Although Theresa May originally said she wanted workers on the boards of all companies, the revised Code actually offers three options - a worker director, a NED nominated to handle workforce engagement, or a workforce advisory panel.... or some other mechanism chosen by the company, or explaining why you don't comply.
Once this fudge (which was supported/encouraged by some investors) was put into the Code, everyone's expectation was that the large majority of companies would choose the nominated NED option. With a handful of exceptions that is what has happened. Capita, Mears and Sports Direct have all appointed employee directors, but the large majority of PLCs have indeed just tagged a NED. There are some really awful examples out there - like Mediclinic, which appointed its former CEO as the NED responsible for workforce engagement.
Unsurprisingly, this outcome has led to some criticism in the press including both the Mail on Sunday and the Independent. The basic message is that companies have resisted change and have made a mockery of the original idea.
I think this outcome, whilst hardly unexpected, is probably the worst thing that could have happened for all concerned. I actually think that in the medium- to long-term opponents of employees on boards have most to fear, but more of that in a minute. There are (at least) three key reasons why this outcome is bad. First up, employees have denied an historic opportunity to have a voice in the governance of organisations where they spend a large part of their life. Second, boards have made it look like they are resistant to change and/or aren't too fussed about workforce engagement. Third, it makes the UK Corporate Governance Code look ineffective.
On this last point, it's notable that the FRC saw this potential outcome a long way off. Here's Stephen Haddrill in front of the BEIS committee a few years back:
The full-blown worker-elected director model should not be done through the corporate governance code. That is quite a big shift and requires parliamentary weight behind it to get it done. There is a risk if we try to do it through the code that we would have a very high level of non-compliance. That would cause the code to come into some discredit.
Well, that's just happened, hasn't it? I would add to this that we should not expect that monitoring of the Code on this point is likely to lead to any change. Many asset managers are unconvinced about or opposed to employee voice in corporate governance, so they are unlikely to be pulling companies up for nominating a NED instead of appointing employee directors.
This is part of the reason why I think this outcome is actually *bad* news for people who really want to stop this policy. A bit more willingness to play ball on the part of PLCs might have convinced people that a 'let a thousand flowers bloom' was a reasonable approach to take. But the fact that the overwhelming choice is to stick with the status quo makes things look very different.
I don't think any future government that is supportive of employee voice is going to look at where we are and think PLCs have really picked the best or most appropriate model. I think they are more likely to conclude that a corporate foot-dragging, unchallenged or tacitly encouraged by asset managers, is a block on progress.
I don't think any future government that is supportive of employee voice is going to look at where we are and think PLCs have really picked the best or most appropriate model. I think they are more likely to conclude that a corporate foot-dragging, unchallenged or tacitly encouraged by asset managers, is a block on progress.
They are also likely to think that using the UK Corporate Governance Code to implement employee voice is ineffective. This makes it more likely that employee representation is sought through a change in the law. This would (obviously) be a significant shift away from 'comply or explain' towards a regulatory approach to governance. But current practice seems to point towards this kind of conclusion.
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