Why we need more workers in the boardroom


1:00 pm - June 22nd 2009

by Lynne Featherstone MP    


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Tying to put the pieces of the economy and our financial system back together again, it is clear that one of the underlying problems has been the vulnerability of many institutions to lop-sided incentives.

We’ve seen it as its most obvious with dealers – who can run big risks, retire very rich very young – and not have to worry about the long-term consequences, because they’ve long since left the scene. Another example has been in the boardroom – huge bonuses in the good times, and if it goes wrong? A nice little pay off and pension pot.

So how do we even out the score – especially in those institutions deemed too big or too crucial to be allowed to fail, which immediately sets up all sorts of risks of one-way bets?

Part of it is about control of the bonus culture. Part of it is about better management and identification of risk. Part of it is about getting remuneration committees to get external advice – rather than relying on the cosy arrangements of internal advice, which means it’s far too easy to have a situation of “you talk up my pay, I’ll talk up yours”.

Yet there is one group who really can see at first hand the ups and the downs of risk taking – and that is the ordinary workforce. It’s these people who suffer real financial hardship when risks fail to come off – but can also see in their job security (and – though not as often as perhaps should be the case – in their own pay packets too) the benefits when things do go well.

Having a stronger voice from the workforce in the senior decision making would be a vital safeguard in helping to control the risks firms run – because some of the people who really do suffer when the risks go wrong will be making the decisions, not just those largely on a one-way bet.

As an added bonus – recruiting some directors from the workforce would also add some much needed diversity to the make-up of company boards.

Diversity is about more than just “let’s add one middle-class white woman to a board of middle-class white men”. It’s about having a diverse set of experiences and knowledge and outlooks and instincts. That brings business benefits which some of those boards that collapsed in single-minded, risk-loving groupthink could have hugely benefited from.

That’s win, win, win for everyone.

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About the author
This is a guest article. Lynne Featherstone served on the London Assembly 2000-5, before stepping down after being elected as a Liberal Democrat MP for Hornsey and Wood Green in London. She also blogs on her website here.
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Reader comments


“Diversity is about more than just “let’s add one middle-class white woman to a board of middle-class white men”. It’s about having a diverse set of experiences and knowledge and outlooks and instincts.”

Yes, this is something I have always believed to be the case.

Diversity should be valued as diversity of life experiences, which class balance will obviously bring. If you have the right number of gays, women & minorities, all of whom have exactly the same views & are voting fodder for the leadership, you have not got diversity.

Of course, if discrimination & lack of opportunity exists then it should be addressed, in the case of race, gender & not forgetting class.

We would also have benefited from more working-class MPs who would have known about the effects these policies were going to have, & might have provided a voice against tangling people in the tax credits web, the 10p debacle, etc.

These banks in which the public has a share should eventually be denationalised. But they should not be reverted to the state they were in in 2007, which has got us into the shit to begin with.

An excellent post Lynne. Perhaps half a century after the German economic mircale this idea might finally gain credence.

@2 not convinced this is the best time to be citing the German economic miracle as the cure for all our ills, given they’re doing even more badly out of the downturn than us.

You can’t have a worker in the boardroom. Make a worker a company director and she ceases to be a worker. Her interests will be aligned with her new position; the only difference will be a residual cultural loyalty to the working class. “Diversity” is just tokenism; it doesn’t change the problem: the existence of the boardroom in the first place.

Better get rid of hierarchical corporate structure, and have all the workers run the company themselves: use balanced job complexes, and apportion all shares on the basis of duration worked at the company. What if it gets too big for that to be practical? There is such a thing as too big, as we are in the process of learning … never mind too big to fail, too big to exist in the first place.

Joshua

People from all backgrounds should be able to rise to decision making positions in all sorts of sectors that are presently closed to much of the working class. And as much as companies would benefit from change, it is hard not to notice that politics is signalling as clearly as possible that it is best to go the other way.

Campaign roles nowadays generally require a masters degree (very expensive to get) and experience interning (so unpaid) for a politician. That second one is particularly key in detering young people from outside of london.

And given that working in the Westminster Village is the main route into candidacy as an MP – we should probably recognise a growing problem in the public as well as commercial realm. Things will get even worse too, if Unions cut ties to Labour.

The issue is competence. Dyson is competent. The board of Shell, BP , Rolls Royce are generally competent. Having incompetent employees sitting on a board with incompetent drectors does not make a competently run company. Surely the problem in the UK, there is no price for failure. Noone is allowed to fail, be it pupils, teachers, police officers , undergraduates or company directors. After a soldier died on a selection course , an NCO was quoted as saying “Well it is Nature’s way of saying the man failed the course”.

One could say that a surgeon should consult a cleaner . An incompetent surgeon consulting an incompetent cleaner would not make the situation better.

“Surely the problem in the UK, there is no price for failure.”

Bullshit. workers at the bottom are allowed to fail. They get the sack .

The trouble with the huge wages that the boss’s get is it means there is no incentive to do a good job. Why bother when you have got a nice contract. The money is so huge that you will never need to work again. Everything is about getting the job with the huge salary and bonus and pension. Not about doing the job. British boardrooms are full of the same old faces, who just rotate from one cushy freebee to another.

