Managing directors positive about employee representatives on the board

The majority of managing directors and chairs of the board in Swedish companies are positive about the presence of employee representatives on the board and find the cooperation useful. This is among the findings of a survey, published in July 1999, commissioned by two trade union confederations.

Some 70% of chairs of company boards and 60% of managing directors, in a sample of 660 Swedish companies with more than 25 workers, have a positive attitude towards employee representatives on the boards of companies. This is among the findings of a survey, released on 5 July 1999, commissioned by the Swedish Trade Union Confederation (Landsorganisationen i Sverige, LO) and the Federation of Salaried Employees in Industry and Services (Privattjänstemannakartellen, PTK), which represents 1.2 million members of white-collar trade unions. The survey, entitled The representation of employees on company boards (Anställdas representationi företagsstyrelser) was carried out by Klas Levinsson, a researcher at the National Institute for Working Life (Arbetslivsinstitutet, ALI). No larger studies on the subject have been conducted since the end of the 1970s.

The Board Representation Act

The Board Representation Act (lagen om styrelserepresentation för arbetstagare, SFS 1987:1245) has been in force for 25 years. According to the Act, employees are entitled to two permanent representative and two deputies on the board of directors in companies with at least 25 employees (TN9809201S). If the company has more than 1,000 employees and operates in at least two different lines of business, the employees are entitled to three permanent representatives and three deputies. The decision to appoint employee representatives is taken by a local employees' organisation that is bound by a collective agreement with the undertaking, and the representatives are appointed by the local employee organisations. A board-level employee representative should be appointed from among the employees.

The board-level representative is subject to certain rules of impartiality. He or she may not participate in board discussions concerning matters relating to negotiations with an employees' organisation, the termination of a collective agreement, or other matters in which an employees' organisation with members at the relevant workplace has an interest which may conflict with the interests of the company.

The new survey used two questionnaires, one for managing directors and board chairs, the other for trade union representatives. During autumn 1998, the questionnaires were sent to the 660 companies in the sample. The first question to managing directors and board chairs was "Are the workers on the board a resource or a burden?" A majority regarded employee representation as positive, with 60% of the managing directors and 70% of the chairs giving a "very positive" or "rather positive" response to this question. A favourable experience of working with employee representatives seems to be higher in companies with more than 500 employers. Only five out of 411 managing directors surveyed, and none of the chairs, gave a "very negative" response.

A "positive" response to the presence of workers' representatives, according to the study, means that in nine out of 10 companies the climate of cooperation is considered either "very good" or "rather good". The decisions of the board become better "anchored" among the employees, in the view of 60% of the managing directors. There is also a view that difficult decisions become easier to implement, and that the board is given a deeper knowledge about the company and the workers.

Prompted by questions examining potentially more negative attitudes, 12% of the managing directors and chairs stated that cooperation with the employee representatives makes the board's work more onerous and that too many unimportant issues are brought up. There is essentially only one area in which it is widely perceived that board-level employee representation is seen to lead to a certain disadvantage: about 40% of respondents stated that there is a risk of a growing leak of information from the board room.

Responsibilities

A fundamental provision of the Board Representation Act is that the employee representatives should have the same tasks, obligations, rights and responsibilities as the other members/directors on the board. Two-thirds of the managing directors and the chairs surveyed confirm that the workers on the board have the same legal responsibility as the other members of the board.

However, principles are one thing, and reality is something else. In 50% of the enterprises, the management describes employee representatives' activity on the company board as low in practice. Only 9% of the managing directors consider that the activity is high. There are exceptions to this phenomenon in the areas of personnel matters, production, work environment and large-scale reorganisations. For example, at 50% of the companies a high level of employee representatives' activity is reported on personnel matters, and at 33% on reorganisation issues. It is unusual that the representatives take part in the preparations for the work in the board. In only 4% of the companies is the representatives' activity reported as being high in that sense. The managing directors and the board chairs make all the preparations for the board's work and have the privilege of formulating problems and setting the agenda, the survey's author observes.

Among the employee representatives themselves, 30% state that decisions are made not in the board meetings but elsewhere. A similar number state that they do not have enough time to prepare themselves before meetings. Almost 18% of the representatives belonging to LO unions complain of time pressure during meetings. It is reported that many issues are too complicated (in 16% of cases) and that it is difficult when a foreign language is used at meetings (13%). Furthermore, 9% claim that they do not receive the information they ask for. The figures for the white-collar workers in PTK unions show the same pattern, although to a lesser extent.

