The newly-revised corporate governance code would establish such a principle, but more must be doneby Frances O'Grady / December 11, 2017 / Leave a comment
Should workers have a say in how the businesses they work for are run? It’s hard to believe that this has been a politically controversial question. But proposed new rules for companies, contained in the Financial Reporting Council’s revised corporate governance code, for the first time put this principle into some kind of practice. They are the result of a long period of fierce debate.
Those who disagree with the idea of worker representation in matters of company management have, regrettably, won several battles along the way. Theresa May’s suggestion last year that workers should be represented on company boards is nowhere to be seen, despite it being common practice in the majority of European countries, including Sweden, a country where board structure is for the most part similar to that of the UK.
Apparently the idea of a worker representative able to talk about the experience on the shop floor to board members was too frightening for many business leaders, who killed off the idea.
Instead, there is a new code provision which states that “The board should establish a method for gathering the views of the workforce,” and goes on to stipulate that this would normally be “a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director.”
“You can’t put a flat cap on an executive”
Now, none of these options are really satisfactory. To maximise the effectiveness of worker directors, it is essential that they are elected by the workforce, rather than chosen by management, and there should be a minimum of two to avoid the risk of being a lone voice on the board. But nowhere are these provisions made.
The revised code should also be clearer that a formal workforce advisory panel should include some sort of trade union involvement—the organisations designed precisely to represent the workforce. And companies that choose the third option, of picking a non-executive director to represent the workforce will be widely seen as opting for the status quo.
As we said when this option was first proposed, you can’t put a flat cap on an executive.
But for the first time, the workforce has been recognised as an important voice within company regulation, rather than an afterthought once the interests of shareholders have been taken into account. And there’s an opportunity for businesses in the UK to learn from evidence from other countries, which has long suggested that companies which have clear mechanisms to listen to their workforce perform better.
We’d like to see businesses putting two elected workforce directors on their board, as a sign they take this challenge seriously.
We know that workers have a long-term investment in the future of their companies, unlike shareholders who can simply sell their shares when things go wrong. The Bank of England has argued that shareholder short termism may be one of the reasons behind Britain’s low investment levels and long-term productivity problem.
The code is not mandatory, but in practice most firms comply with it, rather than explain to shareholders why they will not do so. So companies wanting to refresh their boardroom culture now have the nudge they need to bring a new perspective on these now old debates. The fight to persuade British businesses that giving their workforce a voice is not only the right thing to do but a sensible way to drive success is far from over. But with the principle that the workforce matters now established, the next battles could be more easily won.