Opinionista Johann Redelinghuys 17 February 2014

Should the workers have a voice on the board of directors?

If informed opinion states that share ownership by the workers improves company performance and ensures retention, shouldn’t the workers also be represented on the board? Wouldn’t it make good sense to bring worker representatives such as the trade unions into the corporate governance process?

Allister Sparks, in a thoughtful BD article last week, advocated shares for the workers and for their representation on the board. In the piece titled “Giving workers shares can improve labour relations for South Africa” he cites the example of Kumba, which has done ground-breaking work with its shares for upwards of 6,000 workers and the benefits in productivity and better relationships that followed. Anglo American, which is the major shareholder in Kumba, is mentioned as the instigator of the scheme.

He follows the account of shares for the workers with the question of why, if there have been such benefits from shareholding there should not also be a place for the workers to have a voice on the board? Such an addition to the board he writes “would help workers understand the fluctuations of business cycles. The board representatives would be a valuable channel of communication with the workforce, and even with the affected communities”.

While this may represent a major shift in corporate governance in South Africa, it is not a new idea. In most European Union states, employees have a right by law to appoint representatives to the board. In the USA trade unions have negotiated collective agreements most often linked to stock options to appoint board members.

Worker representation on the board seems now to be an article of faith in many of the world’s major economies, but it is not without its problems. In Germany it is well-understood, fully accepted and seems to work more or less effectively. One study in the USA illustrates the difference in perceptions and understanding of the board role. The research shows that mainstream board members focus on communicating ‘downwards’, and working for the benefit of shareholders. Worker representatives on the board focus on ‘upward’ communication, and fighting mainly for the benefits of the workers. Constructive disagreement on a board is considered to be healthy. Entrenched conflict of opinion on the other hand must have a debilitating effect on the governance.

Already there is increased shareholder activism and boards of directors have to play their cards carefully at annual general meetings to stay on top of their game. Having stronger employee participation in corporate decision-making will add substantially to the burden of the board and especially to that of the chairman.

It is said now, and especially in Norway, that having women on the board increases the share price of a company. They are perceived to add value. Research to find out if worker participation on the board may do the same is being conducted.

Could it work in South Africa? Since the beginning of democracy and the broader representation of race and gender on most listed company boards the nature of boards has been changing. Longer established board members, while welcoming the addition of new members as directors, sometimes complain that inexperienced people prevent the board from functioning effectively. Rigorous board debate, for example, a critical aspect of sound governance, is difficult when some members have relatively little board experience and limited overall business knowledge. Quite often the board ends up delegating a major part of the work to the board committees because it is difficult to get it done in the main board meetings.

Most old hands agree that acquiring business knowledge cannot be a quick-fix process and that it takes time. A board needs a measure of maturity and wisdom to be fully effective.  This will come in due course, but it requires effort, patience and understanding from everyone to get there. The behaviour we see in the mass action protests and the internecine warfare between unions of recent times is angry and often violent. Could some of it be diffused by having a voice on the board? Can so much anger be harnessed and moderated to make for constructive governance participation?

In Europe and the United States as well as in other parts of the world, where the general standard of education would seem to be of a reasonable standard, the people operating in the unions and who may be likely representatives on a board are probably better equipped to serve on a major board. In South Africa, where we may have strong and expanding political skills in the worker leadership, these are not matched by similarly strong or sensible business capability. We only have to look at the state-owned enterprises to see how leadership has floundered for want of better basic business acumen.

The obvious benefit, and one that alone may make it worthwhile, is that worker board representatives would bring a measure of understanding and business insight to their constituencies.  It could diffuse some of the adversarial “we and they” perceptions of the gulf between management and the workers. If the striking miners had a better understanding of the costs of mining and the precarious position of South Africa as an increasingly “expensive” place to do mining business, would there be less strike action? Would a trade union boss serving on a mining house board be more inclined to influence and reduce the strike action? Or is such a conflict of interest too unlikely to consider? Imagine Joseph Mathunjwa of Amcu or Vyyo Maqanda the Amcu shop steward on the board of Impala Platinum. Could it work? DM

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