With Theresa May appointed as Prime Minister today what should we make of her pledge to put employee representatives on company boards?
When Theresa May launched her national campaign for the leadership of the Conservative Party earlier this week it was with a pledge that appeared to have all the hallmarks of ‘One Nation’ conservatism about it. Yet this cannot be understood as a purely political pitch for the mythical centre ground – after all - the only reference to worker representation on boardrooms in the Labour Party’s 2015 manifesto was to allow for worker representation on remuneration committees.
Rather, May’s pledge sought to consolidate ground that the Conservative Party was arguably already winning against their political opponents. In this context, it is worth highlighting the results of a 2015 You Gov poll in which 56% of people thought that the Conservatives would be good for people who work for big companies – almost double the figure who thought the same for Labour (29%).
A pledge such as this also cannot be isolated from the international context and the way in which employee representation in boardrooms has been successfully embedded across Europe. There is now a longstanding European tradition of worker representation on boardrooms – leading in many instances to the creation of more cooperative cultures that promote the mutuality of communication and understanding early on. There is also nothing that suggests that worker representation on company boardrooms in any way adversely affects the performance of companies – indeed, Germany, one of the strongest economic performers in Europe, has one of the most comprehensive models of workers’ representation in the world.
The vast majority of the 28 EU member states (plus Norway) have legislation or other agreed arrangements for workers on boards – and only 10 countries of that number do not. The United Kingdom is one of them. The other countries that do not have generalised arrangements for worker representation on boardrooms are Belgium, Bulgaria, Cyprus, Estonia, Italy, Latvia, Lithuania, Malta and Romania.
This week has been a long time in politics - much has changed since May set out her stall in Birmingham earlier this week (not least the fact that she has now become the UK’s Prime Minister). So it is right that focus and attention should now shift to what is really meant by the pledge – vague as it may be – and the interesting policy questions for the UK, for companies, trade unions and for workers, that are provoked by it.
We have five questions for the new Prime Minister on the question of worker representation on company boardrooms.
1. To which businesses should arrangements for worker representation apply to, and why?
Practice across the 18 European countries that have generalised arrangements varies enormously – including the question about which businesses will need to have workers on their boards. What does May mean when she is talking about ‘big business’? Countries seem to define this differently across Europe. Denmark, for example, requires worker representation if a company has a minimum of 35 employees; Austria has a threshold of 300 employees for limited companies, all the way through to France, which has a threshold of 1000 employees.
There is also an important question (increasingly important in the UK given the trend towards the contracting out of public services), as to whether these arrangements should extend to companies owned and managed by municipal and local authority bodies, or otherwise under the control of publicly funded bodies.
As well as greater clarity about the organisations that will be affected, there needs to be a clear economic and public interest rationale for these arrangements.
2. How should workers be represented?
In Norway and in Sweden with a single tier board structure - workers take their place directly on the Board of Directors. But in other countries (Austria and Germany), there is a Supervisory Board, which is a grouping of people who meet regularly to approve the decisions of the Boards of Directors upon which worker representatives sit. Others have flexibility and choice within the system – for instance, it is possible for companies in France to opt for either of the above two systems of representation.
3. Should legislation and/or a regulatory system be introduced, and what should it look like?
Of the 31 states in the EEA zone, 19 have introduced legislation on employee board-level representation. There are, however, alternative possibilities – formalising worker representation through generalised arrangements agreed between workers and companies within particular sectors is not uncommon, for instance. Where legislation is introduced, there are corresponding questions about enforcement and about the consequences emerging from any breach of legislation.
4. How are workers selected for representation on boardrooms, and what will be the extent of trade unions’ involvement in this process?
Governance arrangements for worker representation in boardrooms might vary enormously. Ordinarily the process for representation is through an election process amongst workers of the company. But these processes can be complemented with other options - in Germany, there is specific provision for the election of an external union official in the case of large companies, for instance. In other countries there are arrangements for the co-option of board members, and in Sweden specifically there are arrangements for local branches of trade unions to appoint their representatives.
5. Will there be limits on the powers of employee members of boards, what will these be, and why?
In some countries (Denmark, Finland, and Sweden), employee members of boards are restricted from dealing with collective bargaining issues. In the Netherlands, those who are involved in such negotiation processes are not eligible to be on boards. By way of contrast to this, in Germany there are specific provisions for external union representatives involved in such processes to be on company boardrooms. The variety of existing models in this respect raises a host of questions about the intended role and function of worker representatives on boards, constraints they may be under, as well as their relationship with trade unions.
It is clear that for May to make her pledge reality requires considerable cultural change that she will need to lead– particularly with company directors and shareholders. May will also need a strategy for gaining the support and enthusiasm of an even wider range of stakeholders, including employees, unions and businesses who have ‘skin in the game’ if she really wants to ensure that this is a pledge that becomes reality and is embraced wholly in the UK.
The above five questions really mask an overall strategic question – what is the vision May has for the UK– and what problem are we aiming to solve in introducing this policy? Germany’s model, for instance, has at its heart the principles of collaboration and co-determination – that employees and employers share a mutual and common interest in the success of the organisation; that more effective trust and communication can be fostered by such models, and that a more collaborative and less adversarial system can facilitate better outcomes for all.
If that’s the goal of this policy (not simply an attempt to capture the headlines of the day at a timely moment) – then the system May introduces, and its design needs to reflect that. Our five questions need some engagement, and some answers. This has the potential to be about a future vision – and a bigger question: how do we fundamentally re-shift the culture, tone and nature of the UK economy? What new vision do we need for industrial relations in the UK as part of that?May’s announcement early on this week may have captured a media moment (however fleeting), but only time will tell if it is to become the overture to a grander, longer operatic piece.