Employee representatives on the board
A major difference in the composition of SOE boards across countries is the presence and number of employee representatives. The underlying rationale for having employee representatives on boards in SOEs is the same as for listed companies' boards (even though many more countries mandate participation in SOEs than for private enterprises): to increase accountability towards employees as stakeholders and reap the benefits of specific knowledge of the enterprise. Specifically, employee representation on the board can have the informational advantages of having a direct employee input to board discussions.
Employees as stakeholders can benefit by providing an opportunity to discuss and negotiate alternative strategies while keeping in mind the overall financial and service obligation objectives. Employee representatives on the board can facilitate awareness of employment and social aspects of the SOE's strategy. Board decisions can be brought down to the workplace quickly and smoothly. Last but not least, employee representation may be a primary source of information that is independent from senior management regarding the situation within the SOE. In some country experiences, lack of employee involvement in board decisions has resulted in tension when decisions were brought to the workplace (OECD, 2008).
Overall most countries report that employee representation on boards contributes to improved company performance Special care, however, needs to be exercised to ensure that employee representatives are sufficiently well qualified to play an equal role with other directors and to prevent their “capture” by stakeholder interests.
Good practice: Employee representatives can enrich board discussion; the appointment process should ensure that such persons are qualified, as well as representative of the SOE’s staff.
The SOE Guidelines recommend that where it is mandated it be done in a way so as to guarantee that it “contributes to the enhancement of the board skills, information and independence,” employee representation however “should not in itself be considered as a threat to board independence”. In terms of board nomination this implies that the employee representatives should be selected through transparent and democratic processes involving all company employees. Regardless of the appointment process, qualities such as competence and independence of employee representatives and their respect of confidentiality obligations should be sought.
As mentioned, in many cases presence of employee representatives on SOE boards derives from usual corporate practice in the countries concerned such as in Austria, the Czech Republic, Finland, Norway, Denmark and Germany. In slightly less frequent cases, employee representation on SOE boards is determined through legal statute requiring a definite number or percentage of employee representatives, such as in France (where it varies between two individuals and one third of the board), Greece, Israel,4 Spain, Sweden, and Switzerland. In other cases, privatisation laws stipulate the inclusion of employee representatives on the boards of companies from which the State plans to divest.5