Worker engagement integral to corporate governance

Out-Law News | 27 May 2021 | 8:27 am | 2 min. read

Many UK companies are focusing more on the process rather than the purpose of engagement with their workforce, new research has found.

A research paper (56 page / 2.2MB PDF) for the Financial Reporting Council (FRC) found that of the three core options for workforce engagement in the UK Corporate Governance Code, 40% of the 280 FTSE 350 companies sampled had appointed a designated non-executive director (NED) to handle employee engagement, 16% had adopted a model of an advisory panel engaging with a specific NED and 12% took worker input from an advisory panel.

Only one company was found to have appointed a worker director, adding to four FTSE 350 firms with worker directors that pre-date the Code. The researchers from Royal Holloway, University of London and the Involvement and Participation Association said worker directors were playing a valuable role that was not incompatible with the corporate governance framework, engaging fully in board deliberations.

The researchers said most firms’ position on workforce engagement represented “an evolution of existing practices rather than a revolution in approach”. It said some had done little to engage workers beyond an annual staff survey.

Other firms had several channels of engagement, but the coordination between these channels varied from formalised relationships to situations where there was conflict between the different approaches. The report said collective bargaining and trade union consultation could complement an employee voice on the board, but neither channel should replace the other. 

The report also said in the vast majority of cases, the board had made decisions on workforce engagement without consulting the workforce on the right processes.

Corporate governance expert Tom Proverbs-Garbett of Pinsent Masons, the law firm behind Out-Law, said: “The point is well made that any benefits to emerge from workforce engagement depend on a board having a clear idea of what it is trying to understand from carrying out the exercise.

“The Code and statute demands engagement with stakeholders, but that is with purpose not for the sake of it. The engagement should feed into board decision-making and, in order for that to occur organically, boards will need to be clear what they want to achieve from discussion with workers, how engagement outcomes will be fed back to board, and crucially how that has an impact on decision-making,” Proverbs-Garbett said.

The researchers said the interaction between different worker engagement opportunities should also be purposeful, and companies should ensure the employee voice represents the geography and breadth of the workforce.

The report said some NEDs appeared to be unsure of what their role should be, were disconnected from other engagement programmes and appeared to have few formal ways of actually engaging with the workforce.

“As the paper emphasises, energies should be focused on the substance of workforce engagement, not the process, with more thought (and subsequent reporting) needed to establish how and why the designated NED proceeds to collect and put forward the views of the workforce and how different engagement methods used in a business act in synergy in that context,” Proverbs-Garbett said.

The researchers set out a number of lessons which they suggested firms should consider, including making sure that the workforce has the opportunity for regular and structured input on strategy, especially during times of change. They added that workforce representatives, whether sitting on an advisory panel or the board, should be chosen with input from the workforce, and that agenda setting works best when there is a balance between topics of management interest and workforce interest.

“An interesting point that emerges from the research is that in most cases decisions on approaches to workforce engagement were made by the board without consultation with the workforce. Arguably, this is the place to start - how do our workers want to engage?” Proverbs-Garbett said.

“After all, the point of bringing worker voice into the boardroom is dual: to facilitate the board's understanding of the views and interests of its workers, but also to permit workers a greater understanding of how – and assurance that – decisions have been made in light of the engagement. Without such dialogue, boards may be seen to be paying lip service to their obligations in this area,” Proverbs-Garbett said.