Unions call for worker representation on boards
A report by the Trades Union Congress (TUC), published in October 2013, is highly critical of the UK’s system of corporate governance. It proposes urgent reforms to remove the priority currently given to the interests of shareholders and to introduce mechanisms giving workers a voice in company decision-making. The TUC believes emphasis on short-term profit is damaging the long-term performance of British companies. So far, the government has not responded.
Countering shareholder primacy
A report published on 22 October 2013 by the Trades Union Congress (TUC) makes the case for a stronger voice for workers in corporate governance structures, including ‘a mandatory system for the representation of workers on company boards’.
The report Workers on Board (1.9MB PDF) argues that, with over 40% of UK shares being held by overseas investors, and with UK institutional investors increasingly relying on short-term share trading as a route to profit, the UK model of corporate governance based on the primacy of shareholders and ‘shareholder value’ is in need of urgent reform. The TUC believes that these patterns of share ownership make it ‘harder for investors to develop the kind of engaged relationships with UK companies that are required if the UK’s corporate governance system is to work as intended’. The TUC proposes two major changes in the law in this area.
- directors’ duties should be ‘reframed’ so that, instead of promoting the success of the company for the benefit of shareholders, as at present, their main responsibility is the promotion of the long-term success of the company.
- To help minimise the influence of short-term share traders, anyone holding company investments should have to do so for a minimum of two years before being allowed to vote at company annual general meetings.
Workers’ participation in corporate governance
The TUC report goes on to discuss the case for wider innovations in corporate governance, principally workers’ representation on company boards. Reviewing the research evidence, the report argues that European countries that have stronger participation rights, such as Germany, Denmark, the Netherlands, Austria and Sweden, perform better than others on a range of indicators, and that workers’ representation on company boards contributes a more balanced corporate strategy and promotes long-term company success.
An accompanying report, Workers’ Voice in Corporate Governance: A European Perspective (1.7MB PDF), prepared by a researcher at the European Trade Union Institute (ETUI), looks at the ways in which workers are involved in the management of European companies. It documents how employees have formal roles to play in the management of companies across Europe, with workers being represented on company boards in 19 European Economic Area countries. Workers’ rights to board-level representation apply in countries that operate a unitary board structure (such as the UK) as well as in countries with a two-tier or supervisory board structure. It therefore proposes the establishment of a ‘mandatory system for the representation of workers on company boards’. This should form part of ‘a wider package of reforms to strengthen information and collective consultation rights within the workplace’.
Commenting on this initiative, TUC General Secretary Frances O’Grady said:
Seats for the workforce on company boards would help inject a much-needed dose of reality into boardrooms and put the brakes on the multi-million pay and bonus packages which are fast becoming the norm in corporate Britain. The move would also help put firms on a clear trajectory out of the economic difficulties many UK companies are currently facing and assist boards to focus on the strategies and investments needed for long-term company success. The European experience shows that involving workers in management structures is not something for UK firms to fear. Instead, it’s a concept companies should be embracing as part of a more sensible, strategic approach to industrial democracy.
The TUC says it is developing ‘more detailed policies in relation to how workers’ representation in corporate governance could work in practice’, as well as ‘proposals for reform in the wider area of workplace democracy’. It would also be a ‘natural role’ for the TUC to develop a network for worker board representatives, as well as working with other organisations to devise and deliver training programmes for these representatives to help them ‘understand their role and gain the skills to analyse company information and participate in company decision-making effectively’.
In the TUC’s view, the financial crisis revealed ‘severe cracks’ in the UK’s corporate governance system and there is now a ‘new appetite across the political spectrum for re-examining the way companies operate and the priorities and rights that govern the UK’s economic system’. There has as yet been no published reaction to the TUC’s proposals from government or employer organisation sources. Earlier this year, the opposition Labour Party’s Shadow Business Secretary, Chuka Umunna, expressed interest in promoting employee board membership, but it remains to be seen whether Labour will endorse the TUC’s ideas in this area.
Mark Hall, IRRU, Warwick Business School