What is corporate paternalism?  Is it making a comeback in the UK?  This article from Anna Sella, Sean Illing and Helen Coombes of Lewis Silkin explores the future of paternalistic capitalism. 

Most of us in the UK nowadays are familiar with welfare state capitalism.  If you will forgive the over-simplification - when we work, we pay taxes which are invested back into our society by the state, and the welfare state provides a safety net if we fall out of work onto hard times.

Back in the days before the state assumed this role, individuals had to rely on their own wits to survive – or, if they were lucky, the kindness of their employers.  The Victorian age was the heyday of paternalistic capitalism, when many large employers considered that it was to their benefit (both moral and corporate) to expend a certain amount of resources in looking after their workers.

Robert Owen, of New Lanark Mills fame, set up new model villages with high quality housing, co-operative shops, integrated community amenities and attractive physical environments for his workforce in 1810.  Port Sunlight in the Wirral was built by the Lever Brothers for their soap factory workers in 1888, and includes the Lady Lever Art Gallery which is still a major visitor attraction today.  The village was an exercise in profit sharing, with all profits reinvested in the village.  Lever said "It would not do you much good if you send it down your throats in the form of bottles of whisky, bags of sweets, or fat geese at Christmas.  On the other hand, if you leave the money with me, I shall use it to provide for you everything that makes life pleasant – nice houses, comfortable homes, and healthy recreation." Nowadays, employees might resent their employer deciding what is good for them in this way, even if this results in extra worker benefits - but more on that later.

Perhaps the most famous example of corporate paternalism is the Cadbury village of Bournville, where the company is still responsible for the upkeep of many village amenities.  The village, formed of Arts & Crafts cottages and houses, was founded by George Cadbury, who moved the chocolate factory out of the Birmingham slums in 1879.  Children attended the school built by Cadbury and factory employees received membership of pioneering pension schemes, joint works committees and medical treatment. Due to the Cadbury family’s strong Quaker beliefs, alcohol was banned.  It was not until late 2015 that a newsagent finally made a successful application for an alcohol licence from Birmingham Council.

Social responsibility

But what has this got to do with the present day?  Well, the state is under severe financial pressure and is making cuts in many areas.  This includes measures that directly affect workers, with the cut in tax credits for working parents being a recent example.  Since the changes to pension law beginning in 2012, employers need to automatically enrol relevant workers into a pension scheme and make a minimum contribution to those pension savings, in the hope that more people will save for their retirement and not rely solely on the (small) state pension. The Government has also introduced the National Living Wage, effective from 1 April 2016, to embody their vision of a “higher wage, lower tax, lower welfare society.”  Others have a different label for this.  “Austerity” has become a byword for economic policy in recent years, with the state clearly looking to shift its social responsibilities elsewhere – and where better than to big business?

While we have not gone back to the age of employers providing their workers with affordable housing (and certainly not in big cities, more’s the pity!), recent years reveal a wealth of examples of corporate paternalism if you know where to look.  There are few large organisations that do not have some form of corporate social responsibility policy, encouraging their workers to do good works.  And there are also rafts of policies providing those very workers with valuable benefits, and sometimes their family members too.

Granted, some of these benefits are not new.  Private health insurance, which may also cover family members, has been a common benefit to woo and retain professionals for some time.  But new technology has brought fresh angles to the business of providing worker benefits.

Employee benefits

Richard Branson made headlines around the world in September 2014 when he announced that Virgin were following in Netflix’s footsteps by tearing up their annual leave policy and allowing their employees to take as much holiday as they wished.  Meanwhile, Apple’s and Facebook’s announcements that they would foot the bill for their female employees to freeze their eggs – so they could delay having children – made front-page news.  Google is recognised as one of the best companies in the world to work for, with a range of benefits such as free food and death benefits that provide the employee’s partner with half of their salary for ten years.  Some companies ostensibly incentivise employees to stay healthy by providing them with fitness-trackers which monitor exercise and stress levels, while others encourage employees to stay mentally focused by subsidising their further education costs.

Some, if not all, of these measures are well-meaning.  But we live in a very different world now compared to the 19th century.  There is more employment law regulation for a start, although this is still low in the UK generally compared with many other jurisdictions in Europe.  Our human rights are much better recognised, with the right to privacy applying (at least to some extent) to our work lives.  How do the measures described above fit with our current law?  Is our legislation outdated and a bar to innovation?  Or does it provide important protection in times when there are so many new possibilities? 

