Interested to hear what any passing corp govsters think about this argument -
Institutional investors such as pension funds and insurance companies hold highly diversified portfolios of hundreds if not thousands of shares; it is simply not possible for the staff of these organisations, however dedicated, to engage effectively with all the companies whose shares they own over all the issues for which shareholders are ultimately responsible. They also hold a much smaller proportion of the UK stock market than was the case just fifteen years ago: UK pension funds and insurance companies combined now own less than 11% of UK shares, down from over 40% in 1998. In contrast, over 50% of UK company shares are now held by overseas investors, whose ideas about how companies are run may be informed by their own national context rather than that of the UK.
An additional problem is the increasing reliance of investors on share trading to generate financial returns , rather than taking a long-term approach to share ownership. The interests of share traders lie in short-term fixes to raise company share prices, rather than long-term strategies to foster sustainable organic growth. There should be no role for short-term share traders in corporate governance.
The interests of workers, on the other hand, lie in the long-term success of their company. It is workers who bear the greatest risk in times of company failure, as they invest their labour, skills and commitment in the company they work for, and unlike shareholders cannot diversify this risk. Putting workers on company boards would help boards to prioritise investment in long-term company success, rather than being distracted by short-term financial engineering, as occurred in the financial sector in the run up to the crisis. Workers bring with them in-depth knowledge of their company and the environment in which it operates, making them well-placed to contribute to strategic and operational discussions that are central to board decision-making.
Indeed, research shows that countries with strong workers’ participation rights score more highly on a range of important measures, including R&D expenditure, employment rates and educational participation among young people, while also achieving lower rates of poverty and inequality.