Workforce voice
This guidance introduces the concept of the workforce voice as an important element of good corporate governance. In addition to adding context to the topic, it includes questions to build on for compliance and risk-based internal audit engagements.
Defining the workforce voice and the workforce
The UK Corporate Governance Code (2018) states that the board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern (Principle E).
Reporting periods since January 2019 require boards to explain, in the annual report, the company’s approach to investing in and rewarding its workforce; and for engagement with the workforce, one or a combination of the following methods should be used:
- A director appointed from the workforce
- A formal workforce advisory panel, or
- A designated non-executive director
“If the board has not chosen one or more of the above methods, it should explain in its annual report what alternative arrangements are in place and why it considers that they are effective.”
The board is responsible for overseeing meaningful engagement with the workforce. This requires adequate processes and controls to enable transparent decision-making.
Workforce voice
The Chartered Institute of Personnel and Development (CIPD) describes the employee voice “as the ability of employees to express their views, opinions, concerns and suggestions, and for these to influence decisions at work”. It is the means by which people communicate their views to their employer and influence matters that affect them at work. This arrangement forms part of the employment relationship, as the workforce is considered a legitimate stakeholder and is therefore valued and respected. The board should aim to have a deeper understanding of workforce views, needs, interests and concerns.
Workforce definition
The FRC’s guidance on strategic reporting suggests that the workforce should be considered in the widest context possible. The FRC require a rationale for who and why a group is included within the description of the workforce. Workforce will involve those with formal contracts of employment (permanent, fixed-term and zero-hours) and other members of the workforce who are affected by the decisions of the board, so for example companies should consider including individuals engaged under contracts of service, agency workers and remote workers. Companies should be able to explain who they have included and why: entities are encouraged to broaden their disclosures to consider workforce issues more generally, and not just limit information to those persons who have a contract of employment.
The role of internal audit
Internal audit has a number of roles depending on the organisations approach to corporate governance. Workforce voice may be audited as part of a wider review of corporate governance or as a discrete engagement.
Advisory - a chief audit executive (CAE) may find it necessary to support the improvement of governance arrangements to begin with such as conversations with the board to raise awareness of good practice, presenting options and facilitating decision-making.
Assurance - corporate governance is principle based giving boards the option to comply or explain. Internal audit, giving due consideration to reputational risk depending on the organisations position re the Code may choose a compliance or risk-based approach for engagements as appropriate.
CAEs should also consider internal audit’s role in providing assurance that the non-financial reporting aspects of the annual report are accurate prior to publication.
This is covered in more detail later in the guidance.
Introducing the concept
In 2016, Sports Direct was exposed for its poor working and pay conditions affecting its workforce. Some of these conditions included health and safety issues (which was found to be higher than the national average statistics for the sector), abuse of zero-hour contract arrangements, unreasonable docking of pay and unpaid labour time when security checks were carried out at the end of shifts. With this retail brand in national news, Parliament investigated these claims and launched a select committee inquiry, the results of which found “particularly bad examples of a business that exploits its workers in order to maximise profits”, working conditions were described as “Victorian workhouse”.
In response to this case, The Institute of Directors was quoted as saying “it is very important than boards understand the interests of the company’s staff”. Additionally, the Trade Union Shareholder Owners Group said it is “not only bad for workers, but poses a long-term risk to investors, both in terms of claims against the company and reputational damage”. The retailer did report a drop in share value as a result of the Parliamentary inquiry.
This example is one amongst many where corporate governance failings have given rise to risks to stakeholders, in particular the workforce. For many organisations the workforce is a large stakeholder group, yet they are not effectively heard within the organisation, there are few processes in place that enable the workforce voice to be heard.
The extent to which the workforce voice might be heard within the organisation will be driven by the organisation’s culture. A transparent and ethical culture will find it easier to implement practices, processes and systems to enable the workforce voice to be heard by the board. An organisational culture that is less transparent, less open to challenge and criticism will likely have the opposite experience, where members of the workforce are less likely to speak up about their concerns for fear of reprisal. It is important that the internal auditor understands how the organisation’s culture impacts on how well the workforce voice is heard.
The Financial Reporting Council (FRC), as part of their annual review of organisations Annual Reports, includes a review how effective engagement with the workforce has been. The FRC has made clear that it will be looking for evidence on how the methods used by boards have achieved the objectives of the Code and include details or real examples of what a company has done to consider and if appropriate take forward matters raised by the workforce.
