Wednesday, 13 July 2016

Worker directors: some initial responses

So, just a day in and already we can see some are already unhappy with the prospect of workers being represented on the boards of companies. There is a letter from an asset manager in the FT here specifically on worker directors, and a response from the ICSA here which looks more broadly at corp gov but also talks about it.

A lot of people in UK corporate governance have (inevitably) a very UK-focused view of this subject, and may be unaware of other systems, so here are a few quick points that I think are worth making to inform the debate that is likely forthcoming.

First, worker representation on boards is not the same as German co-determination. There are various models out there - it is in place in many more countries in Europe than just Germany - and the UK might not necessarily follow the German approach.

Second, the introduction of worker directors doesn't necessarily mean that shareholders don't get a say on board composition, it depends on the system. You may well already be exercising such a say. If you are an investor that holds FirstGroup shares, for example, have a look at how you voted on the election of Mick Barker.

Thirdly, there is no inherent reason why worker directors cannot perform their role in line with directors' duties just as well as anyone else. The same argument was made in the past in pension fund governance that member trustees would be too conflicted. In practice they are clearly able to do the job and what is surprising is the rarity of conflict.

Fourth, there is no divine right of shareholders alone to exercise control of companies. Shareholders do not own companies despite the widespread belief that they do. I say this as someone who previously accepted the assertion that shareholding = ownership. It's not true in law, and the watery shape of "ownership" that does exist - shareholder control rights - is undermined by the poor use of those rights in practice. As I blogged before, it's not like shareholders haven't been given the tools, but they have chosen to not use them very often. Perhaps if those rights had been used more effectively, or with some sense of public responsibility, then politicians wouldn't be looking at bringing other voices into corporate governance.

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