The voice of the workforce and other stakeholders in the boardroom
Reforms to the UK corporate governance regime mean that, from January 2019, new requirements will come into effect which
For detailed guidance please view Hearing the Stakeholder Voice, our practical guide to implementing and reporting on effective engagement mechanisms.
The reforms relating to stakeholder engagement are comprised of two elements. The statutory reporting requirements relating to directors’ duty under section 172, is being amended and will apply to all large companies. Further details can be found in this Governance in Brief. In addition, revisions to the UK Corporate Governance Code mean that premium listed companies will be subject to the most comprehensive requirements. An overview of the requirements for premium listed companies is provided below.
The revised UK Corporate Governance Code also features changes to the role of the remuneration committee in relation to wider workforce policies. For a summary of how the reforms will impact the agenda of the remuneration committee, please view our guide. Our Governance in Brief contains a full summary of the changes to the UK Corporate Governance Code.
Overview of requirements for premium listed companies
Giving employees a voice in decision-making
- Establish a method for the board to gather the views of the workforce, which can be achieved in the form of:
- Appointing a director from the workforce
- Establishing a formal workforce advisory panel
- Designating a non-executive director to represent the views of the workforce
- Another rigorous method which ensures genuine two-way dialogue between the board and the workforce (employee surveys, currently the most commonly used employee engagement method, will not be sufficient on their own to meet the new requirements).
- Ensure mechanisms are in place allowing the workforce to raise concerns in confidence and (if they wish) anonymously. Arrangements must be in place to ensure that concerns are investigated independently and acted upon, where appropriate.
- Disclose in the Annual Report how directors have engaged with employees, how the directors have considered employee interests and the impact this had on decisions made during the year which are likely to affect the interests of employees.
Considering the interests of other stakeholders
- Engage with, and encourage participation from, other stakeholders, which includes suppliers, customers and others.
- Disclose in the Annual Report how the directors have met their obligations under section 172 to consider the various stakeholder groups, the environment, long term decisions and maintaining high standards of business conduct in the decision-making process. Companies will also need to disclose whether this consideration had an effect on the decisions taken.
What challenges do companies face?
Designing robust frameworks
- The three structures for employee engagement outlined in the Code may not be effective as standalone options. Companies are likely to find that methods which fuse together complimentary aspects of the structures outlined in the Code will be most effective.
- Companies face organisational challenges in understanding how the governance framework for engagement activities should be developed. To provide a strong foundation for engagement activities, it is essential that organisations set terms of reference, assign responsibility, agree policies and develop processes and systems which integrate engagement activities within the company’s wider governance framework.
Achieving fair and balanced representation
- It is imperative that companies establish measures which ensure that the board receives feedback from engagement activities which represent a fair and balanced reflection of the views held by a stakeholder group.
- For example, outputs from engagement activities with employees will need to be representative of views across all levels, business units and across different sites. It will therefore be necessary for companies to employ strategies to encourage participation from different populations within their workforce in nomination, election and engagement events (as appropriate).
- It is important that companies establish ways to reach out to a broad spectrum of external stakeholders, rather than exclusively focusing on groups which have the highest profile or shout the loudest. A careful and considered approach will be necessary to identify external stakeholder groups which are affected by the company’s operations.
Improving knowledge and skills
- Specific parties involved in engagement activities, such as designated board directors or members of a workforce forum, will need to understand the responsibilities and expectations associated with their role. It will be vital that the board, employees and other stakeholders are all given the knowledge and skills which allow them to make coherent and constructive contributions to the engagement process.
Acting on feedback
- Companies need to consider how they will analyse and disseminate feedback arising from engagement activities, in order to provide insightful findings which are a valuable resource in the board decision-making process. For example, during the process of designing engagement activities, companies should aim to ensure feedback is structured in a way which ensures clarity in responses rather than ambiguous high-level statements.
- Engagement activities will only deliver value for an organisation where feedback is acted upon. A key challenge for companies is therefore to be open to challenge and to adopt fresh approaches in response to the feedback received through engagement activities.
- Effective engagement which adds value for the company requires buy-in from employees and other stakeholders. Companies will therefore need to demonstrate to employees and other stakeholders that their contributions will be valued by the board and will effect change. This requires compelling communications, which are tailored to a specific stakeholder group, and demonstrate a genuine desire to hear a different perspective.
- As engagement activities mature, this can be achieved through internal and external reporting which provides specific and tangible examples of how feedback from engagement activities has influenced decision-making and led to improvements for stakeholders.
How we can help
- Evaluation of existing engagement activities – assessing coverage and effectiveness of existing stakeholder and employee engagement mechanisms and activities.
- Governance, policy and process design – advice on effective governance structures, policies and process design for all types of companies affected by the reforms.
- Workforce engagement advisory – helping design the most effective mechanisms to engage employees not only to meet the new regulations but to help drive meaningful benefits for companies.
- Stakeholder identification and materiality analysis – designing and reviewing processes for stakeholder identification and determining the materiality of issues relating to the
long termsustainability of the business.
- Strategy and action plan development – designing company strategy
onstakeholder and employee engagement, helping companies to integrate new initiatives with existing stakeholder engagement activities and guiding companies to develop action plans for effective implementation and reporting.
- Training and guidance – board and management level training, induction and awareness raising to help ensure
detailedunderstanding of the reforms and responsibilities at all levels of the organisation.
- External and internal reporting – review of current reporting communications and guidance for companies leading up to the reporting changes in 2020.
- Assurance – providing assurance of processes, systems and framework relating to stakeholder engagement activities against recognised assurance standards specifically designed for stakeholder engagement activities.