What possibilities do the employee representatives consider they have of exerting a real influence on board decisions? Only 3% consider that they have great possibilities to have an influence on all kinds of issues. Influence on certain matters is reported by 30% of representatives, rising to 45% in larger companies, while 58% state that they have only a small possibility of having any real influence on decisions.

The union connection

Local trade unions (there is often more than one in a workplace) play an important role in the Board Representation Act. It is the local union that decides to establish employee representation on the board and that appoints the representatives. This is sometimes called the "union connection". In 30% of the companies surveyed, the representatives are elected at a local union meeting, while in 20% of companies the local union board appoints the representatives. In 30% of the companies, the representative is chosen by other union local groups, or through some other kind of election among union members.

Among the board-level representatives belonging to LO unions, 66% have contact with the local union before, as well as after, a company board meeting. There is also an important personal connection, besides the union connection, in the fact that the board representative is quite often the chair of the local union. The average time for a union representative to sit on the company board is six years.

The survey also asked union representatives about the usefulness of being on the company board in comparison with other union work. Two-thirds of the LO representatives, and 58% of the PTK representatives, consider their work on the company board as "very useful" or "rather useful". Only 6% of the LO representatives state find the work of "very little use".

Professional secrecy

There are no specific rules about professional secrecy for employee representatives in the Board Representation Act. The legislation on private limited companies, however, states that directors who, wilfully or through negligence, damage the company may be liable to damages. These rules may apply to the "leaking of "information from board meetings. The Board Representation Act, which is partly built upon giving trade unions insight into the business, sets high demands for an open flow of information, and it is important for board-level employee representatives to be able to discuss company board matters with other union representatives.

Among other questions in this area, respondents were asked how often lately there had been a proposal that an issue discussed at the board should be subject to professional secrecy at the board lately. In 70% of the companies, secrecy had been proposed once or more in board meetings, while in almost 20% of the companies it had been proposed three to four times. The union representatives quite often approve a proposal for secrecy to apply. An average of 7% of the employees representatives had stated reservations about a decision to apply professional secrecy, while 11% of the union representatives consider the issue of professional secrecy to be a problem for cooperation with the other company union representatives.

Need for change and education

When asked about possible changes in the legislation on board-level employee representation, 80% of managing directors answer that there is no urgent need for changes. However, many of them would like to see "a greater commitment and power of initiative" among the employee representatives. On the issue of education, 66% of the blue-collar employee representatives had attended a special board-level representation course organised by LO, while 40% of the white-collar representatives had attended a similar training course arranged by PTK. The survey confirms a statistical connection between those who have attended a course and activity on the board. As one might expect, activity is stronger among this group. In general, the union representatives want more education, above all in business economics (cited by 70% of the LO representatives), and 60% of the managing directors agree. A majority of the union representatives also want support and advice from external experts with regard to investigations and material used in the board's work.

Women on the boards

Women make up 11% of the LO representatives on company boards and 20% of the PTK representatives. Compared with the level of female representation among "ordinary" directors, these figures are high. According to a booklet published in June 1999 (Directors and auditors in Sweden's listed companies, Anneli Sundin and Sven Ivan Sundqvist, Dagens Nyheter) only 4.5% of the total number of board members elected at company general meetings are women.

Commentary

The survey presents an image of a situation where managing directors and board chairs appreciate the presence of employee representatives in the board room. Moreover, they would like things to remain virtually unchanged in the future. The trade unions also have a positive attitude to the system, regularly having two or three representatives on the board. However, after 25 years of the legislation, the gap between a presence on the board and real influence, or power, still seems quite wide. Many, if not most, important decisions, are prepared without the employees' assistance. A lot of the board's work is considered as complicated by the employee representatives, who often find that there is not enough time to come to grips with the various issues.

In conclusion, there is still much to be done in the area that was opened up by the Board Representation Act. Both parties take a positive attitude and agree on the need for employee representatives to receive more education in economic matters. That seems to be a sensible objective for the present. (Annika Berg, Arbetslivsinstitutet).

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