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A teaser from Theresa - workers on company boards

25 July 2016

One of the early surprises of Theresa May’s premiership was her extraordinary pledge that employees should be represented on company boards.

One of the early surprises of Theresa May's premiership was her extraordinary pledge that employees should be represented on company boards. For a Conservative prime minister to promote one of the cherished policies of the Trade Union Congress underlines the strange political times we are living in. The announcement also ostensibly outflanks the proposal in the 2015 Labour Party manifesto for employee representation on corporate compensation committees.

Bullock Report on industrial democracy, which proposed significant rights of worker participation on board of companies with over 2,000 employees. The Labour government of the day decided against implementing this and the idea has remained in the political wilderness more or less ever since.

In passing, we should note Mrs May’s perhaps even more unexpected suggestion that consumers should be represented on company boards. (While potentially radical, let’s put this aside for now - it is almost impossible to speculate how such a reform might be framed.)

In global terms, it is rare for board-level worker representation to feature in national legal systems. It is, however, an established aspect of corporate governance in many European countries including Germany, France, Norway, Sweden, Finland, Luxembourg and Denmark. What a supreme irony for this to be proposed for the UK as it prepares to leave the European Union.

There are of course no details of the plan yet or how it might be taken forward. It is not even known whether it is envisaged that worker representation on boards would be imposed as a legal requirement. If so, many details would need to be fleshed out. Would representation be on the main board or a separate supervisory board, as under the German system of codetermination? Would all companies have employee directors or only those above a certain size? How many would there be and how would they be selected? How would trade unions be involved? And so on.

Regardless of what legal mechanisms might be put in place, what are the pros and cons in principle of including employees on company boards? The TUC contends, among other things, that they can help boards focus on long-term business objectives and avoid short-termism. It also cites how employee directors bring detailed knowledge of the day-to-day running of their company to the table, particularly in relation to employment issues.

The potential downsides include increased corporate bureaucracy and more cumbersome decision-making processes. There have also been suggestions that worker directors could have the effect of distorting management priorities. Under the German codetermination model, for example, employee members of the supervisory board can be involved in decisions about executive pay and prolongation of managers contracts. Critics argue that senior company officers on the management board may be tempted to agree to protect jobs and employees' terms and conditions in return for securing large bonuses.

The tenor of Theresa May's initial comments suggests she would be fundamentally opposed to any system allowing for mutual back-scratching of that nature. But while her startling announcement chimes well with her narrative of giving working people greater control, the jury is out on how far she will be prepared go in shaking up the UK's current boardroom culture.

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