Take unlimited holiday.  Having such a policy does not mean employees will use it – that will depend on the corporate culture and the messages they get from the top.  If the message is to use as much holiday as you want but only if you are 100% up to date with every project, then such a policy could actually lead to employees taking less holiday - a move which threatens their health and safety and the company’s compliance with working time rules.  (In the UK, workers are legally entitled to take at least 5.6 weeks of paid annual leave.)  Egg freezing is surely a choice and not an obligation - but again, a company’s culture will influence how its employees perceive and use this benefit.  Offering such a possibility within a fiercely competitive environment could well create the expectation that women will delay having children until a time convenient for the business, given that their biological clock has been “paused”.  As for any measure which involves giving the employee company technology, this is likely to gather personal information which the employer is then obliged to process in accordance with data protection law.  Health information is one of a number of categories of data considered particularly sensitive and requires special protection.   

Another side to this debate is that many employers do not provide enhanced valuable benefits at all.  A 2013 report by Cass Business School argued that employee benefits are not “keeping pace with demographic changes”, leaving people less financially secure.  The proportion of employers offering occupational sick pay for some or all staff has fallen from 90 per cent to 48 per cent in the last 30 years, while the proportion of mothers receiving enhanced maternity pay from an employer on childbirth has decreased by 10 per cent (to 32 per cent) since 1983.

Even where voluntary additional employee benefits are provided, the ones we hear about are all being offered by big businesses, often in the technology, creative and professional services sectors.  Many other large and well-known companies, particularly in the retail sector, operate with small margins and are facing tough decisions about their business structure.  Both they and small businesses need to comply with the minimum requirements of the law, but what of the higher standards set by their larger or better resourced competitors?  How will they be able to offer their workers the same benefits, in the absence of greater resources and easy access to expert advice?  And if that is not an option, will they lose out on the chance to attract and retain the best talent?  This could lead to an increased split between the “haves” and the ‘”have-nots” (in terms of both companies and workers), perpetuating the skills gap that we have written about elsewhere.

Cultural norms

Yet the biggest companies, precisely because of their size and status (and, let’s not forget, their contracting power) may have an important role in shifting cultural norms – often more quickly and efficiently than the state can through legislation.  Witness Microsoft’s requirement, as of last year, that all of its more sizeable suppliers have to provide their employees with at least 15 days’ paid annual leave (which can include sick leave) or Microsoft will not do business with them.  This is in a context where many US employees are entitled to no paid leave at all.  This move both preceded and exceeded the US government’s failed attempt to pass a bill for all employees to be entitled to at least seven days’ paid annual leave. 

With multinational companies the impact can be global, such as with Vodafone’s decision to provide 16 weeks’ paid maternity leave to all applicable staff worldwide, together with full pay for a four-day working week for up to six months on returning to work.  According to the company and its financial advisers, this will actually result in an overall saving for the company of billions of pounds. How come?  It is because of the business disruption, recruitment and training costs involved when valued female employees do not return to work following maternity leave.  Such levelling up across various jurisdictions is extremely rare, even in multinational companies, but Vodafone’s example will perhaps lead other large companies to look at the “bigger picture” rather than short-term costs, to the benefit of thousands of employees including those in developing countries.     

In some cases, we expect that employees will take matters into their own hands to ensure they acquire and hone relevant skills throughout their careers.  They may, for instance, decide to pay for their own training - particularly in the age of the “portfolio” career when they can be expected to work in several different sectors and professions (let alone businesses) over the course of their (longer) working lives.  This is, however, another area in which companies are increasingly being persuaded to contribute to their employees’ costs, acknowledging the business benefit of employees “up-skilling”.  

The future of employee benefits is not quite Back to the Future, but nor is it entirely Bleak House.  There is a range of challenges and opportunities facing the state, employers (large and small) and individual workers as they continue to shift their relationships with each other over the coming years.  Companies and their HR leaders would do well to consider whether a small dose of corporate paternalism might be good for their business in terms of PR, recruitment and retention, workforce productivity and morale - and ultimately for the bottom line too.

 

By Anna Sella, Sean Illing and Helen Coombes, Lewis Silkin

 

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