The TUC has long argued that including workers on company boards would change the culture of the boardroom and help boards to focus on long-term company growth, rather than being distracted by short-term financial engineering as occurred, for example, in the financial sector in the run up to the crash. Workers have a clear interest in the long-term success of their company, as any union representative negotiating with company management knows. They also bring in-depth knowledge of the day to day running of their company and are well-placed to advise on the crucial area of employment relationships, which are critical to long-term value creation. A report on worker representation on boards in the Republic of Ireland found that their contribution on employment relationships was particularly valued by other board members, as was their operational knowledge of the enterprise. The same research found that worker directors were felt to be loyal, trustworthy and diligent, and their contribution was viewed as positive and unique by over three-quarters of respondents; almost all respondents had never heard of a breach of confidentiality or conflict of interest in relation to worker directors.
Company workers are also more likely to understand how the company and its practices – for example on executive pay – will be viewed by the public. There is evidence from across Europe that including workers on company boards is associated with lower levels of executive pay. There is also evidence from Denmark that worker representatives on boards are more likely than shareholder representatives to take broader stakeholder interests – including community interests and environmental impacts – into account.
But putting workers on company board is not just about making companies work better – important though that is. It is also about giving workers – often called a company’s ‘most important asset’ – a voice. In other areas of our lives, we take it for granted that we have some say in decisions that affect us. But on entering the workplace, this basic tenet of democracy is left at the door; workers have no automatic right to be consulted or even informed about decisions that are taken there. It is long overdue that democratic rights should be extended to the workplace. Workers deserve a seat at the table; and our economy as a whole will be the stronger for the change.
In most European countries, worker board representation is an accepted and valued part of corporate governance: in 19 European countries workers have the right to sit on company boards, and in 13 countries these rights are extensive in that they cover private and public limited companies, as well as state-owned enterprises. And countries with stronger workers’ participation rights – meaning widespread rights for board representation, workplace representation and collective bargaining – do better in terms of their employment rate (broken down by age and gender), expenditure on R&D, and the risk among the population of poverty or exclusion, plus a whole range of other indicators. Experience from Europe shows also that worker board representation operates successfully in countries such as Sweden, Norway and Ireland that have a unitary board structure, as we do in the UK, as well as in countries that have a two-tier board structure, such as Germany and Austria.
However, we do not have to look abroad for positive examples of worker board representation. First Group, a successful UK company, has had an employee director since the company’s inception. Each division at FirstGroup elects their own employee director, and this group then elects the employee director for the main board from their ranks. Martin Gilbert, former Chair of FirstGroup, described the company’s experience in the following terms (speaking on 13 June 2013 at a PIRC seminar, Employees in Corporate Governance):
“The presence of employee directors on the FirstGroup board is invaluable. The few drawbacks are greatly outweighed by the benefits and having this two-way channel of communication has positively impacted on the running of FirstGroup.”
Putting worker representative on company boards is an idea whose time has come, and Theresa May’s announcement today shows that this proposal has officially entered the mainstream. The TUC will be doing all we can to keep it there and to turn it into a reality.