In addition, the Wates Corporate Governance Principles for Large Private Companies goes further and says, ‘directors should act with integrity and lead by example, setting the tone at the top, building positive relationships with stakeholders particularly the workforce’.
Across Europe there is employee representation at board level, which internal auditors may find useful as a benchmark for national practices.
The 28 EU countries plus Norway can be divided into three groups. There is a group of ten countries (including the UK) where there is no board level representation and a further group of six (including Ireland), where board level representation is limited to state-owned or privatised companies. However, the biggest group of 13 states provides for employees to be represented on the boards of private companies, once they have reached a certain size.
Compliance approach to assurance
The following questions provide a start-point for developing a test plan when providing assurance that the organisation is complying with the requirement as stipulated in the UK Code:
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Compliance questions |
Further considerations |
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What method of workforce engagement has the board adopted? |
What was the decision-making process for deciding on the approach? For example, did the board receive a paper to explain the corporate governance requirement, determine pros and cons for each option and what is relevant for the organisation, the risks associated with each option and how these might be mitigated? If no formal engagement is happening, is this due to an informed decision or being unaware of the requirement? |
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Who is accountable for workforce engagement? |
Is accountability for making the decision clear? Is it within the role profile for the individual? |
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Who is responsible for implementing the option chosen? |
Is responsibility for managing the engagement option clear, including monitoring and reporting on effectiveness? Has the board responded positively to the Code requirement on engagement with the workforce? If no, what is the boards risk appetite regarding corporate governance? Are alternative arrangements in place? |
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Is a workforce engagement declaration included in the annual report? |
Does the declaration accurately reflect the board’s approach and provide a view on effectiveness? The integrity of reporting should be checked against actual practice. |
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Engagement option |
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Director appointed from the workforce |
Is the selection process for appointing a representative inclusive? How does one person represent diverse viewpoints? What training / support systems are provided to the representative? How will the impact on the individual’s performance be managed with this additional responsibility? How will the risk of undue pressure to conform be managed if there are dominant voices on the board? How is confidentiality maintained? What is an appropriate tenure for the role and how will rotation be promoted? What assurance mechanisms are in place to ensure accuracy and completeness of feedback to employees? |
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Formal workforce advisory panel |
Is the selection process for appointing a workforce advisory panel inclusive? Is the panel sufficiently diverse? How does the panel represent diverse viewpoints? What training/support systems are provided to the panel? How will the impact on the individual performance of panel members be managed with this additional responsibility? How is confidentiality maintained? What is an appropriate tenure for panel membership, including the chair and how is rotation promoted? What are the reporting arrangements to the board and are they open and transparent? What assurance mechanisms are in place to ensure accuracy and completeness of feedback to employees? |
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Designated non-executive director |
Does this option present ‘trust’ issues with the workforce and how is this overcome/mitigated? What experience does the NED have in this field? Are the time commitments for the NED sufficient? How does the NED represent the diverse views of the workforce? What processes and systems are in place for the NED to engage with, listen to, and share workforce viewpoints? Is the board clear that with this option, accountability sits with the board and not the NED? Is the board clear that with this option, the NED represents functional responsibility for engaging, listening and sharing workforce viewpoints? |
Considerations for a risk-based approach to assurance
To take a more risk-based approach, internal audit should, alongside the compliance related questions above, ascertain what processes, systems and technology exist within the company that enable the employer relationship to work in an effective manner.
The following questions may help inform the approach:
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Risk based question |
CAE consideration |
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How does the board communicate company purpose, key policies, key messages and decisions to the workforce? |
This could be through multiple channels, from induction of new hires to traditional methods such as through line management messaging, using email and the intranet, to more modern practices such as social network/ media technology and video blogs. Also attendance at workforce functions such as conferences, department days, informal lunches, etc Communication should include the impact of workforce related key policies and decision making, eg around remuneration, setting of directors pay, bonus schemes, workforce pay, employment conditions |
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What processes exist that enable the Board to listen to the workforce and hear workforce concerns? |
This could be through a “director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director (see compliance-based approach). Alternative methods may include regular surveys of stakeholder groups or impact assessments related to the environment and community, (see also below questions) The internal auditor should ascertain the ways in which listening to the workforce in the organisation takes place |
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What workforce engagement methods are in place in addition to the corporate governance proposals?
