Right diagnosis, wrong prescription: Theresa May’s worker representation proposal

Just in case we weren’t listening in when she talked about worker representation on boards on becoming prime minister in July, Theresa May used exactly the same words (highlighted in the speech extract below) in her leader’s speech at the Conservative Party conference today:

Too often the people who are supposed to hold big business accountable are drawn from the same, narrow social and professional circles as the executive team.

And too often the scrutiny they provide is not good enough.

A change has got to come.

So later this year we will publish our plans to have not just consumers represented on company boards, but workers as well.

The risk when you same something exactly the same way twice is that you leave yourself without any wriggle room.

Her diagnosis isn’t too wide of the mark but the rush to the particular prescription suggests very shallow intellectual foundations. Mrs May’s proposal for worker and consumer representation on boards has already been challenged on the basis that it conflicts directly with the principle of the unitary board adopted in the UK, which means that all members of the board have the same responsibility for the interests of company – currently defined very broadly under section 172 of the 2006 Companies Act. Individuals appointed by whatever method (and this in itself is a potential source of contention) would inevitably face conflicts of interest between their responsibility to their constituency and to the wider interest of the company and the resolution of the interests of all its “stakeholders”.

However, it is good that Mrs May is committed to rebalancing the interests of the various parties – particularly workers and customers (but by extension surely she would include suppliers, certainly in the grocery industry) – with shareholders, and containing executive pay. I fear that the prime minister herself lacks both the appetite and opportunity to engage with a new intellectual model of the firm to help her decide how best to reform corporate governance. We can only hope that she is willing to instruct her advisors to seek out frameworks to provide a solid platform for reform. With such a framework, there is a great deal that can be delivered by soft power – exhortation and challenge from No 10 to change behaviour on boards, among the institutional investors few of whom have chosen to use the power they possess, and in the commentariat of academics and journalists.

There is currently an enormous risk that we will have reforms that either deliver unintended consequences or are ineffective. Brexit will clearly consume a vast amount of government attention and parliamentary time, but by repeating the commitment quite so explicitly, the prime minister was not flying a kite but making a commitment.

So what should she do? There is a way for her to secure representation of worker interests on boards without appointing worker representatives. Submitting the appointment of all directors to a vote of all employees, in the same way that they are subject to approval in a shareholder ballot, would demonstrate an equality between shareholders and employees. In practical terms, it would force chairmen, nomination committees and large shareholders to consider the balance within the board, demonstrate that the slate of directors represent the interests of the company as a whole, and avoid the nomination of directors to whom the label “toxic” could be attached and whose inclusion could result in rejection in the employee ballot.