Last week investors in Schroders, the UK asset manager, signed off on the company’s annual report for 2018. Nothing unusual in that, but it was the first known report to contain details of a new feature for British businesses—a non-executive charged with gathering and representing the views of the workforce.
The report contained only a brief description of the company’s plans, but is notable in that it may indicate the direction of travel for other companies as they head towards their own reporting seasons.
Schroders’ move comes after much discussion over the integration of workforce opinion into boardroom decision-making.
It has been driven by Theresa May’s once emphatic belief in tackling social inequalities. When campaigning for the Tory party leadership back in June 2016, May flirted with more left-of-centre thinking by declaring that companies under her premiership would have to appoint board members from among their employees.
By the time the UK’s corporate governance code was reviewed and published last year, the pledge had been watered down. Companies could choose one of three options: a worker’s panel, a director chosen from the workforce or nominate a non-executive to collect and relay worker views to the board.
Unsurprisingly, most companies have set aside the option of an employee director, preferring to designate a non-executive director to the task. Two surveys offer the evidence. In October last year a poll by ICSA: The Governance Institute suggested that at least 70% of companies would go with the non-executive director option. Another survey, at the beginning of May, this time from the Local Authority Pension Fund Forum, came up with a similar figure—73%.
Schroders’ annual report gives a clue as to how some companies are implementing their non-executive workforce rep. Senior independent director Ian King will take on the job. In addition to his usual duties, it looks like he will now have to travel the world (Schroders has 5,000 employees in 32 countries) speaking at a series of gatherings. According to the annual report, King will “attend global employee forum meetings to hear directly from employees on the issues that concern them”.
Other companies have also moved to put arrangements in place. SThree, a specialist recruitment company for STEM industries, appointed a dedicated non-exec for employee engagement late last year. According to Steve Hornbuckle, the company secretary, the non-exec expects conversations with workers in which “nothing is off-limits”.
That being said, the Schroder report also points to an issue that will have many other board members scratching their heads: they are already doing plenty of work collecting employee views.
For example, Schroders says it already engages with workers through a “variety of channels”. These include management briefings, videos, an internal magazine and presentations by the chief executive. The business also conducts an annual employee survey.
This is a point raised by Peter Swabey, policy and research director at ICSA. Boards, according to Swabey, already feel they gauge “the temperature” of employee views in a multitude of ways, whether it be from site visits, employee surveys or online resources such as Glassdoor, a website where employees can leave anonymous views about current and past employers.
However, Swabey also believes many boards will be looking to firm up these arrangements into more formal processes that can be reported.
“As more annual reports go out next year we will see that [employee engagement] is much more structured,” Swabey says.
Others also see process as the key to effective arrangements that comply with the code. According to Alex Beidas, a partner at law firm Linklaters, there are key elements to successful employee engagement, including reporting back to workers on board consideration of their views and ensuring the whole exercise is a two-way discussion. The most “essential element” however, she says, is face-to-face meetings.
“Part of the change is about boards being removed from the reality on the ground. It’s about ensuring the board meets employees,” says Beidas.
“There needs to be a way that employees get to have their say and there is a feedback loop so they understand that their views have been taken into account. That’s important. It’s not enough to just have an employee engagement survey,” she adds.
That means properly minuted meetings that can be reported back to the board effectively. It could also mean setting up a new employee forum for discussion, or using existing arrangements. In its 2018 annual report, Sainsbury’s, one of the UK’s largest supermarket chains, makes much of non-execs meeting with employees at a forum unashamedly dubbed the Great Place to Work Group. The company says meetings last year were “overwhelmingly positive” and further plans have been made to extend “colleague engagement”.
And what of the non-execs charged with maintaining employee engagement? Some experts believe boards could look for those who have had experience dealing with unions or some form of employee relations in past executive experience. Other believe former union officials may become the non-execs of choice for an engagement role.
Another prospect is that this new role will become a factor in a non-exec’s annual performance review. This may be addressed informally by company chairs. On the other hand, some chairs may choose to make it detailed and painfully formal.
Whatever happens, boards across the country are working on plans for a board member to spend more time with the workforce. It may not solve all governance issues, and the jury is still out on whether it will tackle social inequalities. But leaving the comfy confines of the boardroom to spend more time on the shop floor can’t be a bad thing.