All aboard: worker directors or social accountability? 

All aboard: worker directors or social accountability? 

As the Tories ditch any practical steps to workplace democracy Bryn Jones surveys earlier Labour ideas, the German model and proposes some steps for Corbyn. 

Are the conditions right to relaunch the long dormant case for worker or trade union representation on company boards? Labour has had a longer interest than Theresa May’s brief flirtation but its aims are not much clearer. The 2015 election manifesto included a tentative step towards corporate level influence. Even though it only pledged worker representatives on the remuneration committees that decide boardroom pay. The 2017 manifesto proposed instead a special levy on excessive executive rewards and legislation to limit a company’s highest to lowest pay ratios to a twenty to one maximum. The 2017 Manifesto’s approach to corporate governance in general was vaguer, but potentially more comprehensive. It promised to change ‘company law so that directors owe a duty directly not only shareholders, but to employees, customers, the environment and the wider public’. To have any practical force, such new duties would need mechanisms of accountability to a firm’s ‘stakeholder’ groups. However, this ‘multi-stakeholder’ accountability could be more feasible than the TUC’s long-standing case for worker-directors. To understand why we need to compare their different historical contexts. 

Jim Callaghan’s minority Labour government provided the major push for union-backed employees on company boards. Labour set up a commission on ‘industrial democracy’, under Lord Bullock.  A majority of Bullock’s panel proposed equal proportions of shareholder and employee board representatives plus another, third group of co-opted independents, for bigger companies. The proposals faltered: partly because some unions were hostile, fearing union directors’ need to respect boardroom decisions would undermine their traditional bargaining powers. Partly because employers’ bodies were, predictably, hostile. Yet before Parliament could even consider any legislation Callaghan’s government fell in 1979. The long night of Thatcherism put industrial democracy and trade union influence into political exile. 

The Labour left supported this worker representation model as did some centrist political and business opinion. Many on the left saw Bullock as but one necessary, if timid step towards ‘workers’ control’: a campaign buoyed by the powerful shop stewards movement of grass roots union representatives and the Bennite crusade for redistributing class power. More pragmatic and mainstream opinion saw industrial democracy as a solution to the pervasive ‘problem’ of union militancy then capable of disrupting coal, newspaper and energy production, and public services. Some advocates believed board-level representation of workers could channel this militancy into more constructive influences on business decisions. Now, of course, these forces and conditions have faded. In the absence of union strength, would Bullock-style representation be sufficient to curb 21st century corporations’ greatly expanded powers?  

In continuing struggles against irresponsible corporations, unions have sometimes found new strategies and new allies. UK workers are no longer the main victims of business excess. Causes such as overseas workers’ rights, environmental abuses and housing deprivation have activated consumers, communities and other civil society interests to challenge individual corporations. Alliances of NGOs and citizens’ groups have campaigned publicly and sometimes successfully with their union counterparts. One significant strategy has been to buy token shares in a firm to facilitate critical AGM motions and protests at companies’ general meetings, and to shame boards with negative publicity. Here are the seeds of a different counter-veiling check that is wider than ‘single channel’ representation of employees’ interests.  Not least because employees’ boardroom representatives could become isolated and ineffective or ‘incorporated’ into business mind sets. 

In the much-lauded ‘Rhenish’ system in Germany and other north European countries, worker representation in large businesses succeeds because it nests in a ‘two-tier’ governance structure. Workers’ delegates form up to 50% of the membership of a supervisory board, alongside representatives of other economic interests. This board oversees the policies of the management board through which executives run the business. Adopting this system in the UK would encounter three problems. Firstly, the UK has relatively few, large unionised companies – the 50% rule applies only to firms with 3,000 or more employees. Secondly, union delegates may collude with investor representatives to their mutual advantage but to the detriment of the rest of civil society, as with product safety or environmental pollution. Thirdly, UK replication of the German/’Rhenish’ system would require a complex and politically demanding overhaul of company law to replace unitary boards with a two-tier system. 

However, a less drastic type of reform could empower labour and a wider range of civil society interests. Adoption of shareholder and stakeholder ‘nominations committees’ – to appoint the management executives – could work through the present unitary board structure.  As in Sweden where these committees help shape executives’ behaviour by controlling their appointment and contract renewals. The necessary democratic reinforcement would be inclusion of representatives of small shareholders, unions/employees and accredited civil society interests alongside responsible institutional investors on the nominations committees. Such a system would counter allegations of a single-interest trade union lobby. It would also make corporations’ often excessive and anti-social powers genuinely more accountable to the wider society. * 
 

*For more on this model, see pp 239-40 of my book: Corporate Power and Responsible Capitalism?