At the CBI Conference yesterday, the Prime Minister announced that government will publish its proposals to ensure the voice of employees is heard in the boardroom. These proposals will form part of wider plans to reform corporate governance, including executive pay and accountability to shareholders. The green paper should be published later this month.
Some of the uncertainty surrounding these proposals has been removed.
- The Prime Minister has made it clear that companies will not be forced to adopt works councils. No mandatory mechanism for the direct appointment of workers or trade union representatives on boards will be introduced.
- Companies will be able to use existing board structures to facilitate employee representation. The key for each company will be finding the model that works for it.
- No changes will be made to the UK’s unitary board system. There had been concerns that aspects of the management and supervisory board structure used in other jurisdictions might be introduced.
Although companies will have flexibility in identifying and implementing their preferred structure, they will need to demonstrate that employees’ voices are properly represented in board deliberations.
Companies should consider how they currently engage with their employees. Do any changes need to be made to that process? What weight should directors give to the views of employees? How can companies demonstrate that they have responded to the challenge laid down by the Prime Minister? Whilst many questions remain, companies will be relieved that a mandatory regime is not being introduced.
We will publish a further update when the green paper is published.