FTSE 350 firms ‘could do better’ on employee engagement

Are you doing enough to give your employees a voice in your business? FTSE 350 companies ‘could do better’ according to a report published by the employee engagement body, the IPA. They say too many of firms are treating their corporate governance responsibilities on workforce representation as a ‘tick-box exercise’. 

Personnel Today reports on this, explaining how the IPA undertook a comprehensive review of the approaches taken by FTSE 350 companies to the UK corporate governance code’s requirement for firms to have some form of employee input at board level. A reminder – the code gives firms three options. They can appoint a director to the board from the workforce, or they can have in place a formal advisory panel, or they can appoint a designated non-executive director, a NED, for workforce engagement. They can also choose to have a combination of these options.

You may recall the idea of workforce representation gained prominence in UK boardrooms back in 2016 when incoming prime minister Theresa May vowed to put work representatives on the boards of major companies. While this did not become legislation, it did result in a revised UK corporate governance code in 2018. The code places greater emphasis on boards engaging with the workforce and taking onboard their views and concerns in key decisions.

The report shows the approach taken by most FTSE 350 companies has been to appoint a designated non-executive director - 40% of companies have chosen that route. Some 12% established an advisory panel and 16% went for a combination of NED and panel. Only 5 companies had a worker director on the board. When asked why firms had chosen not to appoint a worker director they have a number of reasons. Reservations included concerns that they wouldn’t be able to handle directorship responsibilities, that they would be distrusted by the workforce for being too close to management, and that they would not be able to handle confidential information. 

So, let’s consider what these findings mean and what HR can do to help with employee voice. Nicky Griffin has been reading the IPA’s report and joined me by video-link to discuss it. I started by asking her to summarise the background to this:

Nicky Griffin: “The FRC has basically asked Royal Holloway, one of the London colleges, and the Involvement and Participation Association to look at how over the last years the requirement for FTSE companies to take into account the workforce view, how that's actually bedded down in practice. So, it's, it's really helpful to have this research to see what what's worked and basically where there can be improvement.”

Joe Glavina: “It’s interesting that the most popular of the three mechanisms is appointing a non-executive director yet the report shows it hasn’t worked particularly well. So, typically you have the NED off doing one thing and HR doing another. Do you recognise that?”

Nicky Griffin: “Yes absolutely. In fact, one of the key findings is that in many cases, actually, there just hasn't been joined up approach between the way the NED has gone about getting employee feedback, and the sort of general HR strategy. So, you've seen the NED going off in one direction and the HR team going off in a different direction and, actually, what is really key here is to have a joined-up approach. The NED doesn't have that experience and that is one of the things that the study shows that often the NEDs that have been chosen for this role don't have any background in employee engagement and, actually, all the expertise in your business is going to lie with your HR team so that really needs to be an integrated approach.”

Joe Glavina: “We are now 2 years down the line so you might expect firms to have got to grips with it by now. What’s the way forward? What can firms do to improve?”

Nicky Griffin: “So, I think there are seven or eight key findings that come out of this report and, as you say, we are now 2 years down the line, it's still in the infancy, and whilst there have clearly been some good practices, the report clearly shows that a lot of companies have got some way to go. Use those findings, look at the way in which you have engaged with your workforce. What they are looking at and suggesting, and I really like this phrase, is to create an ‘effective feedback loop’ so that what you've actually got is you're getting your feedback from your employees, but also, it's a loop. So, once you have got that feedback, feedback to your employees, how has that impact on the decisions made at the board level? It is that sort of hearts and minds, you want the emotional and mental time of your employees. They will quickly see if you're doing this as a cynical sort of tick box exercise and they won't engage, but actually engaged employees are better employees, for their own mental health but also as your employees as well.”

Joe Glavina: “Last question Nicky. The report is clear that by far the most effective mechanism is to appoint an executive director yet that has not been popular at all. Why is that do you think?”

Nicky Griffin: “Yes absolutely. As you have pointed out, it's not been a popular choice. There are 5 out of the FTSE 350 companies that currently have an employee director but, actually, only one of that is new because that predate the Code, so actually, it's not been picked up at all. But in fact, in reality, that was that was the start of how these changes came about. For any of you who can remember when Theresa May was in power, one of her key issues was ‘I want to see a worker on every board’ and, obviously, when we saw the Code come in, in reality that was very watered down, that was only one of the three options that we've already talked about. But in fact, I think all companies should keep this under review at all times and actually look at the experiences the other companies in the FTSE 350 and I think they've all been really positive and the reality is that the research shows, although clearly it is only a limited number at the moment, but the research really does show that they've bought a positive contribution and those reservations that companies had, and expressed, have not come to reality. So, definitely all companies should keep that under review.”

That report by the IPA is called ‘Workforce Engagement and the UK Corporate Governance Code: A Review of Company Reporting and Practice’. If you would like to read it for yourself, you can – we have put a link to it in the transcript of this programme.

LINKS
- Link to IPA report: ‘Workforce Engagement and the UK Corporate Governance Code: A Review of Company Reporting and Practice’.