FTSE 100 rejects idea of employee director to boost worker engagement

By Gavin Hinks

Employees walking through the city

Not so long ago the idea of workers on boards was a hot topic; former prime minister Theresa May even made it part of her forlorn efforts to make society more equitable. It seems big companies don’t like the idea.

In the first research to look at the use of workforce engagement provisions in the UK Corporate Governance Code, it is apparent not a single FTSE 100 company has opted for an employee director as part of their compliance with the guidelines.

The research also found little evidence of how engagement with employees fed through into company decision-making, as well as a mixed bag of reporting of how engagement processes work, some of it “poor”. A substantial number of companies chose to ignore the options provided by the code and stuck with their own engagement structures.

Researchers Katarzyna Chalaczkiewicz-Ladna, Irene-Marie Esser and Iain MacNeil, legal academics at the University of Glasgow, conclude there is a “lack of a consistent approach in implementing” the workforce engagement provision. They add there is “not much evidence of how workforce interests are integrated into decision-making or strategy”.

Employee views and corporate decision-making

In 2018 Provision Five of a freshly amended code asked companies to spend more time gathering the views of employees and offered three options: a dedicated non-executive director, a workforce advisory panel or the appointment of a worker as board member.

A survey of the UK’s largest 100 companies shows 61 complied and chose options in the code, while 34 went their own way with alternative arrangements.

Of the compliant, 25 opted for non-executive directors, 21 went with advisory panels and 15 put in place a combination of both. No company appointed a board member from the workforce.

As for disclosure of engagement structure details, the researchers find that companies opting for an advisory panel revealed the most information. Those who gave engagement responsibilities to a non-executive provided the “poorest” reporting.

Most companies failed to provide good reporting on their “justification” of the engagement option they chose with many “simply listing the relevant/opted tools without further reflection”.

But perhaps most relevant test of the intention behind the introduction of worker engagement is whether it affects corporate decision-making. From the disclosures so far it is hard to tell.

“There is only limited evidence showing that the workforce is considered strategically or that employees are actually involved in board decision-making,” the researchers write. They add that evidence of board decisions made as a result of communicating with workers is “scarce”.

That may leave governance observers wondering whether enagement had no impact on decision making, whether records were kept or whether companies simply couldn’t tell if the views of employees had any effect.

Some observers are unimpressed by the choices made by boards. Janet Williamson, a senior policy officer with the TUC, says the FTSE 100 companies have given up a chance to bring an employee experience in to their meetings. The TUC, she adds, wants to see all companies with more than 250 staff required to appoint worker representatives to their boards.

“Where it’s in place,” says Williamson, “the contribution of worker directors is hugely valued by other board members.
“The fact that no FTSE 100 company has chosen the worker director route is a huge missed opportunity to benefit from a workforce perspective in company decision-making.

“Designated non-executive directors are no substitute for worker directors.”

‘Relatively new requirement’

Others note companies shying away from worker directors but argue it is neither a surprise nor the issue. Amin Aboushagor, a corporate governance expert at the Institute of Directors, says: “Ultimately, the method chosen matters less than ensuring that the workforce perspective is communicated to the board.”

Elsewhere the view is that this is still early days for UK companies dealing with a new requirement. Peter Swabey, policy and research director at The Chartered Governance Institute, says the body’s own research found that non-executives were the most popular choice in the FTSE 350 and notes that the FRC has been critical of some reporting.

“That said, this is a relatively new requirement and our experience is that companies learn from each other, hence our focus on good practice in reporting.”

The current discussion of worker involvement in boardroom decisions comes as part of a wider effort to persuade companies to take stakeholder concerns more seriously.  In 2016 Theresa May floated the idea of workers on boards as part of her campaign to become Tory party leader, while in its 2019 election manifesto the Labour Party pledged to place employees in boardrooms as well as introduce two-tier boards. Worker engagement was introduced in 2018 with reporting to begin for the 2019 financial year.

