A voice at the top table
The financial crisis of 2008 and the recession that followed were supposed to mark an historic watershed. There could be ‘no more business as usual.’ Yet this is exactly what we have returned to.
Britain’s model of corporate governance – based on the principle of shareholder primacy – is not fit for purpose. Shareholders have proved themselves unwilling or unable to undertake their role as custodians of our large companies. With shares being held for increasingly short periods of time, the system has incentivised a focus on short-term profits over long-term investment. They have failed to curb excessive executive pay or to identify and address unsustainable business practices. And shareholder primacy means that other stakeholders – including employees – are not given a say.
We need to reform our corporate governance in order to give employees a voice at the top table – on both the board and the remuneration committee.
More than anyone, it is employees who have the greatest interest in the sustainable success of the company. Employees understand the business, its services, products and customers – and, with the right training and support, they can really contribute to decision-making. Workers on the board will add a dose of realism to discussions at the top table; bringing an understanding of how things really are at the shop floor. And by breaking the cosy clique on remuneration committees, we could also reverse the process whereby the share of profits going to wages has fallen whilst executive pay has soared.
There is a wealth of evidence of the benefits of participation at work. On an individual level, it is correlated with engagement and wellbeing. On an organisational level it is associated with productivity and innovation. It should therefore be a serious concern that Britain has the second lowest levels of employee participation in the EU, beaten into last place only by Lithuania. By adopting more participative ways of working – including employee representation at the top – we could improve both the workplace experience and productivity.
So what are the arguments against employee participation in corporate governance? Some might say it is unworkable or radically left-wing. Yet in most other EU states – including Austria, France, Germany the Netherlands and Sweden to name a few – worker representation on the board is required by law. It works well and is largely uncontroversial.
Others argue our adversarial industrial relations and opposition from employers would make it impossible in the UK. But this is to assume that such attitudes are fixed and unchanging. In fact, as the High Pay Centre has shown, employee representation on boards was bitterly opposed by employers in Germany. It was only after implementation that they came to accept and indeed value the measure.
Some insist employees simply aren’t up to the job. In their response to the Government’s consultation on executive remuneration, the CBI claimed employees would ‘add little’ to the process of decision making as they have an insufficient ‘understanding of the business’ compared to non-exec directors. These arguments risk sounding patronising and dismissive. And if workers in Europe are capable of sitting on the board, why should British employees not be?
Employee representation on boards and remuneration committees would be a massive opportunity for the labour movement. It would give employees a say at the top table for the first time. In organised workplaces, it would give unions another channel through which they could influence employers. In those without unions, it could offer the opportunity for them to organise and gain membership.
But it also poses a significant challenge to trade unions. In her exceptional Attlee Memorial Lecture in April, Frances O’Grady highlighted the union movement’s ‘strategic failure’ to embrace co-determination and industrial democracy in the post-war era, focusing instead on fighting incrementally to improve terms and conditions. O’Grady claims that to do so would have meant taking on a role that ‘is not just more ambitions but more demanding, than the one we usually have now. It means accepting responsibility, moving out of our comfort zone of short-termism, to taking the long view and championing the greater good.’
For a movement used to adversarialism, board level representation may require a change of mind-set; from sitting across the table from the boss to sitting around a table together. Unions, as they do in Europe, would still retain the independence to fight for their members both individually and collectively. But they would also be responsible for working collaboratively to set the direction of the organisation. Such a system would only work if there is good-will, trust and commitment to develop a workable consensus on all sides. Of course, such a cultural shift would be required of many employers too, but as the German experience shows, it is possible.
Having employees sitting on boards and remuneration committees would strengthen workplace democracy, encourage long-termism and ensure fairness. It would be good for workers, good for business and good for the country. And after all, what could better define a One Nation Economy than having workers take their rightful place at the top table.
Joe Dromey (@Joe_Dromey) is Head of Policy and Research at the IPA. He writes in a personal capacity.
Posted in: Blog Posts |Tagged with: employees on boards, industrial democracy