Silencing employee voice

You might have thought that all the rhetoric about ‘stakeholder capitalism’ from the investment industry would mean investors would embrace having more, well, stakeholders involved in corporate governance. The reality is rather different. Analysis we’ve undertaken shows that the bulk of the asset management industry is opposing giving employees a voice at board level.
We looked at votes cast by 25 asset managers on 16 shareholder resolutions filed at US companies in 2019 and 2020 asking them to consider employee representation at board level. Overall 84% of asset manager votes were against. But more troubling was that 16 of the 25 opposed every single resolution on the topic, with a further 6 opposing the large majority.
That’s a pretty clear message, and stands in stark contrast to the huge steps forward being made in relation to environmental issues. It doesn’t suggest that a lot of mainstream investors are really ready for any structural reforms to that would enable a shift from a purist shareholder primacy model of governance to one of stakeholder capitalism.
There’s also an element of boiler-plating. On exploring asset managers’ reasons for opposing resolutions relating to giving employees a voice we discovered that some investors had used identical text to explain their opposition, claiming that there was already adequate oversight of workforce issues. It is likely that this is text from a proxy advisory firm (not PIRC, obviously) suggesting that some asset managers have simply adopted a default policy. This inevitably feeds into asset owners’ voting outcomes too when they delegate authority for voting to their managers.
And, while our analysis is of votes at US companies, it should inform our understanding of company responses to the UK Corporate Governance Code which suggests options for companies to ensure workforce issues are considered at board level. Very few PLCs have appointed employee directors, and it seems unlikely that shareholders will have a problem with that. In fact when we looked at the voting results at Capita, which has two employee directors, we noticed that some investors had opposed their re-election. At last month’s AGM the biggest vote against (just under 5%) any director was against one of the employee directors. This is despite employee representation at board level being one of the three options suggested in the Code.
To put our cards on the table, we are entirely comfortable with employee representation at board level. Indeed when the Code came into force we wrote to the FTSE350 to say our preferred method of the workforce engagement options was having employees directors. And we’ve recommended support for all resolutions at US companies on this topic. But currently more asset managers seem likely to block progress on employee voice in corporate governance than to encourage it.

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