Why we need more workers in the boardroom

Cross-posted from Liberal Conspiracy:

Trying to put the pieces of the economy and our financial system back together again, it is clear that one of the underlying problems has been the vulnerability of many institutions to lop-sided incentives.

We’ve seen it as its most obvious with dealers – who can run big risks, retire very rich very young – and not have to worry about the long-term consequences, because they’ve long since left the scene. Another example has been in the boardroom – huge bonuses in the good times, and if it goes wrong? A nice little pay off and pension pot.

So how do we even out the score – especially in those institutions deemed too big or too crucial to be allowed to fail, which immediately sets up all sorts of risks of one-way bets?

Part of it is about control of the bonus culture. Part of it is about better management and identification of risk. Part of it is about getting remuneration committees to get external advice – rather than relying on the cosy arrangements of internal advice, which means it’s far too easy to have a situation of “you talk up my pay, I’ll talk up yours”.

Yet there is one group who really can see at first hand the ups and the downs of risk taking – and that is the ordinary workforce. It’s these people who suffer real financial hardship when risks fail to come off – but can also see in their job security (and – though not as often as perhaps should be the case – in their own pay packets too) the benefits when things do go well.

Having a stronger voice from the workforce in the senior decision making would be a vital safeguard in helping to control the risks firms run – because some of the people who really do suffer when the risks go wrong will be making the decisions, not just those largely on a one-way bet.

As an added bonus – recruiting some directors from the workforce would also add some much needed diversity to the make-up of company boards.

Diversity is about more than just “let’s add one middle-class white woman to a board of middle-class white men”. It’s about having a diverse set of experiences and knowledge and outlooks and instincts. That brings business benefits which some of those boards that collapsed in single-minded, risk-loving groupthink could have hugely benefited from.

That’s win, win, win for everyone.

0 thoughts on “Why we need more workers in the boardroom

  1. Sorry, but the "ordinary workforce on the board" idea is absolute nonsense.Being a director of a plc requires a very specific skill set. I would no more trust an "ordinary" member of BT plc's workforce, for example, to be able to contribute at Board level than I would trust BT's CEO to install my broadband properly.I think that you are onto something with your diagnosis: there is an overly comfortable remuneration system, particularly in the banks. However, I don't think much of the treatment prescribed.

  2. Add them from the workforce… unless, I presume, they're Christians? They might object on grounds of principle to selling women into brothels, funding corrupt dictatorships, murdering babies, promoting vice… and that would never do, would it?Face it: what you're demanding is the power to appoint favoured groups to private and salaried positions against the will of those who run them. That is more or less the definition of tyranny. Let those who want to be directors, start their own companies.We need an end to all this system of discrimination, for that is what this "diversity" word now means; discrimination in favour of some (favoured) groups against others; those in power abusing their power to interfere with others for ideological reasons.I note that the Orwellian "Equality and Human Rights Commission" today threatens the BNP unless it allows immigrants as members. No sane immigrant and honest immigrant would *want* to be a member; so this is merely malicious interference with an elected political party for reasons of hate. Do you endorse this abuse? Or is your principle merely "if it feels good, do it", in the belief that you won't get treated the same way yourself?We need an end to all this evil interference in the lives of ordinary people.

  3. In principle, the have "ordinary" workers in the board room is a good idea:Many schemes and ideas – devised by "consultants" or the board – are often unworkable, unrealistic and cause resentment in the workforce. By virtue of representation, an initial evaluation ("from the workers point of view") could be achieved and a comment such as "unworkable" could be examined ("why do you think it was unworkable…?" etc); and this gives a different view. Often, management think "inside [their] box".Now such an approach will not suit every plc immediately but the benefits are immense: involvement "empowers", it strengthens the bond between the boardroom and the workfoce and implementation of change would meet less resistance simply because everyone was involved.

