The UK has voted to leave the European Union, but if our new Prime Minister, Theresa May gets her way, our companies might look a little more like those in EU countries such as France and Germany. Prior to becoming Prime Minister, she launched her national leadership campaign, and gave a speech focusing on the UK becoming a “country that works for everyone”. One of the key principles she mentioned was her intention that employees would benefit from representation on boards of companies. A key aim of this approach is to restrain executive pay, and make companies accountable to their workers when making big decisions.

The principle of having employees on the Board of Directors is strangely reminiscent of provisions that have been in place in Germany for over 40 years. Such ideas have also been promoted by the other major parties, and trade unions, yet have historically been opposed by the Conservative party. Her proposal to add employee representatives to company boards goes beyond Labour’s 2015 election manifesto, which called for employee representation on corporate compensation committees.

The idea was recommended by the Bullock Report on industrial democracy in 1977, as a response to the European Commission draft Company Law Directive on worker representation. Perhaps unsurprisingly, the UK did not take up the idea, but has been enthusiastically adopted by some of our neighbours. Paradoxically, we may now find ourselves adopting this kind of European model.

Theresa May’s pledge can be seen as extraordinary and a potential breakthrough for industrial democracy in the UK, and is welcomed by many as being a step to increase accountability and securing employee rights. It presents an opportunity to give workers a say on how their companies are run and more of a vested interest in the future of their companies.

Whether there will be enough political momentum and parliamentary time remains to be seen. There will undoubtedly be considerable opposition, including from powerful Conservative Party supporters. The Government will also be wrestling with the priorities arising from the practicalities and political implications of Brexit so how far up or down the priority implementation list it will actually be remains to be seen.

As with any controversial plan, there are potential pitfalls and many questions to be answered. It seems unlikely that a complex, costly German two tier structure will find favour. But watered down ‘soft’ plans are unlikely to have any real impact unless workers are given more than a token seat at the table.

Maintaining confidentiality will also be a tricky issue and care will need to be taken to define the extent of worker involvement at board level, the obligations of the worker directors and the consequences of any breaches of those obligations. Company directors have a duty to act in the interests of the company as a whole. Although this can include taking into account the interests of the employees, the focus is much more broadly on the success of the business in the interests of shareholders.

Some commentators on this policy have suggested that having employees on board may impede decision making and innovation, as employees may not offer an independent level of scrutiny and may be inclined to protect ongoing employment rather than welcoming change.

Employee engagement is high on the agenda for employers of all sizes. You may wish to put measures in place to improve participation of employees in influencing organisational decision making without creating more complex decision making processes, such as:

  • Using digital media to consider issues facing the organisation.
  • Conducting and acting on attitude surveys.
  • Working groups established to solve organisational problems.
  • Regular team briefings with the opportunity for upward communication

There is also the potential for better communications between companies and their workforces, which can assist with addressing problems in the workplace before they turn into bigger problems. It is argued that worker voice can help executive teams prioritise long-term decision making, ahead of short-term financial engineering.

The guidance provided in this article is just that – guidance. Before taking any action make sure that you know what you are doing, or call us for specific advice.