These people are never subjected to a bit of stick it is all carrot. It should be quite clear to anyone now with half a brain that these huge salaries don’t attract the best people they just attack the greediest people.

8. Matt Munro

Indeed – Economists call this the “principal- agent problem”. The board are supposed to work for the owners (shareholders for a plc), maximising profits/shareholder value, but they inevitably start working for themselves and their own financial intersts. They get away with it because

a) Most shareholders are institutional – headed by boards who are (or will one day be) on the same gravy train

b) When things are going well no one is intersted, the last fat cat scandal happened in the wake of the 90-92 recession

As you say the whole thing is a merry go round closed shop of greed and vested interest
Part of the solution is wider share ownership – but that generally doesn’t play well with the left, or indeed the right.

“Part of the solution is wider share ownership – but that generally doesn’t play well with the left, or indeed the right.”

I know what you mean, but I think the small shareholder will never hold that much power. It is all the big institutional investers who have the clout. They are the ones who should take a huge part of the blame for the banking problems. They are the major owners of these firms and they had no idea what was going on.

given they’re doing even more badly out of the downturn than us

Your reason for saying so?

Part of the solution is wider share ownership – but that generally doesn’t play well with the left, or indeed the right.

I’m as left as can be I believe – and I agree with your point.

If the companies where there are shareholders were held by people rather than just pension funds, then things would be different.

This being the main problem then you could legislate that only a certain amount of a company could be held in this way. Companies are being invested in to glean short term profit rather than long term strategy – all good for the pension firms etc – dire for the long term economy.

“Companies are being invested in to glean short term profit rather than long term strategy – all good for the pension firms etc – dire for the long term economy.”

Erm…. your honestly saying that pension funds don’t invest on a long term strategic basis? What time scale would you consider long term then, 5,000 years?

Falco –

Just look up Invesco perpetual.

Apparently their aim is:

“to identify the investment opportunities most likely to provide strong long-term returns”

Nor, on an admitedly quick search is there any suggestion that they have been playing fast and loose with their investments. So what are you getting at?

@10 UK 4.3% independently projected decline for 2009, Germany 6.3% independently projected decline. Yes, there are possibly other metrics on which Germany comes out better, but “how painful 2009 will be” is definitely an important one which is worse over there.

Thanks everyone for interesting comments. The point for me is that clearly what we have is not a structure that works where there is such a degree of separation that decisions are made without real understanding of people using the service – other than as statistical spenders. Of course – the argument is always put that the only concern of those in the board room should be the bottom line and their shareholders interests. I would argue that the mess in banking and our economy is a result of that narrow focus thinking about strategy and policy in the boardroom – and were there to be diversity we might bring a different sort of thinking which would look through a broader focus which could be far more beneficial than the sterile one that doomed us.

john b

Aren’t we forgetting the massive economic shock of integrating East Germany? The after-effects of which are without modern precedent. Germany’s last 20-years make any comparison with the UK complicated.

I seem to remember West Germany doing pretty well. And Munich, Hamburg and Berlin make any British city you choose to mention look a bit shabby.

@18 sure, that explains lower growth from 1990-2007 than West Germany would’ve experienced alone, but doesn’t explain why the current downturn has had such a severe impact.

Joshua,

Unfortunately your idea doesn’t really work if a company needs hierarchy to operate.

Engineering is a prime example of a hierarchical workforce in its very nature. You have your Chartered Engineers (Masters level understanding) at the top, looking after a team of Incorporated Engineers (Batchelor level), who themselves have teams of qualified technicians (usually HNDs) and unqualified technicians/apprentices who do the grunt work. Each level has a purpose, and whilst the final product may be made by the hands of the bottom rung, it wouldn’t be possible without the top rung.

It all works very nicely, but it also accessible, anybody who wants to but the leg work in can get to the top of the tree if they have the drive; Masters degrees in engineering are not exactly handed out without a very high level of knowledge.

This structure is also present in the medical field, Doctors and Nurses are all part of the same team, with different skill sets, but to say you can just let the Nurses run the hospital because ‘they do all the real work’ misses the point entirely.

This is true of so many industries, and to think you can just sweep this away and everything would work brilliantly is a gross misunderstanding.

Representation of the lowest level at the highest level however is important, as issues ‘on the ground’ (or as we say in the rail industry, ‘at the coal face’) are very different to the regional/national/international issues faced at the very top. I think the key point is that both sides often forget that.

Berlin

A few years back, I saw an economic survey of Germany – as I recall it, the average income in Berlin was €18,000p.a., which means that the median Berliner earnt considerably less than, say, their equivalent in South Shields, where the median salary was £14,841 in 2006. (This is before the GBP decided to head for parity with the Euro, of course.)

20 Steve . Good point. Repesentation may be good in theory but may end up with the pushiest person being selected not the most able. My experience of unions is that too often the loudest and pushiest person works their up the ladder and not the most able. Consequently, the union official may prosper but not those they represent.

However, good directors should understand the feelings of those at the coalface and earn their respect. The problem is that too many directors are managers and are unable to earn the respect of those at the coalface.

If the “Right” people were put in the “Right” place and given the “Right” job, there would be no problems.


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