  4. pie in the sy sort out local goverment please the mess ups there are far worse than mps exspenses boardrooms ect they are behind the mess we are in. plus banks

  5. 'Workers on the board' is probably a good idea but it is important for all directors they are accountable and that when they are in the board room they leave all their vested interests outside the door and operate in the best interests of the company and all of its stakeholders. If they can do this and have specific skills and experience to contribute, then there is no reason why they should be any less qualified than anyone else. Unfortunately the 'old boys club' mentality still exists in many companies, particularly amongst the cohort of so called independent directors who usually find themselves on remuneration and audit committees. Bonuses and high salaries for above average performance are fine but there should also be a downside and there should never be rewards for failure. Also, bonuses based on share price rises such as that just announced for the new CEO of RBS are inappropriate since share prices are not only subject to external influences such as the general performance of the stock market but share prices and earnings per share can easily be manipulated.

  6. Some of the biggest investors in our largest companies are the so called Institutional Investors who invest money on our behalf, via our pensions and life assurance policies. This creates a problem, because within this structure, pension investors effectively cede their voting rights to the fund managers. Now fund managers come from the same tribe as company directors. The result is a self-congratulory spiral of voting each other higher salaries, free of intervention from small investors (you and me) who actually provide the money. What is to be done? In my opinion, investment carries a moral responsibility, and the small investors (us) should be exerting more control. My middle class friends are very ready to criticise pharmaceutical, tobacco, defence etc. companies but in fact most of them are content to let others control their pensions.Is their some way we could restructure things so the pension funds would pass the voting rights through to their investors?

  7. Matt makes a good point but I think the larger pension funds (especially the local Government schemes)are more aware of their moral obligations in respect of socially responsible investment than he implies. Most large funds do in fact have their own voting policy and don't just abrogate the job to their investment managers. There have been many examples recently of instances where larger institutions have been engaging actively with the companies in which they invest and the trend is continuing. The growth of organisations such as PIRC and Manifest is testimony to this. It is the smaller and medium sized funds who tend not to take voting seriously. Largely this is because the Trustees do not see it as a major priority. It is up to the members of these schemes to challenge the Trustees regarding their policy towards socially responsible investment. At the same time the Trustees have a duty to be transparent in providing detailed information on this issue to their members. Unfortunately shareholders are a disparate bunch of people so pressure needs to come from pension scheme members,life policy holders and unit trust investors etc. in order to achieve a concerted effort Investment managers have to do what their clients tell them otherwise they will lose the business. I don't believe fund managers 'come from the same tribe as company directors'. The only objectives of fund managers is to make their funds perform well and to achieve their clients' objectives (although they are woefully bad at this). So don't blame the fund managers. There is no need to restructure anything – just get pension fund trustees to take their existing responsibilities seriously. Getting back to Lynne's original point, it is certainly worth while having staff and pensioners represented on pension fund boards

  8. Yes Mark it’s great that they are catching up with fib dems. Next they will go into coalition with a bunch of nasty right wing millionaire xenophobes, break their only worthwhile manifesto promise, come up with proposals to reform the NHS on the back of a fag packet and ignore all and any warnings about the chaos it will cause, turn us all into little englanders and punish ordinary working people for the mess caused by the super rich whose bonuses of a million quid they will not block but shake their heads disapprovingly about. How they will have learnt from you…

    Meanwhile on your forthcoming 5% vote you can get back to worrying about bus stops and cracked paving stones.

  9. Click to access NBD.SSRN.2011.05.20.pdf

    This is a report on the impact of introducing quotas for women as board members for companies in Norway.

    Some of the impact includes:

    Companies leaving the enforcing countries jurisdiction.
    Companies de-listing
    Companies operating performance reducing and costs increasing.
    Companies increasing their amount of debt and risk/aquicsitions

    Correlation does not equal causation, and the relative inexperience of new board members rather than their sex could be a significant factor.

    Scandinavia may be ‘leading the way’ as Cameron/Osbourne have stated, but could be leading to reduced overall company performance. Norway has significant oil reserves and maybe can afford to carry out social experiments on their companies in this manner, the UK with its debt, not so much.

    Lets look at more data before we implement anything here in the UK ,no matter how intially attractive it sounds to the average women voter.