This week’s announcement by Theresa May, now confirmed as the next British Prime Minister, that she proposes the appointment of worker representatives onto the boards of some British companies has caused a flurry of press comment. As always, however, the devil will be in the detail: what role will such representatives play? On which subjects will their views be sought? Will the focus be on executive pay or wider corporate governance issues? Will they have any form of veto over management? All of these and further questions remain to be answered when the proposals are fleshed out in legislation.
In the meantime, some commentators have pointed to the German system of employee representatives as perhaps being the inspiration for this proposal. However, it is clear that the German system is built on a very different structure of corporate governance than that which exists in the UK. Most notably, the German companies to which that system relates effectively have two separate boards:
- The Management Board takes responsibility for the day-to-day management of the company, and is made up of company-appointed employees (much like the executive directors on UK boards).
- That Management Board is then supervised by a separate Supervisory Board, which provides overall supervision and some general input into the company’s strategy, but which does not typically involve itself in day-to-day management decisions, other than approval of the Management Board’s remuneration. The detailed scope of the supervision is typically regulated by the company’s Articles of Association.
It is the Supervisory Board to which employees must be appointed, with companies employing over 2,000 staff requiring 50% employee representation on the Supervisory Board (the figure is reduced to 33% for companies with between 500 and 2,000 employees). In cases of deadlock in a Supervisory Board with 50% employee representation, the (company-appointed) Chairman of the Supervisory Board holds the deciding vote.
That structure is of course materially different from the UK structure of one Board of Directors, with both management and supervisory responsibilities. It is unclear how, if at all, the German system of employee representation would translate in that context. In particular, what, if any, role would such representatives play in the management of the company? We will provide further updates as the Prime Minister’s proposals become clearer, and answers to these questions begin to emerge.