Out-Law Analysis | 11 Aug 2020 | 8:52 am | 3 min. read
The appointment of worker directors requires careful consideration by the board as there are a range of legal and practical issues to work through. However, businesses considering making worker director appointments can look to other UK companies to have done so for insight and inspiration.
FirstGroup has an employee director appointed to its plc board. Employee directors have also been appointed to the boards of most of its UK operating companies. The stated intention is that this provides an employee viewpoint on matters affecting the direction and governance of the business and a route for employees’ ideas and suggestions on a wide variety of topics, from new commercial opportunities and efficiency to safety and employee wellbeing, to reach the boardroom. FirstGroup identifies this as, among other things, a risk limiting action – recruitment being a major risk; building communication and engagement with trade unions and the wider workforce mitigating actions.
Employee directors are voted for by the employees, and their presence on many of the group’s UK operating company boards and the main plc board is clearly a major element of wider strategy.
Employee directors are elected by an independently supervised ballot of employees on a company-by-company basis. The plc-level employee director is nominated by a forum of the group employee directors, subsequently recommended to the plc board by its nomination committee and ultimately confirmed by shareholders at the company's AGM. In addition, regular dialogue is maintained with employee representatives throughout the group, including more than 30 trade unions.
Formal training is provided for all newly-elected employee directors, along with performance and development reviews.
The plc employee director is invited to attend all remuneration committee meetings; the chair of that committee reciprocates by periodically attending meetings of the group employee directors.
In 2019, the UK outsourcing company Capita appointed two worker directors to its board. The employees were appointed after an internal recruitment process which was independently overseen and identified 400 candidates from across the 70,000-strong business. Both were professionally qualified – a chartered accountant and a chartered civil engineer – and were appointed for an initial fixed term.
Appointed as non-executive directors (NEDs), the worker directors provide an employee’s perspective and expertise, and input into strategic decision-making. Both were to continue in their day-to-day roles, with time allowances made for them to be able to fulfil their director responsibilities. They were to receive the same remuneration as other NEDs in the business in addition to their employee salary and be provided with a full programme of training to equip them for their new roles.
Further detail was provided in Capita's 2019 annual report and accounts. The selection process included an online questionnaire, independent assessment by a third party and a series of interviews with the group company secretary, chief general counsel, chief people officer, chief executive, senior independent director and the chairman. The worker directors' induction covered the responsibilities and duties of a director, inside information, and "specific subject matter presentations with functional heads that would equip them to fulfil their legal obligations and provide a framework in which they could bring to the Board their unique perspective as employees". This included general training on what to expect in and out of the boardroom. Each director was assigned two mentors, one internal and one external.
The worker directors, interviewed for the 2019 annual report and accounts, suggested that having two board members with direct experience of what it is like to work in the company below executive level is beneficial to the board because direct feedback can be given on employee matters – areas such as policy implementation, customer feedback and employee morale. Beyond their contribution as employees, they also profess to now understand the need, as directors, to take account of and balance the interests of multiple stakeholders.
In 2017, retailer Sports Direct announced that an elected workers’ representative had begun to attend all board meetings as an observer rather than as a director, providing feedback from employees directly to the board.
In 2018, the workers' representative – a store manager – was appointed to the board as a NED, effective 1 January 2019, for a one-year term. The appointee has the same powers as all other NEDs in the business. They receive training and the ongoing assistance of the company secretarial team. Additional remuneration for the worker non-executive director role is in the region of £12,000 a year.
In its 2019 annual report and accounts, Sports Direct said: "The workers’ representative has a unique insight in to the Group and will speak on behalf of the Group’s workforce at all scheduled meetings of the Board in order to facilitate a healthy and constructive dialogue". It said this involves, among other things, "taking control of the staff welfare platform where all staff have direct access to [the workers' representative] which is invaluable in [terms of her] contributions to board meetings".
11 Aug 2020