Will workers take a top-table seat?

Calls for executives to make room for employees in the boardroom have not met with universal approval. James Moore reports
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The mere suggestion from Government that it might not be such a bad idea for employees to have a representation on company remuneration committees produced a furious reaction in the City.

Hardly had the debate got under way, when the chairmen of some of the FTSE 100's more backward looking multinationals were trotting out the tired, old threat of stomping off to more "business friendly" overseas locales. In private briefings, at least.

A set of hugely hostile responses to a Business Department consultation on the issue killed it off and the unnamed chairmen of those furious multinationals were able to renew their golf club memberships with confidence.

Vince Cable, the Business Secretary, has made his desire to see greater diversity on British boards clear. But on the issue of including employees he has said: "Already, in the UK, employees in large companies already have the right to set up information and consultation arrangements, allowing them to receive information and discuss issues about the company for which they work – including their bosses' pay.

"This mechanism is not being extensively used at present and perhaps employees are unaware of it. I would encourage them to take this up and put executive pay on the agenda. Here is a useful mechanism that already exists and it is more practical and less problematic than trying to put worker representatives on boards."

But what is so wrong with the idea of putting worker representatives on boards?

Employee participation doesn't seem to have stopped companies from some of the countries where it is a fact of life from being judged as the best managed in the world.

When a team from Harvard Business School, the London School of Economics, McKinsey & Company, and Stanford University in California systematically surveyed global management, the US – where there is little or no employee participation at the top – came first.

But it said that firms in Sweden and Germany, where participation is a fact of life, weren't far behind, while Britain was lagging in mid table. Germany, it should be remembered, is Europe's strongest and most dynamic economy. And half the non-executive members of the supervisory boards to German companies come from the workforce with the remainder nominated by shareholders.

The Confederation of British Industry, however, describes Germany as "a unique case". Neil Carberry, its director of employment and skills, insists the current system of UK boards having a majority of shareholder appointed non-executive directors "works well". As, he claims, do remuneration committees, although the latter statement may not meet with broad agreement.

"For UK plcs the majority of directors on the board being in the hands of shareholders is the appropriate arrangement," says Mr Carberry. "We are not sure that employee representation would be anything other than tokenistic. Boards have a specific job to do and there are specific skills you look for."

These include the ability to "oversee and properly challenge management". "Shareholders need to have trust in non-executive directors to do this. There is experience and training required and it is not immediately clear to us that it is particularly easy to find those skills in the workforce more generally."

He says the CBI supports efforts to improve boardroom diversity – because that would improve corporate governance – but that is as far as it goes.

The Financial Reporting Council, which overseas the Combined Code on Corporate Governance, also queries if employee representation could work. Stephen Haddrill, the chief executive, says: "From a governance view, what the code looks for is balance, independence and expertise. In the UK, we had such an adversarial history between management and unions so the attitude of many had been 'over my dead body'."

But, surprisingly, the Institute of Directors, which might be expected to be a fierce opponent of the idea, is more open, although vehemently opposed to making it compulsory.

"We support the idea of getting employees more involved in companies, but like all of these reforms, we think it would be a very dangerous idea to legislate," a spokesman says arguing that "the role has to be supervisory".

He adds: "The core point is that boards are legally responsible for the performance of their companies in a way that employees will never be. So boards have to have final say. There are sensible ways to encourage (employee involvement) that do not involve legislation."

The Trades Union Congress refutes the arguments against, pointing out that employee board representation extends far beyond Germany. Janet Williamson, a senior policy officer, says: "There is a great deal that is right with it. In the UK there is a strong assumption that it is rather an outlandish idea. But it is widespread throughout the EU, even standard practice.

"We support employees having the opportunity to input into strategic decision making at the companies where they work. There is a lot of evidence that employee participation has a positive impact on productivity and profitability."

Variations on the German model can be found, she says, in Austria, the Czech Republic, Denmark, Finland, France, the Netherlands, Norway, Poland and Slovenia. Among others.

And she disagrees with those who suggest Britain's reluctance to follow suit is down to poor industrial relations: "Perhaps one of the reasons we have had, historically, some examples of poor industrial relations is that there has been a lack of worker participation. This might actually have contributed to an adversarial culture."

She adds: "The number of days lost to strikes in the private sector has been going down. We actually have remarkably pragmatic and business like industrial relations in this country."

With several companies likely to face bloody noses, not least over pay at annual meetings in the coming weeks, it is not entirely clear that the current arrangements are working as well as the CBI seems to think.

Perhaps as a newer generation of executives – particularly non-executives – takes control at UK companies hostility to staff on the board may ease. First Group (see panel) sings the idea's praises. So others could yet follow.

On board at First

Among the great and the good that make up First Group's non-executive directors is Mick Barker, a railwayman for 36 years who still drives trains for First Capital Connect.

The transport company has had employees on the boards of its operating companies and its group board for years now. The company says employee directors are a "central part of the company's decision-making".

Management believe it is "beneficial for employees to be represented on the board so that important employee-related issues can be raised at the highest level and a two-way communication process between management and employees is maintained," a spokesperson says.

This "has been an integral part of our company from its earliest days. Giving employees a voice around the top table gives them a better understanding of our strategic objectives, as well as a stake in the steps we take to achieve them."