Cracking down on excessive corporate practices, such as inflated executive pay, was a central tenet of Teresa May’s leadership campaign. She cited the installation of mandatory worker representation on company boards as one way to battle the most heinous corporate greed. But was this simply populist electioneering or the start of a meaningful policy response to a growing problem?
Increasingly, British boardrooms are facing criticism, viewed as elite clubs led by a privileged few, with little accountability for their actions. Board directors at many of the UK’s top companies are mistrusted and considered to be out-of-touch with the realities faced by most of their workforce. Whether this is a fair perception or not, what’s certain is that a large part of UK society feels disenfranchised and distrusts corporate Britain’s leadership.
Now the call for worker representation onto company boards has been championed by the Commons’ business select committee. In a report launched last week, it calls for the appointment of workers to boards and for a worker to sit on the executive remuneration committee, as part of a set of recommendations to address a “worrying lack of trust” amongst the public.
Worker representation onto company boards is not a new concept. The UK falls far behind a number of European states, most prominently the Nordic region and Germany, where the mandatory inclusion of workers on boards has existed for years. Prime Minister May’s pledge is not new, rather she is playing catch-up, and the reality of trying to replicate what works in corporate Europe is presenting some interesting challenges for corporate UK.
A powerless figurehead
Sport Direct, the sportswear distribution brand, which has faced its fair share of corporate governance and reputational challenges, recently announced that it has appointed a workers’ representative. The successful candidate, Alex Balacki, 30, who works as a store manager in Barnstaple, will be invited to every board meeting, but not be appointed as a director on the company’s board.
Having faced undercover media exposés into its working conditions, investigations by the Commons’ business select committee into claims that it doesn’t pay the minimum wage, as well as criticism from unions regarding sweatshop working conditions, Sports Direct could be praised for taking decisive action and being first to take up the Prime Minister’s call.
However, what is really on offer is an undefined position, with a one year term as a ‘representative’, with no formal board position and no binding say on the board’s actions. Unsurprisingly, the move has been met with skepticism by both the media and unions, who have asked what impact a workers’ representative could have at a company like Sport Direct. It is difficult to imagine how the appointed individual will hold the Sports Direct board to account, a task which one of the most powerful parliamentary committees and the UK media, has so far been unable to do.
In fact, Sports Direct is not the first UK company to appoint an employee representative. First Group, the FTSE 250 UK transport company, has, until recently, had an employee director on its board. It is a policy that stems from the group’s creation, via a management and worker buyout of Aberdeen’s municipal bus firm in 1989.
The most recent individual was Mike Barker, a career train driver, who had a position as a non-executive on the board since 2012, with the associated voting rights, but also the responsibilities that come with a position of such prominence.
Mr. Barker recently resigned from his position, for ‘personal reasons’, and has not been replaced. It would appear that his personal behavior fell below the standards expected of a board director. Mr. Barker is no longer a director of the company or a company employee. It leaves the company without an employee director for the first time, and Mr. Barker without a job.
This poses an interesting challenge, both for the company and the individual. Is the role, and associated responsibility, worth the potential reputational risk and fall-out? Board members are representatives of the company and therefore are under constant scrutiny, both in and outside of work, and each member of the board must ensure that they conduct themselves accordingly. The case of Mr. Barker exemplifies just one of the potential issues that the individual and company could face when they are thrust into the limelight of the role.
A nice idea, but…
In reality, the pledge will be difficult to deliver on. Not everyone in the Conservative government agrees with the notion, and Prime Minister May recently seemed to backtrack, talking about employee representation being made in a way that ‘suits the individual company’s needs’. Only time will tell what she means.
The task of installing worker representatives onto UK boards, who really have the power to clamp down on corporate excess and irresponsible business behavior, will not be straightforward. The key factor will be the establishment of appropriate levels of executive power, while guarding against potential reputational risk, which will not be easily achieved, but is vital if it is going to be anything more than PR spin.