United Kingdom: Government launches consultation on worker representatives on company boards
Prime Minister Theresa May first pledged to put worker representatives on the boards of UK companies in July 2016, shortly after taking office. This article outlines the evolution of the proposal, up to the launch on 29 November of the formal process of consultation on corporate governance, and reports on the reactions of the social partners.
Pledge to reform corporate governance
During her campaign for the leadership of the ruling Conservative Party in July 2016, Theresa May outlined her intentions for the appointment of employee representatives to company boards. This was part of a wider plan for the overhaul of corporate governance and of her campaign pledge to put the Conservative Party ‘at the service’ of working people. She spoke of her mission to ‘make Britain a country that works for everyone, not just the privileged few’.
On the subject of corporate governance, she spoke of the need for greater accountability of businesses. She outlined plans to give shareholders greater powers to block remuneration packages by giving them annual binding votes. This extended the 2013 changes to corporate governance rules which gave shareholders a binding vote on companies’ proposed pay policies every three years and an advisory vote on each annual report on remuneration.
Ms May also called for simplification of bonus schemes to better align executive pay with the long-term interests of the company. She criticised the effectiveness of non-executive directors who, instead of ‘asking the difficult questions’ and providing scrutiny, were drawn from the same narrow social and professional circles as the executive team. To remedy this, Ms May said her proposed changes would put both consumer and worker representatives on company boards. This idea has not been on the UK policy agenda since the mid-1970s, when the then government established the Bullock Inquiry (PDF) to examine the possibility of worker participation in strategic decision-making through board level representation.
Proposals reaffirmed and then amended
Ms May subsequently re-affirmed her commitment in a speech at the Conservative Party conference on 5 October 2016, promising to publish the plans for worker and consumer board representation in late 2016. However, there were reports of strong resistance from both within the Cabinet and the business community.
However, in what was described as a U-turn, or at least a significant watering down of intentions, the Prime Ministery told the annual conference of the Confederation of British Industry (CBI) on 21 November that companies would not be compelled to appoint worker or trade union representatives and that the proposals were not about ‘mandating works councils’. In her speech, she said:
Some companies find such models work best for them – but there are other routes that use existing board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented. It will be a question of finding the model that works.
She promised ‘genuine consultation’ with business over what will work for employee representation, signalling far less radical intentions based on a voluntarist approach.
Green Paper to launch consultation process
Green Paper, Corporate governance reform (PDF), launched a formal consultation process on 29 November. It sets the deadline for responses for 17 February 2017. It seeks views on measures to increase the links between company directors and all groups that have an interest in corporate performance, such as employees and small suppliers. It asks about shareholder influence on executive pay and whether some features of corporate governance that apply to listed companies should be extended to the largest privately held companies.
On worker representation, the Green Paper asserts that the current unitary board structure will be retained. It then outlines three options for strengthening the voice of employees at boardroom level:
- the creation of ‘stakeholder advisory panels’ whose views could be sought on particular issues, or who might be invited to attend board meetings whenever relevant agenda items are to be discussed;
- the designation of existing non-executive directors to ensure that the voices of key interested groups, especially employees, are being heard at board level;
- the appointment of individual stakeholder representatives to company boards.
On the last point, the Green Paper reiterates the Prime Minister’s statement in her CBI speech: the government is not proposing the compulsory direct appointment of employees or other interested parties to company boards.
Social partner reactions
There was a mixed response when the proposal was originally announced in July. On the employers’ side, the Institute of Directors (IoD) expressed tentative support. In a statement, a spokesperson said that the IoD agreed that there benefits to placing workers on boards such as better employee engagement and it would urge companies to consider doing so. However, it opposed making this compulsory.
Initially, the CBI said that it believed that employee engagement was essential to enhance productivity, fairness and employee welfare. However, the CBI emphasised that the form of such engagement required careful consideration and it would convene a group of members to shape the CBI’s approach. It called on government to work in partnership with business to find a genuine solution.
On 17 November, just before the Prime Minister’s speech to the CBI’s annual conference, the CBI called for a proportional response on corporate governance. The statement agreed that diversity of thought throughout a business improves collective decision-making, but that this had to be done in a way that maintained the structure of the unitary board system. The CBI advocated an approach that requires companies to explain publicly how they have secured employee engagement. This voluntary approach to worker representation would allow businesses to judge whether having an employee representative on the board suited their business practice or whether other methods were more appropriate. Alternatives might include appointing an employee representative or a non-executive director who has an explicit responsibility to engage with employees. These views were reiterated in a response to the Prime Minister’s speech published by the CBI during the conference.
The Trades Union Congress (TUC) had welcomed the proposals in July, saying it had long argued for such representation. Workers on boards would change boardroom culture and help companies take a longer-term perspective on growth at a strategic level. It would also bring important benefits, such as a diversity of background and skills that were important for challenging ‘groupthink’, and in-depth knowledge of the day-to-day running of the company. Worker representatives were also well-placed to advise on the crucial issue of employment relations, which the TUC described as critical for long-term value creation.
Later in the summer, the TUC published a report entitled All aboard that set out its proposals for worker representation on company boards. These proposals are summarised below.
- Worker board representation should be put in place in all listed and private companies with 250 or more staff.
- Workers in companies employing 100 or more people should be able to trigger board representation rights through their unions or bodies established under statutory consultation procedures.
- Implementation could be phased in, starting with the largest companies, such as those with 1,000 or more employees.
- Worker representatives should make up one-third of the board, with a minimum of two workers per board.
- Worker representatives should be elected by the whole workforce, including overseas workers.
- All company workers, other than directors and senior managers, should be eligible for nomination – perhaps with a minimum length of service requirement.
- Candidates should be selected on the basis of nomination by a specified number of other workers and recognised trade unions should also be able to nominate candidates for election.
- Representatives should have paid time off for training, and access to networking activities to build competence - the TUC made a commitment to organise a network for workers’ board level representatives and to work with other organisations to offer appropriate training opportunities.
Following the Prime Minister’s speech to the CBI, the TUC’s General Secretary Frances O’Grady criticised Theresa May for her change of direction, saying that her ‘clear promise to have workers represented on company boards’ had been abandoned. ‘The proposals in her speech today do not deliver on this. This is not the way to show that you want to govern for ordinary working people,’ said Frances O’Grady.
When the Green Paper was published, the TUC also express its disappointment. According to the TUC, its proposals were not what the Prime Minister had promised and did not go far enough. They would not do enough to shake up corporate Britain. It rejected the advisory panels outlined in the Green Paper and called for a return to the original proposal to put workers on company boards.
A poll commissioned by the TUC of 2,000 adults conducted between 25 and 28 November found that 6 out of 10 people supported the election of worker representatives onto the boards of large companies and only 1 in 10 was opposed to the idea. The TUC said it opposed any plan to let companies handpick non-executive directors to speak on behalf of staff. It planned to make this and other views heard during the formal consultation and as part of any subsequent policy development process.