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Board-level Representation

UK employees have no statutory right to representation at board level. However, following a revision of the UK Corporate Governance Code, which came into effect in 2019, employee directors are a specified option for listed companies, and there are now a handful of employee representatives at board level.

In the UK, there is no legal obligation to have employee representatives at board level, in either private sector or public sector companies. UK companies have single-tier boards, and their directors are chosen by the shareholders.

 

However, in 2018, Financial Reporting Council (FRC), which draws up the UK’s Corporate Governance Code, produced a new edition of the code coming into effect in 2019. For the first time, this included the possibility of a director being chosen from the workforce.[1] More precisely it stated that, “For engagement with the workforce, one or a combination of the following methods should be used:

  • a director appointed from the workforce;
  • a formal workforce advisory panel;
  • a designated non-executive director.”[2]

 

Like many parts of the code, this does not place an obligation on companies to comply.  They can “comply” or “explain” why they have not done so. However, it does make it more likely that UK companies will choose to have an individual from the workforce as a member of the board.

 

Despite this, evidence so far suggests that it is unlikely that the new version of the code, which only applies to listed companies will lead to a significant increase in the number of workers on company boards. A 2019 survey by the Local Authority Pension Fund Forum, representing municipal pension funds, found that just one in 20 companies (5%) intended to put a director from the workforce on the board, with the use of a designated non-executive director the most common way of meeting the code’s requirements.[3]

 

Another study, looking at the current situation found that there were only five companies quoted on the London Stock Exchange which had employee directors,[4] although one of them, the travel company TUI, was incorporated in Germany and followed its legislation.

 

The Corporate Governance Code says nothing about how many employee directors there should be or how they should be chosen. An examination of the four UK-based companies with employee directors found that, in three of the four cases, there was only a single employee director, with two employee directors (out of a board of 11) at the fourth.

 

Only one of the four companies had a purely employee-based selection procedure – with the individual indirectly chosen by elected representatives in the group’s subsidiaries. In the three other companies, the employee directors were: selected by the non-executive directors, elected by the workforce out of a shortlist of three chosen by management or elected after interviews with senior management.[5]

 

Irrespective of how they are chosen, these employee directors have the same responsibilities as other directors.         

[1] This followed the statement in 2016 by Theresa May, as part of her successful campaign to be elected as leader of the Conservative Party and thus prime minister, that she wished to see workers on company boards.  

[2] The UK Corporate Governance Code, Financial Reporting Council, July 2018

[3] Employees on boards: Modernising governance, LAPFF Report, May 2019

[4] Worker directors increasingly prominent in debates on corporate governance reform, by Chris Rees, June 2019 https://www.ipa-involve.com/news/worker-directors-increasingly-prominent-in-debates-on-corporate-governance-reform (Accessed 08.01.2021)

[5] Board-level employee representation in the UK by Lionel Fulton, November 2019, IMU, https://www.boeckler.de/pdf/p_mbf_report_2019_55e.pdf (Accessed 08.01.2021)

L. Fulton (2021) National Industrial Relations, an update (2019-2021). Labour Research Department and ETUI (online publication). Online publication available at http://www.worker-participation.eu/National-Industrial-Relations.