Government Green Paper proposes having workers on boards on a voluntary basis

The UK government has published a green paper outlining proposals for corporate governance reform – including a suggestion to have employees represented on boards. However, the measure would be voluntary rather...

The UK government has published a green paper outlining proposals for corporate governance reform – including a suggestion to have employees represented on boards.

However, the measure would be voluntary rather than mandatory, contradicting an earlier pledge by prime minister Theresa May.

One of the government’s proposals to strengthen employee representation at board level is for company boards to create stakeholder advisory panels, which could also be consulted on the company’s executive remuneration policy and annual remuneration report.

Another suggestion is to have designated non-executive directors on boards to ensure that the voices of key interested groups – especially employees – is heard at board level.

Referring to appointing individual stakeholder representatives to company boards, the green paper – a preliminary report of government proposals published to stimulate discussion – notes that while “some companies find these models work best for them”, it does not work for everyone.

“As the prime minister has made clear, we are therefore not proposing to mandate the direct appointment of employees or other interested parties to company boards,” reads the paper.

Co-operatives UK, the trade body for co-operative enterprises, welcomed the idea of having workers’ interests represented at board level but argued the proposals did not go further enough.

Secretary general Ed Mayo said: “We were among the first to welcome the proposal to put workers and consumers on the boards of companies, because co-operatives have done this for over 100 years and we see the benefits of an inclusive approach.

“Today’s green paper seems to confirm we will see a more indirect process to representing the interests of workers and consumers at board level, rather than an obligation for direct representation.”

He added: “Any step in this direction for corporate Britain is one that we continue welcome, but we caution that the options now on the table are far more limited than the original ambition of the government’s corporate governance reforms and may prove significantly harder to make work in law than the cleaner and simpler model of having employee directors in the boardroom.

“Research shows that the public feel big businesses are out of control and would like to see workers on boards as a way to rein them in. This is a missed opportunity to introduce more co-operation into Britain’s businesses.

“Co-ops are an existing sector of 7,000 businesses that are owned and run by over 17 million members across the country. The workers and consumers shape these businesses to meet their needs and government would do well to encourage more of this on the ground empowerment.”

Another measure under consideration is asking organisations to publish pay ratios to show the gap in earnings between the chief executive and the average employee.

The green paper highlights that in 1998 the ratio of average FTSE 100 chief executive pay to the average pay of full-time employees in the UK was 47:1. This ratio increased to 132:1 in 2010 and stood at 128:1 in 2015. To address this, shareholders would be handed more powers to vote against executives’ pay.

Paul Ellis, chief executive of Ecology Building Society, said: “We welcome today’s proposal that companies may be required to publish pay ratios.

“We believe that gross inequality has an environmental cost, which is why we were among the first organisations in the UK to implement a member mandated fair pay ratio to limit maximum salaries.

“Our employees play a vital role in helping to deliver our mission to build a greener society and we believe that fair pay helps us reap business benefits such as lower staff turnover and improved customer service and overall satisfaction.”

Midcounties Co-operative is one of the co-ops to publish a pay ratio of highest-paid to lowest-paid worker – currently 32:1 (post tax), compared to around 52:1 (post tax) for its competitors.

The actual ratio was not a direct outcome of a formal policy to keep within a set ratio, but the result the society’s other policies around pay and incentives.

The board of directors, through the remuneration committee, monitors the ratio, which is reported in the remuneration report each the year (found in the society’s annual report).

Other worker co-ops such as Unicorn Grocery, Suma Wholefoods and Greencity Wholefoods have an equal-pay policy, where all staff are paid an equal salary and equally share the profits through dividends.

Former Business Secretary Sir Vince Cable also commented on the government’s Green Paper. He said: “The government is reinventing the wheel.  Many of the issues now under consideration were exhaustively covered when we legislated in 2013.

“I brought in binding shareholder votes on pay policy; it is now the law and has had some effect on moderating pay.  Theresa May now wants to apply the law retrospectively which is problematic for agreed contracts.We also introduced a simple, one figure, metric of executive pay.  The government wants to extend this to large private companies which I agree with.

“And we required companies to report on whether they had consulted their workforce. I would support strengthening that power to make it obligatory to consult (without specifying how). Worker owned companies like John Lewis are a great example of corporate governance with employee inclusion. We improved their tax treatment when in government. But pay differentials are still very large between top and bottom.”

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