In a speech launching her campaign to become Tory party leader Theresa May declared her earnest intention of placing worker representatives on company boards. The measure was all part of her plan to improve the way big business is run and embedded in a wider agenda to reform the economy for “greater shared prosperity”.
Two years on, workers on boards is just one of three options companies have been given in a new governance code. But news this week suggests it will prove highly unpopular.
A poll by ICSA: The Governance Institute, a professional body for company secretaries, revealed that 70% of companies surveyed believe workers on boards are not a good idea. Little more than one in ten, 13%, said it was a sound proposition. A resounding 91% said they were not considering workers on their boards.
That said, just 29% of respondents said they had deliberated worker representation for boards. Of those that have, just 2% prefer a worker in their boardrooms.
Despite much discussion and debate, workers seem likely to take boardroom seats at very few UK companies. Peter Swabey, policy and research director at ICSA, said: “While there is an overall feeling that it is crucial that the board hears and takes note of the views of staff and other stakeholders, respondents believe that there are mechanisms other than a seat at the board table that will allow them to do so.”
The new UK Corporate Governance Code released in July offered companies three options: an employee on the board, a non-executive designated to represent workers’ views and opinions or a formal workforce advisory panel. ICSA finds that most companies are likely to opt for the latter two.
Lack of enthusiasm
But why? European companies appear to function well with worker representatives on their boards, even very large multinational organisations. Indeed, one British governance expert told Board Agenda he was regularly “chastised” by continental colleagues for Britain’s lack of enthusiasm.
When ICSA asked what the problems were, respondents cited a number, including a difficulty in finding one worker to represent a diverse workforce and many locations around the world; and directors’ duties in the UK mean that a board member must have wider responsibilities than the board. Others say that UK law already demands that directors take into account the interests of workers making a employee on the board redundant.
For many these claims fail to convince. Luke Hildyard, director at the High Pay Centre, a campaign group, says the “multiple locations” claim misunderstands the purpose of boards—they are not convened so directors can represent special interest groups. The “wider responsibilities” argument can be countered by giving workers the same duties as other directors. And the idea that board members already act in the interest of workers is countered by public perception that they mostly don’t, whatever the law demands. “The issues are red herrings,” says Hildyard.
Worker directors are not without support elsewhere. The Trades Union Congress has advocated their introduction, while some investment managers have also argued the case for a worker in the boardroom. Indeed, in March this year Hans-Christoph Hirt, the head of Hermes EOS, wrote in a blog that, on balance, the policy works well and should be introduced to the UK.
However, according to some governance experts there is a risk in the code’s new provision. If companies fail to properly give employees a meaningful hearing, regardless of the code option they choose, it might result in pressure to legislate for further change. After all, Labour leader Jeremy Corbyn has said he will give employees one third of board seats, if elected. Rightly or wrongly that is emphatic policy statement. The flexbility of the new code means that if few companies take up the workers-on-boards option it could prove embarrassing for the government after Theresa May’s talk of employee engagement, according to Hildyard. Indeed it could look like a deliberate attempt to help companies duck an uncomfortable policy.
Elsewhere, others caution that the spirit of the code should be heard. Roger Barker, head of corporate governance at the Institute of Directors, says if it is perceived that the code options are not providing a real voice to workers, it “could lead to a backlash and renewed impetus for reform.”
He adds: “It’s up to companies to make it work for them in a way that genuinely brings the worker’s voice to the boardroom.”