As the researchers point out, worker engagement represents a “key stage” in the development of the UK code and marks a move from using “disclosure” as the main regulatory tool to the deployment of “process” as an instrument for conducting a change in governance. If regulators see it working out that might offer encouragement to use “process” more often.

But these are early days, as noted. The researchers only look at the first year of workforce engagement. Companies were expected to take the most conservative option. That said, there is enormous pressure for companies to switch from a shareholder to stakeholder model of governance. That may yet have further effect in the future.

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Tate & Lyle appoints Patrícia Corsi to its Board as Non-Executive Director

By Debbie Wright

April 28, 2021 by Olivier Dellacherie – Talent4Boards – UK, London –  Tate & Lyle PLC (LON: TATE) today announced the appointment of Patrícia Corsi to its Board as a non-executive director on 1 May 2021. “I am delighted that Patrícia has agreed to join the Board. She brings experience of our key growth markets in Latin America as well as marketing, digital and brand expertise all of which will be of significant benefit to the Board.” said Board Chair, Dr Gerry Murphy. She will also join the Remuneration and Nominations Committees About Patrícia Corsi Patrícia Corsi is currently the Global Chief Marketing & Digital Officer of […]

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Quantum Care – 3 Non-Executive Directors

By Debbie Wright

Quantum Care – 3 Non-Executive Directors

3 Non-Executive Directors – Quantum Care Recruiter: Quantum Care Location: Nationwide Salary: Unpaid role Posted: 28 Apr 2021 Closes: 28 May 2021 Job Function: Non-Executive Director Industry: Not-For-Profit Some roles give you influence. Others give you variety. A few even give you the chance to improve people’s lives. This one will give you all three – and much more besides. As a Non-Executive Director at Quantum Care, you will help build on the performance of our 23 residential homes for older people across Hertfordshire, Essex and Bedfordshire. It’s all about improving our decisions, shaping our strategic direction and delivering results […]

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London Stock Exchange Group announces Tsega Gebreyes and Ashok Vaswani to its Board as Independent Directors

By Debbie Wright

London Stock Exchange Group announces Tsega Gebreyes and Ashok Vaswani to its Board as Independent Directors

April 28, 2021 by Olivier Dellacherie – Talent4Boards – UK, London –  London Stock Exchange Group plc (LON: LSEG) today announced the appointments of Tsega Gebreyes and Ashok Vaswani to its Board as Independent Non-Executive Directors, effective 1 June 2021. They will both also join the Nomination Committee, and Tsega will join the Risk and Remuneration Committees while Ashok will join the Audit and Risk Committees. “I am delighted to welcome Tsega and Ashok to the Board. Both bring deep financial services and commercial experience in senior roles world-wide, which will be of great benefit to the Group as we continue to develop our global business and capitalise […]

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Civil Nuclear Police Authority – Independent Member

By Debbie Wright

Civil Nuclear Police Authority – Independent Member

 Independent Member – Civil Nuclear Police Authority Body: The Department for Business, Energy and Industrial Strategy Appointing Department: Department of Business, Energy and Industrial Strategy Sectors: Defence, Energy, Prison & Policing Location: Abingdon, Oxford, but virtual for the foreseeable future Skills required: Change Management, IT / Digital, Legal / Judicial, Major Projects, Regulation, Transformation Number of Vacancies: 1 Remuneration: £17,500 Time Requirements: 35 days per annum Closed for Applications: 06/06/2021 Vacancy Description The Civil Nuclear Police Authority (CNPA) is a BEIS Non-Departmental Public Body responsible for oversight of the Civil Nuclear Constabulary (CNC) and the employment of police officers and staff. […]

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Why businesses should optimise supply chains for resilience, not just cost

By Kate Williamson

Illustration of a computer processing chip

New Year 2021 brought unwelcome news for the world’s automotive industry: a global shortage of semiconductor chips, which these days are essential components in modern vehicles. The cause? Manufacturing capacity shortages: with vehicle demand rising, chipmakers were instead reserving supply for manufacturers of smartphones, computers and gaming devices.

