Reforming the firm: workers on boards just the start? Brexit means Brexit, but workers on boards, it turns out, does not mean workers on boards. Despite Theresa May making the commitment on the steps of Downing Street, yesterday’s Green Paper on corporate governance reform has shelved the plan. As Gavin Kelly of Resolution Trust put it, the forward march of labour appears to have been halted yet again as another attempt to reform company law ends up tinkering at the margins. Rowing back on the decision to ensure worker representation in the boardroom is a step in the wrong direction. Brexit was a rejection of the status quo and a signal that people want more control over their lives. In the workplace, it is obvious why: the UK ranks ahead of only Bulgaria, Estonia, Latvia and Lithuania in the EU in terms of ensuring employees have formal participation rights and strong voice in their workplace. At the same time, real weekly earnings remain below their pre-crisis peak. The sluggish recovery has of course sharpened the pain. However, this is a problem that predates the crisis, in which the share of profit going to labour has been in long term decline, reflecting in part our corporate governance code that privileges shareholders above all other stakeholders, including workers. Work for many then is disempowering and unrewarding, both financially and in terms of having a sense of purpose and control. Ensuring worker representation at the boardroom would not be a panacea. However, it would help ensure that a broader range of voices were empowered and would help deepen the legitimacy of decision-making within a firm by ensuring the views and interests of more than just shareholders and senior management were properly accounted for. Leaving the UK’s overly narrow corporate governance regime in place does the opposite, concentrating power and excluding vital stakeholders from shaping key decisions affecting the workplace. This is bad for workplace democracy. It is also bad for our economy. Worker representation on boards isn’t a radical move, after all. Among our more productive, investment-rich European competitors it is in fact commonplace. In the majority of EU countries it is a legal requirement to have employee representation on the board of companies, although the obligations vary from country to country. The institution of board-level representation stems from the more co-ordinated form of capitalism prevalent on the continent, a more collaborative model that in turn underpins their better performance on productivity and pay. Yet even in the UK, there is clear and broad evidence that ensuring ordinary workers are properly represented with an effective say over their working lives is good for productivity, pay, and performance. Sadly, the watered down proposals still leave us an outlier in terms of the degree to which shareholder primacy and managerial prerogative shape the incentives and actions of British firms, to the detriment of the UK’s economy. The aim of corporate governance reform, after all, should be to tackle the deep-rooted problems in the UK’s economic model: low levels of business investment and high levels of pay inequality in particular. Yet by pulling its punches, the government has missed an opportunity to undertake deep-rooted reform of how our companies operate and for whom. This is one reason why IPPR has recently launched its wide-ranging Commission on Economic Justice, to help rethink economic policy for post-Brexit Britain to make sure the economy - which belongs to us all - works for everyone. The UK has long-term, structural economic weaknesses that require fundamental reform to overcome. Reforming corporate governance must be at the heart of this. The critical point is that the debate around workers on boards is only one narrow part of a broader question of how to reform corporate governance to make our economy more productive and democratic. Corporate governance shapes who has power and voice within a firm. By imagining new ways of governing the firm, and building new legal instruments to reshape corporate governance, we can in turn change how powers, responsibilities and freedoms are distributed at work. The status quo is neither natural nor inevitable. However, changing it will require rethinking the foundational instruments of capitalism, from voting rights, to the limited liability company, to notions of audit and shareholder supremacy. In doing so, reformed company law can help create better behaviour, from greater long-termism and higher investment rates to fairer pay structures and more productive, inclusive workplace cultures. We are regularly told how inventive and innovative liberal market capitalism is. In the case of the form of the company however – how it is governed, for whom, for what purpose – things have barely changed since the Victorian era. This Green Paper is a narrow window of opportunity to change that. We must try and seize that, for by reforming the constitution of the firm – our corporate governance code – we will help address the deep flaws in the UK’s economic model. Workers on boards is therefore a necessary step, but only the first of many required to build better firms and ultimately, a stronger, more inclusive economy.