The Past Speaks

It hasn’t received a lot of attention in the financial press, so I thought I would share a
recent news item related to the theme of corporate governance. I see from the CBI blog that the organization that represents the largest firms in the UK has now responded to Theresa May’s (surprising radical) plans to force all large companies in the UK to put workers on their boards.

As you can see, the CBI is countering May’s proposal with the idea that all UK companies be required to _explain_ what steps they have taken to give workers a say in corporate governance. In other words, companies would not have to give workers’ representatives seats on corporate boards, provided they publish their reasons for doing so. It will be interesting to see how the government reacts to this proposal, which is really an attempt to water down May’s idea. As I have pointed out in a previous blog post, Theresa May appears to be channelling the spirit of Joseph Chamberlain, the Edwardian collectivist Conservative whose ideas transcended the divisions between left and right.

In a press release dated 4 November, CBI president Paul Drechsler alluded to the thorny question of whether the non-British employees of UK companies deserve to be given representation on UK corporate boards.  I can certainly understand why this issue occured to Mr Drechsler, as he is himself a citizen of the Republic of Ireland, born in Dublin. Drechsler writes:

“Most companies have an excellent relationship with their employees and recognise that they are at the very core of their business success. Nevertheless, they are committed to continuously improving employee engagement, whether their staff are based just in the UK or across the globe.” [Emphasis Added].

Dreschler’s observations about non-British employees raises some extremely profound economic, legal, and moral issues that are worth unpacking. First there is the possibility of double representation. Let’s say for the sake of argument that large UK companies are required to give board seats to the representatives of both their UK workers and their overseas workers, say one seat for the UK workforce and one for the overseas workforce. What happens if some of the overseas workers are employed by a subsidiary of a UK company that is located in a country where workers are represented by a works council or by seats on a corporate board. Wouldn’t these workers be represented twice?  Is that fair?

Second, what if there is a conflict of interests between the UK workers and the overseas workers over offshoring?  Imagine an intra-company dispute over the location of a new call centre. Suppose that a company has 50 employees in its UK call centre and 200 in its India call centre and it is trying to decide whether to expand the UK or the Indian facility. Now do the 50 UK workers get equivalent representation on the board to the 200 workers in India? Or is there representation by population, as in the US Congress and the UK House of Commons? What happens then?

As well, I’m wondering how UK company managers would be expected to go about balancing the interests of foreign workers with those who are fellow citizens. If company managers are expected to take worker as well as shareholders into account, in keeping with the spirit of the “enlightened shareholder” provision of the Companies Act 2006,  does this mean that they should value the livelihoods of fellow British people more than those of foreigners?  Would company managers be allowed to take the objectively greater need of people in poor countries into account in making decisions about the location of call-centre and other jobs?

If we were to accept that workers in India have a greater need for a call centre job than workers in the UK, which has a social-safety net, managers  would, as servants of a socially-enlightened company, be obliged to move the call centre jobs to India. (Of course, I’m assuming here that the “enlightened shareholder” envisioned by the Companies Act would subscribe to the moral doctrine of  cosmopolitan prioritarianism rather than Angus Deaton’s view that one has greater responsibilities to one’s fellow citizens than to the holders of foreign passports (see here as well).

Also, would non-citizens working in UK workplaces be entitled to representation on company boards under Theresa May’s proposal? This detail is also unclear, as are many other features of her proposal.

Theresa May recently declared that ‘If you are a citizen of the world, you are a citizen of nowhere.” Speaking in India today, she has confirmed that this jibe was directed at multinational firms rather than at Mark Carney, the Canadian-born Governor of the Bank of England.