Business leaders in the UK like to suggest that they have a global internationalist outlook; that they know more about the world than those who disagree with them. But once you probe that knowledge, even the slightest bit, it seems British capitalism can be a little bit… parochial. The latest example of this is the attitude taken to suggestions that there should be employee representatives on the boards of large companies.
In a recent debate piece on the website of the Institute of Directors, Jim Prior (CEO of The Partners and Lambie-Nairn) suggests that employees on boards would not work. He does so by posing a series of questions that he seems to think are difficult to answer. In reality, they’re relatively straightforward to respond to if you’ve looked at any of the governance arrangements of the many countries across Europe with employee representatives on boards. For those, like the author of the piece, who haven’t got time to learn about companies beyond these shores, I’ve reproduced Jim’s questions below with short, easy to read answers.
“Who are these employee representatives to be?”
Representatives chosen by employees. This usually means they’re employees (although in the Netherlands they’re not).
“Does the workforce stage an election and run a kind of workers’ council, and how is this different to the idea of unions?”
Direct election is one way of appointing worker representatives, as is being appointed by a works council, both are models used in Europe. The most obvious difference between employee representatives on boards and unions is that an employee representative on a board is an employee representative that sits on the board. A trade union on the other hand is a trade union and as it currently stands trade unions don’t have board level representation.
Employee representatives on boards under some systems are union representatives, under other systems they are forbidden from being union representatives and other times it’s up to the employees themselves who they want to pick. Whilst both trade unions and employees on boards are forms of employee representation, they are quite obviously different things and coexist throughout Europe. Works councils and employee representatives on boards are structures through which employees are guaranteed input into the running of an organisation, trade unions on the other hand are mechanisms through which employees organise and co-ordinate their representation.
“Beyond what level of seniority does an employee cease to be representative of the workers and become part of management?”
The most common answer to this is that as long as the representative isn’t a director it’s up to the employees to choose who they want.
“What do the representatives do in a board meeting and what share of influence are they entitled to wield?”
The exact answer differs from system to system (depending on pre-existing board structures e.g. whether they are two-tier boards or unitary boards) but essentially they are just members of the board. They are the equivalent of a non-executive director and are entitled to wield the same amount of influence. The share of influence they are entitled to wield differs from country to country but where it exists, employee representatives usually take up roughly a third of the positions on a board and therefore have a third of the votes.
“Crucially, in what way will this benefit employees?”
The most obvious answer to this is that they will have their voices heard. Beyond this employees benefit from having more equal pay dispersion and more secure employment. It doesn’t just benefit the employees though, it also benefits the company as a whole. Employee representatives are concerned about the long term health of the company and think with much longer horizons than short term executives.
There are many ways in which employee representatives on boards could be enacted in the UK and there’s a lot that can be learnt from looking at other countries. The first step would be to realise that this isn’t a difficult problem that we have to find a solution to, it’s been solved many times before, and we can easily learn from that.
Tim Stacey, Senior Policy and Research Advisor