Green Paper, Green Pastures – Towards a brave new governance world
30 November 2016
Big and bold. Those were the words that sprung to my mind when reading the Government’s ideas for ramping up corporate governance, unveiled in its Green Paper yesterday. The way ahead is wide open and consultation will determine where we end up, but there is no doubt that some have the potential to radically reshape the board/worker dynamic as well as boardroom and workplace culture.
Diversity and dialogue are themes that lie at the heart of the proposals. Diversity does not mean having workers on boards, as the Government is now clear that that will be optional rather than mandatory. Instead, the focus will be to design a much more inclusive and accessible boardroom where workers (customers and other stakeholders) get more of a say in boardroom business and so feel engaged in, and buy into, business success.
Several models, or any combination of them, are proposed to achieve that: creating stakeholder advisory panels, designating a non-executive director (NED) to speak for workers (and others), or bolstering reporting to require companies to disclose how and when they take into account their workers’ interests. The first two ideas are the most radical and need careful thought and refining if they are to be workable in practice.
Take the stakeholder advisory panel, which would presumably be made up of representatives from employee and other stakeholder groups. The Government has not prescribed how this would operate, but suggests that panel members could be consulted on executive remuneration policy or reports and on particular issues prior to board meetings. They could also be invited to board meetings if relevant issues are tabled or get to initiate discussions outside the boardroom on topics that are important to them.
While some companies are used to interacting with their European Works Councils in this way on transnational matters, the concept of a body that has to be consulted on a standing basis, and on boardroom matters, is an alien one in the UK and at odds with our minimalist industrial relations culture. Businesses will want parameters to ensure that the advisory panel does not in effect become a works council in disguise, or risk undermining the prerogative of the unitary board.
The NED model focuses on designating a director to act as a conduit between the board and the workforce and to provide an “independent and clear voice” for workers and other interested groups. This is not dissimilar to the idea of the Whistleblowers’ Champion that large financial services firms are expected to appoint. But again, there are some important questions to be addressed, such as how a NED would manage such a broad and nebulous role in a company with a large and diverse workforce, and how they would deal with potential conflicts of interest.
The worker involvement aspects are just one part of the Green Paper package, which also include a suite of options, such as binding annual shareholder votes and mandatory disclosure of the CEO/average worker pay ratio, to increase shareholder and stakeholder influence over executive pay, as well as proposals to bring large private companies into the corporate governance net.
These are interesting times, and this is an encouraging step towards a future transparent, diverse and more collaborative corporate governance world, in which workers are among the players. Now it is over to business and other interested parties to have their say and to use the consultation phase (which runs until 17 February) to shape the new landscape and make it workable for them.