board structure. Sweden is one of five countries within Europe that combines a unitary board with worker board representation; and in addition, there are a growing number of countries where companies can choose between a unitary and a two-tier board structure and in those countries worker board representation generally applies regardless of the board structure adopted by the company.
The Prime Minister also said:
“I can categorically tell you that this is not about mandating … the direct appointment of workers or trade union representatives on Boards.”
The TUC shares the Prime Minister’s rejection of the ‘direct appointment’ of workers onto boards (whatever this may mean): worker representatives must be elected by the workforce. This is the way to create a genuine link between the boardroom and the rest of the company, the lack of which has contributed to the UK’s low levels of productivity, as well as the disenchantment shown by much of the British public with the role of the ‘establishment’ and the status quo.
FirstGroup is a successful FTSE 250 transport company that has had an employee director on its board since the company was created in 1989. Each division at FirstGroup elects their own employee director, and this group elects the employee director for the main boards from their ranks. The company is positive about its experience, as a FirstGroup spokesperson sets out:
“In our experience, the perspectives and input of Employee Directors aids decision making and demonstrates the company’s desire to hear from our workforce. It complements the strong and positive relationship we have with trade unions, rather than being a substitute for normal industrial relations.
“Directors and workers alike find Employee Directors invaluable in providing a closer link between the depot and the boardroom.”
What else did the Prime Minister say this morning? She talked about
“other routes that use existing Board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented.”
Let us be clear: an advisory council or panel is not ‘[an]other route’ to worker board representation; it is an entirely different proposal and it is disingenuous to suggest otherwise.
When the government’s proposals for implementing the Prime Minister’s commitment to put workers on company boards come out, there are three key tests by which the TUC will judge them.
- Will the proposals be mandatory? In every country across Europe where worker board representation is in place, it is a legal requirement. Making worker board representation mandatory for companies over a minimum size will create clarity and certainty for all involved and is the best way of ensuring the benefits of the measure are shared as widely as possible. Workers on boards would quickly become part of a new, and better, normal.
- Will worker board representatives be members of the workforce and elected by the workforce? Suggestions that others could be nominated to speak on behalf of workers within the boardroom are not only patronising, but in addition they will not bring the benefits that worker board representation can deliver. Worker board representation must mean what is says – members of the workforce elected by the workforce to sit as directors on company boards, sharing the same fiduciary duties as other board members.
- And finally, will the worker representatives sit on the main board? Anything else will not be worker board representation and would represent the Prime Minister breaking the commitments she made both during her election campaign for Conservative party leader and in her speech at the Conservative Party Conference. Let’s hope that doesn’t happen.