A new approach on Corporate Governance and Employment laws

July 15, 2016

Radical proposals and changes to some of our employment laws may arise in light of Theresa May’s premiership: corporate governance, executive pay, collective rights and inclusion responsibilities look set to change. None of these proposals, outlined in the Prime Minister’s two most recent speeches (in Birmingham on 11th July when she launched her short lived leadership campaign, and outside Downing Street on Wednesday 13th July) have anything to do with getting more freedom from EU laws. This is despite the new Secretary of State for Exiting the EU also saying there will be no radical change to employment law once we leave. This is a purely domestic and UK agenda.

Mostly it is a recognition that the Referendum was a vote for “serious change” and Mrs May’s vision of “a country that works ….for every one of us “and not just a privileged few. The focus will be on accountability of executives and their remuneration, responsible business and giving employees a greater say. Changes to the employee relations landscape are afoot.

More obligations for Inclusive workplaces

The PM’s focus goes beyond the gender pay gap (on which new Regulations for large employers are imminent http://www.hrlaw.co.uk/site/infobank/infobankarticle/gender-pay-reporting-new-obligations-and-issues-for-employers . It is wide ranging and includes those with mental health conditions, the educationally disadvantaged and the younger generation.  Social mobility will come under greater scrutiny to include a review of Board appointments where executives are “In practice..drawn from the same, narrow social and professional circles”. Sir Philip Hampton and Dame Helen Alexander’s Women on Boards Committee may find it has a wider remit.

On age, there has already been a call from the Women & Equalities’ Select Committee for employers to be required to report on the pay gap by reference to age groups as well as for part- timers. Once the new reporting requirements are up and running, it may well be an easy model to adapt and add to.

Holding employers to account

Mrs May has mentioned both workers’ rights (greater job security ) and shareholder rights here, getting tough on irresponsible behaviour in big business and addressing exploitation. This is likely to lead to legal changes:

  • Executive pay and remuneration – already subject to an advisory vote by shareholders, Mrs May has said these should be binding and more transparent. Thus extending reporting obligations and information in directors’ remuneration reports seems likely; requiring publication of pay multiple data (the ratio between CEO’s pay and average workers’ pay in the company) has also been earmarked. These changes would not just impact on listed companies;
  • Atypical workers’ rights and employee protection – look set to stay and will perhaps be strengthened. Whilst the UK could row back from EU-rooted legal protection for agency workers, fixed term and part time rights, this seems unlikely. There may also be a further clamp down on zero hours’ contracts.
  • Workers’ Rights – EU law has also led to greater protection of workers such as temps and some consultants, with extensive rights under whistleblowing, discrimination and working time and minimum pay. These it seems are unlikely to be repealed.

Putting employees in control

Perhaps the most significant change suggested so far is that of giving workers a stake and greater say in their employer and the business, which would require something radical: “we’re going to have not just consumers represented on company boards, but employees as well.  The PM has drawn particular attention to the need for this in merger and takeover situations.

This will require new law going beyond the current collective bargaining and domestic works councils' provisions and the current obligations on consultation with union and employee representatives. It may lead to stronger rights and penalties.

Will we move to some of the continental models?

  • The most notable but perhaps least likely model is the French one ,where some corporate entities are required to include a works council representative at Advisory and Board meetings and AGMs. In some cases (and since July 2014) when contemplating a sale,, the business must provide information to enable staff to consider a buyout.
  • Or the Netherlands, Luxembourg or Germany, where strong employee and union presence is established and on which significant decisions by business require consultation or affirmative decisions by  these bodies.

These changes will not be limited to unionised environments and could indeed lead to radical changes and significant challenge for business leaders, HR and legal teams alike. 


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