And then, in mid-March, came more bad news. With supplies of chips further constrained because of semiconductor factory shutdowns in Texas due to power blackouts caused by cold weather, a fire then destroyed part of a Japanese semiconductor factory owned by Renesas Electronics, one of the world’s largest manufacturers of chips for the automotive industry.

A disaster—or was it? The news was bad, conceded industry insiders. But much had changed since March 2011, when the Tohoku earthquake and ensuing tsunami that hit north-eastern Japan had knocked out seven of Renesas’ 22 plants, with the worst-affected factory remaining off-line for several months. Back then, car factories around the world had ground to a halt as semiconductor chip supplies ran out.

Paint had been another problem area: pigment manufacturer Merck KGaA supplied car makers such as Honda, Ford and Chrysler from its seven plants in Japan—including one earthquake-damaged plant that was the world’s sole source of the paint pigment Xirallic.

Supply chains and business continuity

In both cases, lessons had been learned. Car makers held more inventory, and required their suppliers to do the same. Rather than sole-source from single companies—or worse, single plants—dual-sourcing and even triple-sourcing had become stated policy for critical components. Disaster plans had been put in place, with carefully thought-through mitigation measures ready to be rolled out.

Toyota, for instance, had previously had no visibility into its supply chain beyond tier-2 suppliers. These days, its resilience data extends much further into its supply chain, logging each supplier’s name, production site, and production site location: in the event of a large-scale disaster, it can quickly establish if any part of its supply chain is affected. Other vehicle manufacturers do something similar.

“The focus of supply chain management is no longer purely about cost optimisation, but embraces business-critical issues such as resilience, sourcing risk, business continuity and reputational risk”

—Matt Dalton

But worryingly, many other industries are less advanced than the automotive industry when it comes to supply chain resilience, say experts. Consequently, their supply chains are far more vulnerable to disruption, putting at risk their operations and profitability. Brexit, the Covid-19 pandemic, trade wars and political tensions, natural disasters such as the 2010 eruption of Iceland’s Eyjafjallajökull volcano and the subsequent closure of much of Europe’s air space: again and again, supply chain resilience is put to the test. And often, found wanting.

“In today’s world, supply chain disruption is a given, as events repeatedly demonstrate—just look at the unexpected blocking of the Suez Canal by the 220,000-tonne Ever Given in late March,” says Matt Dalton, head of consumer at professional services firm Mazars. “The focus of supply chain management is no longer purely about cost optimisation, but embraces business-critical issues such as resilience, sourcing risk, business continuity and reputational risk.”

And ultimately, he says, responsibility lies with the board to ensure that the right balance is struck between cost optimisation and these other risks and vulnerabilities. Often, he points out, there is a direct connection between poor governance in terms of resilience and sourcing risk, and consequent damage through impaired business continuity and reputational harm.

Disruption and reputational damage

For proof, look no further than businesses such as computer giant Apple and sportswear company Nike, which both suffered supply chain disruption and reputational damage due to exploitative labour relations among suppliers. Or retailers such as Walmart, Benetton, Matalan and Primark, which were sharply criticised by consumer activists after garment factories housed in the nine‑storey Rana Plaza building in Dhaka, Bangladesh, collapsed in April 2013, killing over 1,100 workers.

Nor are these isolated examples. Today’s consumers are increasingly concerned about environmental and labour exploitation issues, and keen to ensure that their purchases aren’t causing harm on the other side of the world. In parts of India and Bangladesh, for instance, the dyeing of textile fabrics—often intended for Western consumers—has caused extensive water pollution through the unregulated dumping of waste water, ruining farmland and contaminating water suppliers. Sustainable sourcing of fish, timber products and edible oils are another “hot button” with consumers.

The bottom line: the wrong sourcing decisions can inflict not only supply chain disruption if things go wrong, but can also inflict reputational damage if consumers’ ethical expectations are not met.

