Tuesday 12 July 2016

Workers in directors' shoes: it should be the other way round.

There's been a lot in the media about the new Prime Minister's kitten shoes. But what about putting workers in directors' shoes as part of her suggested shake-up of corporate governance -will the shoes fit?

On the face of it, it can be taken as a commendable suggestion.  However it will take more than brilliantly trained, supremely confident, assertive and powerful "worker" representatives (which they will have to be) to challenge the Executive and Non Executives (NEDs) on today's boards without a major change in the UK board structure. (The UK operates a unitary board system which includes both executive and non-executive directors and they tend to make decisions as a unified group. Two-tier boards, which we may seen in other parts of Europe, have two separate boards, a management board and a supervisory board. The dual board system provides a much greater opportunity for wider stakeholder involvement, such as employees, on the supervisory board).

Instead of putting workers in the shoes of directors, it needs to be the other way round - directors in the shoes of their stakeholders, especially employees, consumers and customers. They need to understand first and foremost what the issues are in regaining trust and confidence in business starting with how they reward themselves. See September's Harvard Business Review's "Is your CEO's high salary scaring away customers?" This impact has not gone unnoticed as this year's "shareholder spring" demonstrates with more shareholders voting against executive remuneration proposals as they try to protect their investment.
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So, rather than changing the board structure, probably the best and most powerful starting point in bringing back some sense of perspective in addressing growing inequalities in business, is to give the shareholders more power as the PM has suggested, starting with executive remuneration. Some of the major institutional investors could make rapid progress in addressing structural  inequalities in business. Acting as the catalyst for change, the shareholders then need to be backed by a new breed of NEDs. (who are not on similar high levels of pay in roles in other companies as their board Executive counterparts) and a new breed of remuneration consultants (who are also not being paid at similar levels) thus breaking the self-perpetuating situation and the lip service paid to addressing the issue.

Let's hope kitten shoes are sufficient to kick-start the transformation.