Do these methods enable employees to use their voice effectively in the workplace, for example, to raise their complaints, concerns or share ideas?
What policies are in place to govern how employees use various channels?
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Enabling employees to use their voices could be through a combination of formal and informal channels like social media, digital platforms such as speak up technology, whistleblowing process, grievance, suggestion schemes, staff engagement surveys, focus groups, pulse surveys *Examples of workforce engagement activities
*Extract from FRC Guidance on Board Effectiveness Where the organisation has: staff unions/association, staff network groups/forums, trade unions, consultation, town halls, employee AGMs, employees invited to attend board meetings, scrutiny panels, the CAE should consider how employees are supported through training and guidance that develops them and enables them to effectively discharge their responsibilities around the collective voice There may be policies in place to govern informal and formal channels. Are these policies up to date, humane and communicated? |
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How does the board receive feedback and what is the nature of the feedback? |
This should include feedback that is both ideas and concerns, which can be reported through various channels (see above) The CAE should note whether the board gives equal weight to individual and/or collective voices, whether some voices heard are louder than others, and whether the feedback is positive as well as critical The CAE should also consider how dispersed the workforce is and whether it is possible for all parts of the workforce to provide feedback |
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What does the board do with the feedback? |
How leaders and managers respond and/or engage with feedback will be an important consideration. Do management provide feedback on how complaints and concerns have been dealt with? The CAE should consider how feedback is considered in decision making, and whether it’s impact on decision-making is communicated to the workforce, particularly those most affected Is there routine communication of good practice that has emerged and contributes to the success of the organisation? How does the board communicate its’ decisions, particularly when feedback is not acted on? Do Directors provide the reasons behind decisions, how the decisions impact the workforce and how the impact will be mitigated? What happens when the board does not agree with the feedback? |
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How does the board consider the effectiveness of the method chosen for engagement with the workforce?
To what extent are workforce policies and practices aligned with the organisation’s purpose and values, and support the desired culture? |
The method(s) chosen by the board should be subject to analysis as to whether the method of engagement was the best one for the organisation, to ensure that they are made aware of key issues raised by the workforce. The method should be considered in its entirety, it should include how relevant workforce related policies have been communicated, whether or not feedback has been received, considered and acted on, and the impact of any decisions made The effectiveness of the workforce voice inevitably links with corporate culture, impact of the adopted business model, board and senior management diversity and the company’s inclusion and workforce policies (e.g. recruitment and retention, talent management, promotion and progression, performance management, training and development, reskilling and flexible working) The adopted business model may reflect the gig economy, temporary jobs via an online platform, zero-hour contract arrangements as well as traditional full time and part time employment arrangements Does the nature of the employment model adopted preclude whether the board is able to listen effectively to the concerns and ideas held by some parts of the workforce, for example those who operate within a gig economy or are on zero-hour contracts? As part of considering effectiveness, the CAE should also consider whether the workforce is able to speak up about their concerns freely without fear of repercussions. In particular are people comfortable with challenging and reporting issues of concern, and is there evidence that they are doing this? The CAE may also wish to consider if engagement surveys ask employees whether leaders and management live-up to the organisation’s values, and whether values are displayed in the way that the business is run and decisions are made, as well as leadership behaviour. |
Conclusion
Understanding the workforce and how to audit the workforce voice is iterative and intuitive. It is a requirement for all organisations and how it happens largely depends on the organisation, the nature of its activities, its business model, organisation size, how dispersed the workforce is, and its culture orientation, including that of the board. Internal auditors are also part of the workforce and will have their own experiences, this should not be ignored although care must be taken to remain objective and not allow personal bias to influence opinion.
A CAE may opt to undertake an initial compliance audit, reviewing the organisation’s annual report for inclusion and comparing to competitors which is often a useful exercise. It may be appropriate to include risk-based questions or expand the audit in subsequent years, having developed a baseline understanding of what practices are actually in place and/or are developing to support the board’s engagement with the organisation’s workforce.
Further reading
FRC: UK Corporate Governance Code (2018)
FRC: The WATES Corporate Governance Principles for large private companies (2018)
FRC: Workforce related corporate reporting
ICSA: The stakeholder voice in board decision-making
CIPD: Employee voice factsheet
IIA: How to audit culture
IIA: The role of internal audit in non-financial and integrated reporting