What to do? Start by asking some awkward questions, advises Mazars’ Dalton: often, relatively simple and straightforward questions will turn out to have far-reaching—and disturbing—implications.

“Where are suppliers located—not the headquarters location, but the manufacturing location? What would happen if the business couldn’t source from there anymore? In the case of critical items, where are suppliers’ suppliers located? Is the business over-reliant on one or more suppliers? Is the business over-reliant on one or more particular countries or geographic regions of the world? And are there any emerging geopolitical concerns in respect of trade frictions, tariffs, trade wars, regulatory issues or other impediments to the free movement of goods? These are all useful questions to ask, especially if the answers are unclear or uncertain.”

Resilience and other board concerns

What might be less clear is how to address any resulting concerns, adds Helen Parker, director of Mazars’ business consulting team. And once again, she stresses, it’s often the case that measures taken to improve resilience turn out to usefully tick boxes in terms of other agendas, as well—sustainability, ESG aspirations, consumer concerns in respect of ethical sourcing, and the avoidance of reputational risk in terms of human rights and abusive labour practices.

“Reshoring items sourced from the Far East, for instance, can sometimes be more of a practical proposition than is often thought to be the case,” she points out. “Once, Chinese labour costs were low, and container freight rates cheap. But in recent years, wage rates in China have risen rapidly, and freight rates are proving volatile: January 2021, it cost $14,000 to ship a container to Europe, versus the $2,500 it cost a few years ago. Reshoring improves resilience, raises supply chain transparency levels, delivers on consumer expectations in terms of buying locally, and is far more environmentally sustainable.”

“Reshoring improves resilience, raises supply chain transparency levels, delivers on consumer expectations in terms of buying locally, and is far more environmentally sustainable”

—Helen Parker

If reshoring isn’t appropriate, near-shoring could be an option. So instead of sourcing from the Far East, businesses buy from suppliers located in Eastern Europe, North Africa, or in countries such as Turkey. It’s not quite as environmentally sustainable as reshoring, nor quite as resilient, but often turns out to be a reasonable compromise.

Which near-shoring location is best? There are no hard-and-fast rules, stresses Parker: model the various options, she advises, plugging in the various costs, freight rates, and applicable tariffs. Don’t forget, either, that near-shoring generally results in an inventory reduction, compared with sourcing from the Far East.

Brexit—and also the Covid-19 pandemic—have also prompted businesses to review their sourcing decisions. Prior to Brexit taking place, much of the talk was of hold-ups to trucks at Dover. Now, with actual experience of being outside the EU, businesses are realising that exports too can be subject to lengthy delays, sometimes of weeks. The costs of the various certificates that exports may now require has also made smaller export shipments uneconomic. Again, in response, supply chains are changing, with factories and warehouses positioned inside the EU being considered as an option.

Value-driven, not just cost-driven

And speaking of inventory reduction, Parker notes, don’t overlook the impact of technology in terms of increased supply chain visibility—which also enhances resilience.

“Often, businesses hold excess inventory as a buffer against uncertainty: with lengthy supply chains, and sourcing from thousands of miles away, it can be difficult to know exactly where shipments are, and when they might arrive. But technology these days can provide those answers, raising resilience, and also meaning that businesses don’t need to hold so much inventory, which equates to lower costs.”

“It’s about being value-driven, rather than just cost-driven”

—Matt Dalton

Roll it all together, concludes Mazars’ Dalton, and enhanced supply chain resilience can deliver many benefits other than simply more resilience—another reason why boards should take an interest in it.

“Previously, businesses largely optimised their supply chains for cost: now, they’re having to optimise for resilience and sustainability as well. This is more complex, but delivers a broader set of benefits. In other words, it’s about being value-driven, rather than just cost-driven. And in terms of the companies with which we have worked to achieve this, almost all of them say that they wish they’d done it sooner.”

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