Employee representation will not be mandatory, prime minister tells CBI conference
Theresa May has rowed back on plans to require worker representation on company boards, in a speech made this morning at the CBI Annual Conference in London.
May’s pledge to appoint employee representatives to boards in the UK was a significant aspect of her commitment to overhaul corporate governance. But following a frosty reception from big business, she has now clarified it will not be mandatory.
Speaking at the conference, May said: “While it is important that the voices of workers and consumers should be represented, I can categorically tell you that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on boards.
“Some companies may find that these models work best for them – but there are other routes that use existing board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented. It will be a question of finding the model that works.”
While campaigning for the Conservative Party leadership in the summer, May had promised “not just consumers represented on company boards, but workers as well”.
However, while the idea was welcomed by many corporate governance campaigners, businesses including the John Lewis Partnership criticised it. “We do not believe that encouraging or mandating employee representation on boards will, in isolation, create a strong system of corporate governance,” the company said.
The Institute of Directors had also expressed concern, suggesting it would result in a two-tier board system: “There’s little point in simply electing a ‘worker’ to the board if they are cut out of strategically important decisions.”
May’s latest announcement has been characterised as a U-turn. TUC general secretary Frances O’Grady led the immediate criticisms, tweeting: “If Mrs May says Brexit means Brexit, surely workers on boards means workers on boards?” But the CBI said worker representation was a “very good idea”, adding that it would work with the government to implement proposals.
The prime minister announced a forthcoming green paper to address both worker representation and executive pay, leading to speculation that mandatory board representation had been dropped to secure backing from business for a more punitive regime on remuneration.
Whether legislation or softer measures eventually prevail, organisations should be creating structures to communicate with their staff and ensure employee voice is heard, said Charles Cotton, performance and reward adviser at the CIPD. “The idea of having employee representatives on boards was one way of dealing with the sense of alienation between those at the top of the organisation, who are bound by one set of rules, and the rest of the workforce,” he said.
“Having that employee perspective would provide the leadership and management of an organisation with a better understanding of what employees are thinking about how the company is being run, and acting as a sounding board for initiatives. The fact that it is now off the agenda is no reason for employers not to put employee representatives on their board, or explore how they can take into account what their employees are thinking.”