Worker Representation Proposals Highlight Board, Employee Relationship

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Such proposals have been defeated in the recent past, but boards that would rather head them off than fight them should consider taking the following actions.

Citigroup is the latest company to be confronted with a shareholder proposal pushing for worker representation on its corporate board. Over the last year, Starbucks, Walmart, Disney and others have defeated similar proposals which claim that worker representation on boards would allow for better communication between the board and employees. Proponents of these proposals also argue that worker representation could provide the board with valuable insight into employee concerns that could impact the company’s bottom line. While the prospect of placing a worker representative on the board is unlikely, re-examining how boards can receive and make use of feedback from workers could produce significant benefits.

The push for worker representation on boards is one of the many new stakeholder issues that boards will be confronted with in the coming decade. The fact that these proposals are being floated at companies across industries suggests that the relationship between companies and their employees is shifting and at least some shareholders are concerned that boards aren’t paying enough attention. The Covid-19 pandemic shined a light on how worker safety at some companies may have been taken for granted. Sales staffers are often the first to notice an uptick in demand for certain products and services. Employees often quit their jobs without explaining why, taking valuable information out the door with them. These are all good reasons to improve the communication between a company and its employee. If handled properly, collecting information from employees in these areas and others can produce significant value for any corporation.

To head off potential shareholder proposals seeking worker representation:

• Boards should get management to install systems and procedures to collect critical operations data and employee concerns. Any information that workers can provide will be best used by management, so management should take the lead on improving communication with workers. Management must convince workers to share critical information in the spirit of teamwork, while also providing incentives for those who comply. Whether through periodic surveys, evaluations, anonymous hotlines, suggestion boxes or other means, management should give workers opportunities to contribute to making processes more efficient—and then act on the information that is collected.

• Boards should push for a member of management to brief the board on information collected from workers and how management will use it. The relationship between management and employees is critical to the future growth of all companies. Management must find ways to cultivate positive interaction with employees and create procedures to address worker concerns so that they don’t wind up in the board’s lap. However, the board must insist that management have good-faith engagement with employees so that the information collected is most useful. Having one high-level executive from the management team responsible for dealing with stakeholder concerns who periodically addresses the board will go a long way toward keeping companies aware of employee issues that can impact the company long term.

• Boards should designate a committee to develop responses to potential employee-related concerns that shareholders may have. Whether it is retailers dealing with employee efforts to unionize or food processing companies dealing with worker safety concerns, boards must defend their decisions on such matters in communications to shareholders. Since some worker concerns could end up in litigation, companies must demonstrate that they have engaged in actions that show they have acted within the law concerning a multitude of issues, and that they haven’t violated workers’ rights or regulatory organization rules. Boards will need to keep monitoring worker issues over the next few years as they deal with concerns about social issues like climate change or the response to calls for diversity, equity and inclusion. Having board members dedicated to studying the impact of and developing responses to these worker-related concerns should serve most boards well.

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