At her speech to the Conservative Party Conference last year, Theresa May declared that “we’re going to have not just consumers represented on company boards, but workers as well”. Despite the excitement generated by this initial declaration, the government has since backed away from the idea of requiring worker representatives to sit on boards. Nevertheless, the IPA strongly believes that a strong, representative employee voice on company boards would be a positive thing, both for business performance and for the employees themselves. We therefore outlined in our response to the government consultation an approach which we feel might encourage the spread of direct worker representation on boards, without mandating it, but would at least guarantee that an indirect employee voice was heard at board level for those companies which choose not to go down the route of direct representation.

IPA would therefore support, at a minimum, a legal requirement for firms over 250 employees to designate at least one (though they may choose several) non-executive directors to have a specific duty to ensure that employee voice is heard at board level. This duty could be accomplished in several ways – where existing effective trade union or employee forum structures exist a close working partnership between the relevant NED and those representatives would enable them to represent employee voice communicated through that structure. Where no effective system of representative employee voice exists, part of the relevant NED’s duties would necessarily involve investigating ways of establishing better formal structures of voice representation. Finally, for those companies such as First Group which have an existing employee representative on the board, that representative themselves could assume the appropriate functions that would otherwise fall on an external non-executive director.

The IPA would hope that more companies may voluntarily choose to adopt this latter approach as an effective way of meeting this legal requirement and are pleased to hear Mitie’s intention to follow the example of First Group and consider moving in this direction. Over time this may therefore lead to an evolution in UK corporate governance whereby direct employee representation at board level is seen as more normal and desirable, with a view to perhaps making it a legal requirement at a future date, once enough models of good practice have become widespread and solutions found to any difficulties it may create for some companies.

The IPA also strongly supports plans to strengthen reporting requirements related to stakeholder engagement through the Financial Reporting Council. Current requirements to report on action taken ‘to introduce, maintain or develop arrangements aimed at informing or consulting employees’ should, as the Green Paper suggests, be expanded to require information on what mechanisms were in place to ensure a representative employee voice was heard at board level, how often such voice was reported to the board and what issues were discussed. Where the designated NED for employee voice makes representations that there are strong objections from employees, e.g. to the company’s remuneration policy, this should be noted in the report.

This designated non-executive director for employee voice should also be guaranteed one of the three statutory NED places on companies’ remuneration committees, accompanying a new stator requirement for companies to ‘require the remuneration committee to consult shareholders and the wider company workforce in advance of preparing its pay policy’. This would allow employees a mechanism to formally register their objections where they feel the executive remuneration policy is unfair, and by giving at least one member of the committee incentives to take positions which might oppose the wishes of the wider executive team, hopefully embolden the remuneration committee as a whole to take account of wider interests and potentially help to rein in some of the more egregious pay packages seen in recent years.

Beyond these legal minimums, further strengthening the role of employee voice could be pursued through a code-based approach. The success of the Davies Review targets for women on boards among FTSE 100 companies speaks to the strong potential of this approach. A voluntary code of best practice for employee voice at board level, with clear targets and measurable outcomes, could be drawn up and promoted nationwide. Responsible employers would sign up to go above and beyond the legal requirements to ensure they gave employees a truly meaningful voice on their board.

Overall, the IPA strongly believes, based on years of accumulated evidence and experience, that strengthening employee voice in UK businesses and increasing the role that employee voice plays in corporate governance has an important part to play in addressing the current productivity deficit in the UK and helping to build a positive industrial strategy for the future.