"I want to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders... If I’m prime minister, we’re going to have not just consumers represented on company boards, but workers as well."
Since Theresa May announced her aim of increasing employee representation on boards, much of the debate has focused on whether moving the UK into the realms of German corporate governance is a good idea. But if the aim is to ensure employees’ interests are represented alongside those of shareholders, why not give them an equal vote?
Boards exist for two key roles: to challenge management and hold them to account, and to give experience and an external perspective to guide the organisation. They were intended to overcome the ‘agency’ problem of the divergence between the interests of management and the interests of shareholders. But surely boards should do more than that – as well as considering the interests of shareholders they should also consider the interests of other stakeholders: employees, customers and local communities. So why then are most boards only answerable to shareholders?
Theresa May wants to put employees on boards, to ensure their opinions are voiced and to give employees’ perspectives on key issues. It could also help to curb executive pay (although arguably shareholders are already as against this as employees are). But would employees really have the experience needed to perform well on a board, could conflicts of interest be managed effectively, and would they even be listened to?
If our aim is to ensure employees views are represented alongside those of shareholders, why not give them a vote alongside shareholders, rather than a place alongside NEDs? That way experienced Directors are accountable to both groups.
Giving employees voting rights equivalent to those of shareholders will make sure their voices are heard and represented as well as those of shareholders. The exact proportion of votes can be determined by the company at its formation as part of a constitution, based on who it is there to serve – and the balance could vary company to company. This constitution is something that charities and the oft-cited John Lewis Partnership do already – in fact John Lewis employees, as owners, already hold the voting rights as well. And why limit it to employees? Expanding voting rights would allow us to incorporate other stakeholders’ views as well: local communities, or customers (though that might be tricky for many B2B businesses).
Expanding the vote will mean that board members are accountable to all stakeholders, not just shareholders, and will ensure that board members’ interests are most closely aligned with the interests of all these groups.
Let us know your thoughts, do you think giving employees a vote is a better alternative to employees on boards?