Stronger worker voice in the workplace will create businesses that work for the economy and wider society. A blog written for Board Agenda – By Harry Window
Discontent with shareholder capitalism has grown in recent years, in a context of growing inequality and stagnating economic growth. Our current system is failing workers, but the reality is that despite calls for a more inclusive approach and statements to the contrary, maximising profits and increasing shareholder value remains the overriding priority for boards.
However, there is growing demand for businesses to reevaluate these priorities – the latest High Pay Centre (HPC) research shows that the public thinks businesses do not prioritise the issues that people think they should care most about. In fact, half of survey respondents believe that corporations are operating in a way that is at odds with the interests of wider society. Instead, 6 in 10 believe that the main priority of business should be delivering better pay and improved conditions for their workers.
There was overwhelming support for greater regulation to ensure that businesses are more accountable. On corporate governance and worker voice specifically, 8 in 10 people believe that lower and middle level employees deserve greater say in the running of the companies that they work in (an opinion shared across the political spectrum, where 77% of conservative voters supported this view).
Companies cannot be run by public opinion, but businesses in the public eye do need a social licence to operate. Therefore, it is important to include wider perspectives and consider broader stakeholder priorities.
In the UK, the power to influence decisions made by businesses resides overwhelmingly with shareholders rather than workers, despite the direct interests that workers have in the success of the company. Corporate law dictates that it is the duty of directors to focus on maximising profits and increasing shareholder value. There is growing criticism for the doctrine of shareholder primacy with calls for a more sustainable approach to incorporate a range of stakeholder perspectives. Instead, directors should be required to promote the long-term success of the company as their primary aim, taking into account the interests of wider stakeholders, including the workforce (amongst others).
Despite recent revisions to the Corporate Governance Code, and the creation of the Wates Corporate Governance Principles, UK workers still have very limited rights to participation in corporate governance. The 2019 ‘European Participation Index’ ranked the UK 26th out of 28 European countries (EU member states plus the UK) for ‘democracy at work’, ahead of only Latvia and Estonia.
As the UK economy grapples with low productivity growth, growing inequality and a cost of living crisis, a fresh approach is needed. By strengthening the worker voice, it gives an opportunity to inject new perspectives into the boardroom, challenging limited perspectives and prevailing ‘groupthink’. Workers on the ‘frontline’ of the business will certainly offer an operational insight that existing board members have rarely seen. Including workers’ perspectives will bring greater social and professional diversity to the board to challenge the monoculture of high-paid positions which focus on analysing financial metrics, a role far removed from the realities of many peoples’ lives. This understanding will serve only to strengthen board decisions.
Further, improving worker voice in corporate governance is a democratic decision about who wins in our economy. Workers are facing increasingly insecure jobs, as zero-hour contracts and employment through intermediaries spikes in the gig economy. It is important all workers have the opportunity to impact board decisions which have huge consequences on their lives.
In a new report examining the potential for greater worker voice in corporate governance, HPC research shows that respondents were universally positive about the impact of worker voice on multiple aspects of running a company (see chart below). The positive impact on job satisfaction and pay and working conditions was most widely agreed, but a majority felt that it would have a positive impact on business decision-making and the performance of the UK economy too.
It is imperative that we seek to create a business environment which works for both the economy and wider society. By improving workplace democracy employers will be better placed to consider the needs of their workforce. Workers are dealing with a cost-of-living crisis, and 73% of people believe employers should offer financial support to alleviate these pressures. Workers with a greater say in the companies they work in will be better placed to challenge excessive executive remuneration and campaign for better pay and conditions for the workforce. HPC has called for the election of two worker directors to be mandated, which will allow a worker perspective to be heard when discussing remuneration policies.
There are a broad range of changes that can be introduced to strengthen worker voice in corporate governance. Worker share ownership schemes offer an alternative measure that will serve to alleviate the cost-of-living financial pressures whilst also formalising the voice of the workforce. Worker perspectives should also be vocalised through employee forums.
HPC has observed that across many companies there is reluctance when it comes to incorporating measures that would strengthen worker voice. Despite this, there are examples of some companies who are taking action to move in this direction.
In order to accelerate these, HPC is calling for changes in government legislation, including a mandate on placing workers on boards. There needs to be a strengthening of trade union presence that can serve to communicate the concerns of the workforce, which depends on the removal of anti-union legislation. The rights of indirectly employed workers also needs to be assured.
Whilst regulatory change would inevitably generate change, investors and business leaders should act to catalyse a shift in corporate culture. We need a move away from the culture that underestimates workers’ ability to make a positive and valuable contribution at the board level or when making company decisions. Overcoming this, and subsequently strengthening worker voice, would no doubt increase trust in businesses, as well improve performance through a more open communication. The board would gain invaluable operational experience, whilst also recognising the issues that affect the workforce, inevitably leading to better outcomes for all stakeholders.