Executive Briefing: Activist Investor Calls for Worker Directors
5 May 2009
Worker representatives should sit on company boards as part of a wide-ranging revamp of the way big companies are run in the wake of the economic meltdown and near-collapse of the world banking system, a shareholder activist group says.
Alan MacDougall, head of Pirc, which advises pension funds responsible for assets worth £1.5 trillion, says employees should be elected to company boards "and act as a counterweight to entrenched interests" in much the same way as workers are represented at the top of leading companies in Germany.
German firms have a dual board structure with a supervisory arm consisting of a range of community and trade union interests, while the executive board is dominated by senior management.
Pirc's suggestions are contained in recommendations that it is sending to City minister Lord Myners that call for an overhaul of corporate governance and the way capital markets are regulated.
One suggestion is that voluntary codes of governance be scrapped in favour of compulsory regulations that would be enforced by the Financial Services Authority. Pirc also wants shareholders to be allowed to vote on audit reports at annual meetings. Auditors would be forced to resign if their reports were rejected.
The group also says that in future there must be greater scrutiny of the independence and competence of non-executives and greater accountability to shareholders through annual elections of all directors at big listed companies.
Pirc says that "multiple directorships, particularly for those on the boards of major financial institutions, must be vigorously challenged".
It plans to look at the role of the directors of UK banks that have run into difficulties, which, says Pirc, “will influence our analysis of their directorships at other companies."
To read a copy of Pirc’s Mainifesto for corporate governance and capital market reform, click here.