Employee representation: the lessons from Europe
It’s been almost 40 years since the TUC resolved at its 1978 Congress that workers be represented on company boards of directors, write Jeremy Waddington and Aline Conchon.
Yet scarcely was there time for union efforts to make progress in this area when the election the following May ushered in a Conservative government led by Margaret Thatcher. This effectively led unions to abandon their efforts at establishing employee board representatives — they faced more immediate issues as the political climate lurched rightwards, incorporating an assault on trade union rights.
Now however, board-level employee representation (BLER) is again re-emerging on the UK political scene. In many countries across Europe, BLER continues to be an important form of employee participation. So how does it work? And what lessons might Europe hold for the UK?
Board-level representation moves up the agenda
At this year’s TUC Congress, delegates passed a motion calling on the TUC to campaign for legislation enabling “employee representatives to become board members” and influence decision-making in companies”.
This renewed interest in board-level representation has come about through two distinct, but related, routes. First, the TUC itself, alongside all major political parties, has argued that Britain’s corporate governance system needs reform.
It cites the inadequacy of banks’ corporate governance prior to the 2007-08 financial crisis, as well as the broader implications of the primacy of “shareholder value”.
The European Trade Union Confederation (ETUC) is the second route. While the ETUC agrees with the TUC over the benefits of board-level employee representation, it also argues that additional legislation would be a significant step towards a coherent European system of worker representation, establishing basic standards across the EU.
In the manifesto adopted at its recent Congress, it called for a “directive introducing a new and integrated architecture for workers’ involvement … with ambitious minimum standards for board-level representation … as an additional source of workers’ influence”.
Worker representation on European boards
There are systems of worker representation on company boards in 18 of 28 Member States of the EU and Norway. In addition, the European Company Statute, adopted in 2001 and referred to as the “SE”, stipulates rules on BLER for companies that opt for this European-wide company legal status.
The coverage and the form of BLER differs between the countries by reference to sector, legal status of the company, company size and eligibility criteria for board-level employee representatives.
Board-level employee representation is found in companies that operate with unitary board structures, as are found in the UK and Sweden with a single unified board of directors; and in those with dual board structures, as are found in Germany and Austria comprising a supervisory board and a management board.
Within this majority of EU Member States, BLER is viewed as a key element of employee involvement at company level — alongside works councils in dual systems of representation, and trade unions in single-channel systems.
To find out how these systems work in practice, we undertook a survey of board-level employee representatives.
The survey, conducted between 2009 and 2013, was funded by the Hans-Böckler-Stiftung.
Questionnaires were returned by 4,155 board-level employee representatives. A full review of the research is available in Board-level employee representation in Europe: priorities, power and articulation by Jeremy Waddington and Aline Conchon, published by Routledge.
Jeremy Waddington is professor of industrial relations at the University of Manchester, and project coordinator at the European Trade Union Institute (ETUI).
Aline Conchon is a senior researcher at the ETUI.
For ease of presentation the results are grouped into six separate clusters of respondents (plus one aggregating all results) These are:
• Germanic: Austria and Germany;
• Nordic: Denmark, Finland, Norway and
• Francophone: France and Luxembourg;
• New Member States (NMS): Czech Republic, Hungary, Poland, Slovakia and Slovenia;
• IGS: Ireland, Greece and Spain; and
• SEs: respondents based in companies that adopted European Company status.
The table below shows how board-level employee representatives from these different clusters define their interventions at the board.
How do employee representatives define their interventions?
|All Country Clusters %||Germanic %||Nordic %||Franco- phone %||New Member States %||Ireland, Greece & Spain %||SEs %|
|Co-manage the company by participating in decision-making||12.4%||11.6%||14.6%||0.7%||10.4%||7.1%||10.5%|
|Discuss matters with other board members until a shared position is reached||20.2%||15.8%||23.5%||7.5%||22.8%||35.7%||13.2%|
|Control the management through supervision||21.8%||31.5%||11.0%||10.9%||38.4%||28.6%||21.1%|
|Are consulted, but the final decision rests with other board members||29.4%||28.9%||30.2%||60.5%||19.5%||14.3%||39.5%|
|Are informed, but have little opportunity to discuss matters||16.2%||12.2%||20.7%||20.4%||8.9%||14.3%||15.8%|
One thing is immediately apparent from the table — that there is marked variation between and within the country clusters. BLER is not, therefore, uniform. In the Germanic and NMS clusters, for example, the largest single proportion of board-level employee representatives “control the management through supervision”, which is consistent with the prevalence of employee representation on supervisory boards in these countries.
This situation is not replicated in the SEs, although the majority of representatives operate in companies of German origin. In contrast, a greater proportion of Nordic and IGS board-level employee representatives both “discuss matters with other board members until a shared position is reached” and “co-manage the company by participating in decision-making”. The character of the interventions at the board made by Nordic board-level employee representatives thus differs from that of their counterparts based in the Germanic and NMS clusters.
There is also a substantial minority of board-level employee representatives — 45.6% of all respondents — who intervene at the board only by means of information and consultation. Representatives in this situation form a majority (80.9%) in the Francophone cluster.
These representatives don’t have the power to directly affect the outcome of board-level decision-making, although an indirect influence may be brought to bear through consultation.
The variation between clusters can’t be explained by the absence of information, as board-level employee representatives (with the exception of those in the Francophone cluster) report that they are content with both the timing and quality of information provision. Similarly, the variation between clusters is not a result of the passivity of the employee representatives, most of whom intervene actively at the board using a wide range of approaches.
Effectiveness of employee representation
Three variables have a marked effect on the capacity of European board-level employee representatives to exert power over corporate decision-making: their constitutional position, the location of board-related decision-making and the extent to which worker representatives on boards are coordinated with other bodies representing employees.
In any UK debate, consideration of these variables needs to be prominent, as they determine whether representatives can have the desired impact on strategic decision-making.
The constitutional arrangements attached to board-level employee representation vary between and within countries. In Germany, for example, three systems operate, each allowing a different proportion of worker representatives to sit on the board.
Results from Germany demonstrate that the greater the proportion of worker representatives on the board, the greater the perception among the representatives that they exercise power over board decisions.
While the proportion of worker representatives that sit on the board certainly matters, it is not the only constitutional provision that influences the performance of worker representatives. The right to paid time-off, to training and to access expert advice are also influences. In short, defining rights on these issues, and what constitutes a “critical mass” of worker representatives on the board, is key to the UK debate as it underpins the capacity to exert power at board level.
A second influential variable concerns the location of board-related decision-making. Many European worker representatives (60%) report that decisions are taken outside of formal board meetings. In many cases, worker representatives are therefore excluded from decisions on board-related matters.
Finding mechanisms to ensure that strategic board decisions are made at the board in the presence of all board members, including worker representatives, is a central issue.
A third variable concerns the extent to which board-level employee representatives coordinate with other bodies representing workers within and outside of the company. The more that board-level employee representatives coordinate their activities with, for example those of trade unions and works councils, the greater workers’ influence on company decision-making.
Implicit in this finding for the UK debate is the question of ensuring that once board-level worker representation is in place, representatives are in a position to discuss policy options for the company with trade unionists.
If board-level employee representation is to be introduced to the UK, a wide range of policy questions need to be addressed — central to which are measures that might ensure that worker representatives are in a position to have an impact on decision-making.