SEUK’s External Affairs Director, Andrew O’Brien, takes a deep dive into the announcement at the 2018 Labour Party Conference for more worker representation on corporate boards, and argues for social enterprise as an avenue to improve corporate culture and its impact on society.
A big announcement of Labour Party Conference has been the plans to require businesses employing more than 250 people to reserve one-third of seats on boards for representatives of their workforce to rein in a “reckless corporate culture”.
This might not get as much coverage as all the talk about Brexit, but Labour’s radical proposals for shaking up Britain’s boardroom could have far reaching consequences.
I’m a big fan of worker representation on boards. The Labour Party and TUC are right to recognise that we need to boost productivity and workers have a key role to play in that. The fact that the UK is suffering sluggish productivity whilst workers are demonstrating high levels of apathy is not a coincidence. Whilst apathy might be acceptable in the Fordist economy of the early 20th Century, in our service-based economy, people are more important than ever before. We are not going to boost our economic performance unless workers feel that their contribution is valued and they have a stake.
But worker representation on boards is not a silver bullet for tackling “reckless corporate culture”.
Germany is often held up the paragon of worker involvement, with the concept of “co-determinism” widely discussed in policy circles. In America, Democratic Senator Elizabeth Warren is trying to bring this concept across the Atlantic through new legislation proposing that workers have the right to elect 40% of their boards.
Yet we are only three years on from one of the biggest corporate scandals in the history of the automotive industry, where Volkswagen systematically sought to rig emission tests. This was despite half of the seats of the German car giant’s supervisory board being held by workers. This is not the only example of course of problems at the company. In 2005 VW as embroiled in a bribery scandal which similarly involved worker representatives.
You could argue that VW is just an isolated case. But we actually have examples of “worker representation” closer to home. In the accountancy sector, many of the largest businesses are LLPs. These are Limited Liability Partnerships. Partners are staff that own the business in common, and elect from their own number partners who are responsible for running the company and overseeing its activities. Now rich accountants might not naturally spring to mind when thinking of worker representation, but the principles are the same. Those that work in the business, own and direct the business.
Yet the accountancy sector is under consistent criticism for failures. KPMG, a LLP, was recently singled out by the Financial Reporting Council for declining quality of work. The Work and Pensions Committee has also criticised the Big Four (three out of four have LLP structures in the UK) for their “feasting” on Carillion.
It is important that the rewards of a business are shared with staff. We would also like to see more equal pay and better conditions for workers. 78% of social enterprises pay the Living Wage, according to our State of Social Enterprise 2017 report.
But sometimes workers interest does not align with the needs of society. Sometimes it is in the best interests of workers to turn a blind eye to bad behaviour because it ensures that they get a pay rise (as in the Big Four) or to preserve their jobs (as in the case of VW).
Fortunately in the UK we have a ready-made solution to this problem. Social enterprises are businesses which are seeking to achieve a social and/or environmental mission whilst generating a profit which can be reinvested back into society. Many of these are owned by their staff or include representation from workers on their boards. This ensures involvement and engagement of workers, but also means that their energy and focus is channelled in the wider social interest. They aren’t perfect, but they align business with the rest of the community.
Social Enterprise UK’s most recent research, supported by Nationwide and Co-op Group, has found that social enterprises are contributing £60bn to UK GDP and are beating traditional firms in terms of innovation and profitability. They can help solve our productivity crisis and our social crisis. Sadly, they are being ignored by government which has backed away from serious economic reform.
There is an opportunity to create an economy which is focused on the long term, are fair to workers and act in the best interests of society through growing social enterprise.
If the Labour Party wants to be truly radical, it must combine the power of worker representation with social and environmental responsibility. Together, they are an unstoppable coalition.