— Governance Matters (@GovernanceMatt) September 16, 2016
You’ll recall our last blog touched on the first of new British PM Theresa May’s two targets for a corporate governance overhaul – that of making shareholder votes on pay binding.
We now shift our focus to the second, and equally, ‘un-Conservative’ thrust that’s generally more aligned with the trade union movement… getting employees on to company boards.
Ms May may have lost the plot on this one, though. That’s my humble opinion.
For while I see merit in the view that employees are critical stakeholders – yes, research repeatedly tells us that satisfied employees are better employees…and this translates into happy customers and onto financial success – I’m not sure it’s the best way to achieve employee wellbeing.
Of course, it can work, but it is largely dependent on the calibre of the individual who ends up on the board, their ability to contribute to a wide spread of board activities and discussions, and their capacity for independent thought.
Sadly, my experience tells me this is difficult to achieve when there’s a constituency that has put you in the position…and well-nigh impossible when the elected individuals heed the mistaken notion that they’re there to look after the group they represent.
Board membership, by definition, requires one to serve the needs of the entire company, from shareholders present and future, to customers, communities and the like.
— Governance Matters (@GovernanceMatt) September 15, 2016
The whole box and dice, not a lone and cosy cacoon of any description.
For when there’s a conflict between the directors’ obligations to the entity and their commitments to even some of the goals of their constituency, tension will invariably arise. And in my experience on boards, it’s never healthy and seldom, if ever, works.
The celebrated legal case of Bennetts v Board of Fire Commissioners of NSW is a case in point.
Here, the constitution required a union representative on the Board and when a pay dispute arose, the NSW Industrial Commission found in favour of the employees. The Board then debated whether to appeal the decision before briefing the Finance Committee to seek high level legal opinion on their chances of success.
The QC’s view had them recommend that the Board should appeal – and that’s when the union representative, who wasn’t a member of the Finance Committee, asked for a copy of the advice.
The chair said he’d happily provide it on condition that the union rep didn’t share it with the union. The rep was outraged, said he was entitled to it and promptly took legal action to obtain it.
He failed, with the court saying that elected directors have a duty to serve the Board’s interests in preference to the interests of the group or groups that elected them.
With respect to Ms May, I’d argue that there might well be better ways to ensure that the voice of this most important stakeholder group is heard.
And just one of these might be to set up an employee advisory group, with tight terms of reference.
Until next time,