All A-Board! The Movement for Commonwealth Companies Is on the Tracks!
The push to seat workers on corporate boards is becoming a movement. As my co-author Annie Malhotra and I wrote in The Commonwealth Company (a pending chapter in a forthcoming “Many Futures of Work” book) we need to balance the power of shareholders with the rights of stakeholders. Or, align the rights of shareholders and stakeholders, in the language of capital stewardship. The fight for workers to participate in the governance of companies, and to make the boss more accountable--is gaining steam. In this Expresso, we re-post the Commonwealth piece and plug a cool new shareholder campaign by CtW to add a worker to the Google board.
But first, here’s a few mile-posts on the tracks:
Senators Elizabeth Warren and Tammy Baldwin have both introduced legislation to require companies to seat workers on corporate boards, similar to German and Euro co-determination structures. Members of the US House have taken up the cause. According to Wikipedia, a majority of OECD and European Union countries had some form of law guaranteeing the right of workers to vote for board representation.
A similar push is happening in the UK, which recently passed a new Corporate Governance Code. As our friend Tom Powdrill tells it, all UK-listed companies have to comply with it or explain why they don't. In the latest version, which came into force at the start of this year, companies are expected to adopt a method of engaging with the workforce. Options include appointing worker directors, designating an existing non-executive director to engage with the workforce ,and setting up advisory panels. The Trade Union Congress (TUC) has argued for worker directors, and a few have been appointed.
Unions have been winning seats—representing workers--on boards through collective bargaining. After UAW President Douglas Fraser’s short stint on the Board of Chrysler, announced three days after the government bail out of the 1980s, the USW bargained for seats on the boards of USX and Bethlehem in the mid-1990s. Today, the Autoworkers, Machinists and Pilots have seats on Daimler, United Continental Holdings, Delta Airlines and Navistar International. This is great news—and we should push for more seats so that management can’t isolate individual union board members.
The Change to Win Federation (CtW), a coalition of unions, has proposed to put an employee on Google’s board. This comes after an amazing global walkout by 200,000 Google employees that resulted in the company ending its forced arbitration rule. The victory now means that workers can sue their bosses; forced arbitration prevented employees who claimed sexual harassment or racial discrimination from fighting back. We’ve included a WaPo piece on the board push below.
A good review of the immense logic of worker stakeholder seats can be found by Lenore Palladino, Senior Economist and Policy Counsel at the Roosevelt Institute in “Why Workers on Corporate Boards Just Makes Sense.” Roosevelt has been carrying the banner high on this issue. Justin Fox, at Bloomberg, penned a concise history of German co-determination and works councils in “Why German Corporate Boards Include Workers.”
The idea is also politically popular, according to Palladino: In a recent poll by Data for Progress, in which Senator Tammy Baldwin (D-WI) made the case for stakeholder governance, 52 percent of likely 2018 voters supported “establishing worker representation on companies’ boards of directors.” Another 25 percent were unsure. Overall, employee governance had net positive support in 100 percent of states and congressional districts.
As we wrote in Commonwealth, despite the progress that has been made in
corporate governance, CSR, and ethical business management, we agree with author Marjorie Kelly that corporations have often become “feudal estates.” Corporate managers and shareholders, as economist Bill Lazonick pointed out, have, unfortunately, increased executive bonuses, stock buybacks, and other measures that reduce workers’ pay and benefits, workforce training and R&D, and thus bleeding corporate innovation. The recent corporate tax cut furthered that process.
Except where there are strong unions, conscientious owners, true employee-owned firms, workers are generally treated like serfs, with little or no rights. In order to protect worker shareholder value and worker stakeholder rights, we offered the following recommendations:
(1) Adopt shareholder resolutions to push firms to add workers to boards, be more accountable, and be more responsible to all stakeholders.
Capital stewards should encourage corporations to add workers (more than one) to their boards of directors, as part of an effort to increase labor-management communication, consultation and codetermination - the three key elements of German works councils. They should utilize responsible corporate governance strategies that prioritize the “S” in ESG, including human capital management (HCM) practices and the Workforce Disclosure Initiative (WDI). Investors should, finally, demand that Sustainability Ratings Firms adopt and utilize the Committee on Workers Capital (CWC) “Guidelines for the Evaluation of Workers' Human Rights and Labour Standards.”
Further, shareholders and public investors should prioritize investment in firms with worker-directors. Labor shareholders should also explore new work systems, which include a broad array of existing U.S. industrial democracy practices and Euro-centered dual union/works council systems. Finally, shareholders should work with unions to engage more broadly with corporate boards and managers to demand fair wages, benefits, and good working conditions, increase workforce training, and facilitate more broadly shared profits.
(2) Bargain for Worker Stakeholder Board Representation.
U.S. unions have experimented with Board representation, having collectively bargained this provision with several of the largest industrial corporations in the U.S. While this process has been inconsistent, it has allowed for more information sharing with corporate management and discussion with other board members. But legislation requiring board representation or co-determination would strengthen relying on case-by-case collective bargaining agreements. Workers should have a statutory right to representation on corporate boards.
(3) Amend trade deals to stakeholder company adoption.
In the coming years, there will be a number of efforts to reform trade deals. While supporting the push from labor and civil society for more democratic and transparent terms for all country partners, we acknowledge the important precedent on this topic set by the Trans-Atlantic Trade and Investment Partnership proposal, to require that overseas firms operating in the U.S. adopt dual union/works council structures, especially given the productivity results that are apparent in firms utilizing the German model.
(4) Revisit State Constituency Statutes.
Since the corporate takeover and merger wave of the 1980s, a majority of states has adopted so-called “constituency statutes,” giving boards of directors broad latitude to take account of stakeholder interests in corporate decision-making. “The statutes, which allow companies to prioritize the interests of ‘stakeholders’ -- often employees -- rather than just shareholders, tend to allow businesses more time to bring innovations to market, rather than forcing those companies to prioritize quarterly financial results at the exclusion of new products and new activities.”
Since there is a legitimate fear among labor-oriented corporate governance advocates that some directors and managers will use constituency statutes as a shield to self-deal and avoid responsible corporate governance measures, we might want to revisit the constituency statute framework. Progressive stakeholder statutes should guarantee that boards are accountable, monitored, and allow responsible governance initiatives to prevail; that companies integrate ESG; and that they embrace information, consultation and codetermination rights for workers, their core stakeholders.
Working people and communities need all the tools they can find to prevent destructive hostile takeovers, illogical and often unprofitable mergers and acquisitions, offshoring, and irrational break-ups (think Timken Steel). An idea with deep roots in our society, with origins in the writings of C. Wright Mills, is this: why does American democracy end when you step outside the ballot box? Seizing on Mill’s writings, the New Left of the 1960s lit the fires under the notion of economic democracy, pushing it into schools, neighborhoods, and even factories. They proclaimed that students, residents and workers should have more of a say in these social spaces. Noam Chomsky’s concept of economic democracy was simply this: participants in economic institutions decide on the policy of the institution.
It’s time to get A-Board. It’s time for the “commonwealth company.”