COVER STORY : Representation – Employee Seats at the Top Table – is it likely?

A seat at the table. It’s the place of corporate power, the ultimate goal for anyone who wants to make the big decisions. In New Zealand companies, those seats are limited to shareholders and their representatives; typically businessmen of certain age who have come through the management ranks. It’s the Anglo-American model that has been handed to us by history.
Yet outside the Commonwealth and United States, in nations as diverse as Germany and Japan, Slovenia and Sweden, much wider range of people can claim seat on the board. In those countries, the law encourages boards to consider the good not just of the company’s shareholders, but all its stakeholders. To achieve that, boards must include employee representatives. Members of the workforce, elected by the workforce and acting in the interests of the workforce, are given place at the table alongside the independent directors.
It’s model foreign to New Zealand business, one that would rattle the cages of both the country’s board elite and union officials as it recast the traditionally hostile relationship between workers and bosses. But it’s an idea that’s gaining traction. In researching this story, The Director was told by Commerce Minister Lianne Dalziel that she was “interested” in the idea of boards responding to “wider stakeholder interests rather than just shareholder interests”, and in particular to the concept of employee representatives.
“Employee involvement in governance is clearly part of that wider discussion. I’m following the international debate with interest. It’s an emerging theme which we would have to commit some resources to, but I intend to have some work done on it at some point in the future.”
That work is likely to lead government officials to the EU, where employee representation in one form or another – or what’s called policy of “co-determination” – has been commonplace for years. Germany, Austria, the Netherlands, France and the Scandinavian countries all give workforce delegates the right to attend and participate in board meetings either as full or advisory members.
In Finland, for example, companies with 150 or more staff must have between one and four employee representatives; in France the law provides for two to four worker representatives to attend, if not vote at, board meetings. Germany has the world’s strongest co-determination laws and board system split into two tiers – supervisory boards and management boards. Employee representatives must make up third of the supervisory board in companies with 500 to 2000 employees, and half in companies with more than 2000 employees.
Co-determination has tended to take root in countries with tradition of civil law rather than common law; that is, law based on codes and principles rather than customs and precedent. Those countries also tend to have strong unions, consensus-oriented political systems and centre-left governments, but there are no hard and fast rules. In 2005 study asking why co-determination had flourished in certain countries, Gregory Jackson, from King’s College, London, found they had little in common.
Instead, there were various local reasons for the policy. In Germany, it was post-war reaction to Nazism, way to reintroduce democracy into all sectors of civilian life after the war, while in Sweden the issue arose out of miners’ strikes in the 1970s and was introduced by coalition of unions and centre-left parties.
New Zealand has some of the ingredients that suggest move towards co-determination is possible – such as centre-left government and consensus-based political system in MMP. Already, good-faith bargaining laws require companies to consult with workers and their unions before making any final decisions likely to affect employment.
Universities and polytechnics offer the one example of representative boards in this country, with both staff and students having place at the table as of right. What New Zealand has lacked is the political will and strong union movement to take it further – and, as we shall see later, strong union commitment to the concept is far from assured. What’s more, we are common law country with long list of precedents protecting shareholders’ rights.
Under the current Companies Act, boards in this country have pretty straightforward role. While we may wish every director had the prescience of an oracle, the strategic nous of Warren Buffet, the wisdom of Solomon, and an overflowing contact book besides, all they’re required to do is look after the interests of shareholders. In short, they exist to maximise the wealth of those who own the company.
And that’s just as it should be, according to Bruce Sheppard, the Shareholders Association head.
Sheppard isn’t exactly known for defending New Zealand boards, saying that most directors in this country are “seat-fillers”. The rest are either “fraudsters”, “dumb”, or in few positive cases, “innovators”. But he sees nothing he likes in co-determination. It only takes the directors’ eyes off the prize – improving company’s performance. He’d be delighted to see new breed of directors emerge – even some from within company’s workforce – but only if they’re selected on merit.
“The people making the decisions cannot care about representation. They’ve got to be all about performance.”
Sure, boards could improve communications with staff and engage with numerous stakeholders more effectively, Sheppard says, but they should do so because it’s smart business, not as token gesture to good faith.
Many critics of co-determination take similar free-market line, arguing that if it was good for business companies would already be doing it. As US economists Michael Jensen and William Meckling argued as far back as 1979, “The fact that stockholders must be forced by laws to accept co-determination is the best evidence we have that they are adversely affected by it.” They also fear it would scare off foreign investment, although German supporters argue that it has done nothing to stop US giants such as General Electric and Ford from opening up shop there.
Fund manager Carmel Fisher, like Sheppard, says it would be wrong to add staff to board just “because it’s nice thing to do”. The managing director of Fisher Funds says new board members must add value to justify their place and “having cast of thousands around the board table” does no one any favours. An employee representative or two wouldn’t put her off investing in company, but given the improved transparency and performance from New Zealand boards in the last decade, it wouldn’t attract her either.
Some critics fret that even with confidentiality agreements in place, sensitive, non-employment related information is sure to leak from the board to the workforce, and from there to the public and competitors. But perhaps the most frequently made argument against the policy is that it would skew the board’s focus away from strategic matters and onto the concerns of the workforce, which tend to be more day-to-day issues. As result, “a board risks being lured into areas it shouldn’t”, says Coral Ingley, an associate professor in management at AUT. “It could blur the line between board’s long-term focus and management’s operational focus.”
As Ingley sees it, if better consultation and “a more participatory form of management” is what you’re after, there are probably better ways to achieve those aims at management level. She thinks it unlikely that New Zealand would break away from other Commonwealth countries to implement fully fledged reforms, but agrees that there are halfway measures that may merit consideration, such as non-voting advisory boards with employee members or shareholders being made responsible for electing an employee to the board. Further, the law could be applied to some companies and not others, on the basis of staff numbers, market cap or whether or not the company is listed.
The fundamental problem at the heart of co-determination, however, is most evident

Visited 3 times, 1 visit(s) today

Business benefits of privacy

Privacy Week (13-17 May) is a great time to consider the importance of privacy and to help ensure you and your company have good privacy practices in place, writes Privacy

Read More »
Close Search Window