RI Comment: So farewell, Workers on Boards – an idea whose time came, and went

Resistance to workers on boards reflects an investment industry out of step with clients

It’s with a heavy heart that we must bid farewell to Workers on Boards, an idea that managed to be both right on the money and wide of the mark and whose stay proved remarkably short.

Having workers on boards was raised by Theresa May earlier this year as she was campaigning to become Prime Minister. The idea seemingly came out of nowhere, though as far as I can tell was first floated by William Trevor in his seminal work ‘Christianity and Social Order’. It was written in the early 1940s, at the height of the Second World War, and fed into the thinking that led to what became the Welfare State. Trevor, who went on to become Archbishop of Canterbury, was greatly influenced by his close contemporary John Maynard Keynes.

Just before she became the UK’s second female Prime Minister, May said this: “A change has got to come. So later this year we will publish our plans to have not just consumers represented on company boards, but workers as well. Because we are the party of workers. Of those who put in the effort. Those who contribute and give of their best.”

She has since backtracked on this, telling the Confederation of British Industry this month: “I can categorically tell you that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on boards.”

Although there was some initial support for the idea, it faced a barrage of criticism from investors, as we showed here.

The patronizing tone of some of the objections reflects, in my view, a too-cosy relationship between some institutional investors and the companies they own on behalf of pension beneficiaries (current and former workers), their ultimate clients. There’s a nagging suspicion that bringing workers onto boards would upset the neat engagement arrangement that has built up over the years.

Although workers can’t usually get on company boards, they can get on trustee boards. It is worth noting that the Association of Member Nominated Trustees (AMNT) now represents some £650bn – up from a ‘mere’ £500bn in the summer. The industry’s more established main body, the Pensions and Lifetime Savings Association (PLSA), represents some £1trn.

But the interest in the ‘grass roots’ AMNT reflects the growing realization that some trustees feel they have no one to turn to and that they must fight their own corner. The fact that some fund managers are rejecting the AMNT’s Red Lines voting initiative is further evidence of an industry out of touch with its clients.

It could be argued that what use is a layperson on a trustee board given the complexity of pension investment. But ‘shopfloor trustees’ in my experience are diligent, well informed and committed to the best outcomes. They take their responsibilities to heart: often it is about asking the ‘stupid question’.There aren’t enough people asking the stupid question of corporate boards: just look at Wells Fargo. Or VW. Or Toshiba.

Martin Gilbert of Aberdeen AM says that during his 25 years on the board at transport group FirstGroup (19 as chair) he found having an employee director “immensely useful”. “Without exception,” he wrote in the Evening Standard recently, “they took their role seriously and always put their duty to the company first”. FirstGroup is the only listed firm in the UK with a worker rep on its main board (currently train driver Mick Barker).

The other directors, Gilbert says, consulted the worker/directors “when we wanted to find what was happening at the coalface”. He also says they help internal morale and are “great ambassadors” – although he stops short of wanting it to be mandatory. Aberdeen’s own board, though it does include senior executives, doesn’t include any ‘shopfloor’ level staff.

Last month, Royal London – ironically one of those most critical of workers on boards – became the first pension provider to appoint a customer to its Independent Governance Committee. Policyholder Myles Edwards would “act in the interests of workplace pension customers to assess the ongoing value for money offered by workplace pensions”. So Royal London is open to the involvement of a non-specialist outsider (although Edwards does have a financial services marketing background).

It was just over a year ago that Daniel Godfrey, CEO of the UK’s Investment Association, was ousted for calling for the industry to put client interests first. Godfrey has since gone on with a new venture – the People’s Trust – that seems to be making good headway.

Into all this has come the Financial Conduct Authority saying there is “limited price competition” for actively managed funds and high charges for investors. Part of its wide-ranging remedy is for fund managers to have a “strengthened duty” to act in the best interests of investors.

Until the fund management industry learns to listen to its clients, not just on ESG but the ‘basics’, it will become increasingly irrelevant until Google finally does launch that mythical ETF and put everyone out of work.

In a difficult investment environment, with uncertain sponsor covenants and a precarious political situation the asset management industry should be a partner for asset owners. But why does it always feel like the tail is wagging the dog? This has to change.

We may never know the sunlit uplands of workers on boards. Instead of becoming directors, workers will have to be content with zero-hours contracts, the gig economy and an ever widening gap between their incomes and those of the bosses that oversee them. So it is up to the fund managers to step in and truly represent worker/beneficiary interests.