How we debated employee representation with non-executive directors at our Director Dialogue event.
When we talk about “worker voice” we mean an employee’s ability to communicate their views and influence management.
Open channels to leadership and employee representation and empowerment are essential parts of an inclusive work culture.
It’s something that workers, trade unions, investors and policymakers are increasingly focused on.
For example, workers have the right to be represented on company boards in 19 European counties, and we have seen the number of shareholder proposals on this topic rise in the US.
In the UK, the Financial Reporting Council’s Corporate Governance Code is clear about the importance of worker voice. One of its board leadership and company purpose principles states: “In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.”
Furthermore: “…The workforce should be able to raise any matters of concern”. They should be able to do so in confidence or anonymously.
The Code sets out the ways in which the board can engage the workforce. One or a combination of the following methods should be used:
If the board doesn’t comply with one or more of the above, it should explain what it is doing to engage the workforce and why it considers such arrangements effective (the “comply or explain” principle).
The below chart shows how 280 FTSE 350 companies are addressing worker voice according to the Financial Reporting Council’s most recent Workforce Engagement Report (May 2021).
The majority (40%) have a designated non-executive director, with a further 32% indicating they use existing or alternative arrangements. A minority use an advisory panel on its own or with a NED.
At a recent Schroders event organised by the Sustainable Investment team, a group of NEDs from London-listed firms explored the concept of worker voice.
Director Dialogue, which was held at our London headquarters for the first time this year, was an opportunity for us to meet corporate directors face-to-face to discuss key governance topics.
It followed the publication of our Engagement Blueprint, which sets out our new standards on active ownership and targets on engagement for equity and bond fund managers and analysts.
One of the difficult issues we covered was how to enable worker voice.
Here’s a flavour of the pros and cons of different approaches from the debate.
Some believe appointing an employee director would be unfair on the individual. They may be viewed differently by other employees, and are likely to have less training and experience than others who may be more suited to the role.
It was suggested that an associate board member role might be more appropriate for employees. It would mean the employee could participate in board meetings like other NEDs but wouldn’t be obliged to attend all committee meetings. They would also still be able to communicate to employees about how the board works and to promote increased employee engagement with the board.
An employee forum can be an effective way to gain insight into the way employees feel. It can be a means of opening the lines of communication between employer and employee, and provide a space in which views, issues, ideas and questions can be raised between the two parties.
The ability to hold meetings online means NEDs from all over the world can gather virtually.But there is still value in physical site visits by NEDs. These enable valuable one-on-one interactions that can be less formal than an employee forum. They are a popular mechanism to gauge employee sentiment: 84% of NEDs consult with the workforce and seek their opinions through site visits, according to the Financial Reporting Council’s most recent Workforce Engagement Report (May 2021).
Other sources of insight include engagement and pulse surveys, as well as deeper analysis of complaints data beyond just the most serious whistle-blowing incidents. This could help leadership spot signals and issues earlier.
As investors, published engagement survey information is a good starting point, although this is often very high level and aggregate. For example, providing a percentage of employees that would recommend a company as a great place to work doesn’t capture the nuances of a corporate culture.
We believe the best way to gain a deeper understanding of a company’s relationship with its employees is through active engagement. Having conversations with board members and executive management is helpful, but speaking to employees lower down the corporate ladder is how we truly get a sense a company’s approach to its employees and whether employees feel heard.
At Schroders we ask investee companies to:
Against a backdrop of rising “stakeholder capitalism”, listening to the worker voice has become about so much more than simply checking a box to show employees have been surveyed for their views.
There are a number of other ways the board can consider the views and perspectives of employees: engagement and pulse surveys are certainly one option but so are grievance mechanisms, focus groups, site visits and employee share ownership schemes, to name a few.
Different approaches will work for different companies, and worker voice strategy should be tailored in a way that works best for employees and the firm itself.
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