Theresa May came to power in 2016 declaring a host of radical policies, among them an intention to place employees on boards. This week more evidence has emerged that companies are unlikely to throw open the boardroom door to someone from the shopfloor.
Whatever the prime minister’s intentions when she launched the idea, it looks very much like companies will take the conservative option for engaging with employee opinion.
Research from the Local Authority Pension Fund Forum (LAPFF), which represents local authority pension funds worth £230bn, found that almost three quarters (73%) of the companies asked will opt to appoint a non-executive to gather and represent employee views on the board.
This demonstrates a significant rejection of the other options offered last year by the UK Corporate Code of either appointing a director from the workforce or creating a formal workforce advisory panel.
The LAPFF wrote seeking information from FTSE All-Share companies. They received 57 responses, 39% of which came from FTSE 100 members, 40% from the FTSE 250 and 21% from small-cap companies.
The LAPFF said it was disappointed in what it had found, believing it shows a lack of innovation from companies and that they are mostly falling short of Theresa May’s initial proposals for worker representation.
Playing it safe
When the prime minister gave a speech in July 2016 launching her campaign for the Conservative party leadership, she said she wanted an economy that “works for everyone”.
Famously she insisted that corporate governance was a contributing factor to inequality, and she lambasted non-executives for failing in their duty to hold their executives to account, saying they were all drawn from the same social groups.
She declared: “If I’m prime minister, we’re going to change that system—and we’re going to have not just consumers represented on company boards, but employees as well.”
Paul Doughty, the LAPFF’s acting chair, expressed concern that companies were playing it safe using non-executives to represent workers, but held out the hope that things could change in the future.
“Companies’ response shows a disappointing lack of innovation and imagination,” he said.
“There are already large UK public companies with workers on their boards and the practice is common in Europe. It is surprising that companies couldn’t find a way to represent workers more directly than giving responsibility to a non-executive director. As boards get used to the idea of worker engagement we hope to see more innovation in future.”
That is not to say that all companies have ignored the worker-director option. Public sector services provider Capita, retailer Sports Direct and housing services group Mears all have plans for employees on boards. Transport company FirstGroup has had an employee on its board for 30 years.
The most common reason for rejecting the worker-director is the size of the workforce. Some companies argue they have too few employees for their dedicated director; international companies ask how a single individual could represent employees in countries all over the world.
Another argument has been that existing directors already take into account workers’ views under their fiduciary duties.
Worker-directors are a feature of boardrooms in Europe with German businesses often cited as key examples for how they can work well. Many German boards have more than one worker. However, companies on the continent are more likely to function with a “dual” board rather than the unitary board found in nearly all UK listed companies.
The LAPFF might be right that things could change in the future. Some close observers of governance have argued that if the reforms are judged to have failed, companies might yet be forced to appoint employees as directors.
At this point in time, most companies seem willing to wait and see if that happens.