Employees on boards: can it ever work; does it ever work; who's tried it?
12 January 2017 -
Although Prime Minister Theresa May has recently backtracked on the idea of forcing UK businesses to have workers in their boardroom, the idea is seen in some quarters as an ideal antidote to corporate excess. But practically, can it work?
Corporate excess in the City and beyond continues to come under severe criticism and pressure from the media, regulators and the public since the world economic crisis in 2008-9, with public trust in corporations as low as ever.
Exorbitant executive pay alongside slumped employee wages, mass layoffs of staff and high profile cases of staff mistreatment, are of particular concern.
One way of giving rank-and-file employees a voice and connection to executives, placing one or more workers on company boards, would, theoretically, provide a channel for employees to express their needs and concerns, as well as gain insight into the overall objectives of the organisation.
Furthermore, with the average tenure of FTSE bosses barely five years and senior management teams vulnerable to ‘reshuffles’ or wholesale changes every few years, the introduction of a long-standing rank-and-file employee can often bring a wealth of company and industry-specific knowledge to the table.
Tim Stacey, policy and campaigns Officer of The Equality Trust, said: “For a start employees bring a deep and technical knowledge of the industry that they work in from their day-to-day work experience. This would help inform board decisions and provide an additional perspective to candidates taken from the corporate mainstream.
“As the Policy Exchange report states, FTSE 100 CEOs average tenure is only five years but employee representatives on boards have often been involved in the industry for much longer, for example the First Group’s employee director has 36 years of experience.”
How could it work in the UK?
In the UK government’s green paper outlining proposals for corporate governance reform, Theresa May asked companies to voluntarily create stakeholder advisory panels, which could also be consulted on the company’s executive remuneration policy and annual remuneration report.
Furthermore, companies could also volunteer to have designated non-executive directors on boards to ensure that the voices of key interested groups – especially employees – is heard at board level.
By suggesting voluntary participation rather than mandatory, the proposal’s 'comply or explain' approach is a more flexible route that would allow companies to discuss employee representation with their employees without the need to comply with a rigid legal framework.
Across Europe, employees on boards are prevalent, especially in countries such as Germany, Greece and Ireland.
These employee representatives are directly elected by the workforce, or appointed in some other way, and may be employees of the company, officials of organisations representing those employees, or individuals considered to represent the employees' interests in some way.
In most cases in western Europe, however, employee representatives are still in the minority, and board-level participation is associated with the obtaining of information and understanding and the expression and exchange of opinions, views and arguments about an enterprise's strategy and direction.
In a few cases, however, when employee representatives are equal in number to those of shareholders or other parties, issues of control, veto and real influence over company strategy - sometimes known as "co-determination" - come into play.
In a recent blog post, law firm Burges Salmon LLP proposed several ways bosses can implement employee representation in the boardrooms of their companies.
The company said the first solution may be to expand the role of an existing director to include employee engagement and consultation, with the specific responsibilities tailored to align with the remit of the HR function.
Another option discussed is that bosses could create an employee representation council (ERC) which would be separate and distinct from the board.
The board would consult the ERC on any developments affecting the interests of the company’s employees. This would facilitate employee input into key decisions without giving rise to concerns that an employee director might not act to promote the success of the company for the benefit of its members as a whole.
Alternatively, large companies can consult with their employees to establish whether there is sufficient interest in employee board representation. If there was, then a company could either elect a candidate nominated by its employees as a director or put that candidate forward for election as a director at its next AGM.
This could be based on existing employee consultation structures without causing significant disruption. The employee representative director would owe the same duties as all other directors.
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