Workforce engagement: A look at emerging best practice

Background

Not a revolution or radical change – but rather “an evolution of existing workforce engagement practices”. This is how a research study commissioned by the FRC describes the approaches taken by a sample of FTSE 350 companies which follow the workforce engagement requirements in the 2018 UK Corporate Governance Code (“Code”).

The FRC commissioned research by Royal Holloway, University of London and the Involvement and Participation Association to look at how companies were incorporating the workforce voice within the boardroom in practice. In particular, the report considers the rationale for choosing particular approaches, how they have been implemented within different businesses and whether or not the approach has been effective for the company and its employees. The findings and conclusions were published in this report ‘Workforce Engagement and the UK Corporate Governance Code: A Review of Company Reporting and Practice’.

Most favoured approach?

Provision 5 of the Code provides that for workforce engagement, companies should consider adopting one or a combination of three approaches: a worker director; a formal workforce advisory panel or a designated non-executive director (“NED”). If the board has not chosen any of these methods, it should explain what alternative arrangements are in place and why it considers that they are effective.

Looking at a sample of the annual reports of 280 FTSE 350 firms (excluding investment trusts) employing at least 50 staff:

• 40% chose to appoint a designated NED
• 12% chose to establish an advisory panel (in some cases by developing or expanding on an existing staff forum or works council)
• 16% have appointed a NED in combination with setting up an advisory panel
• 32% adopted alternative workforce engagement arrangements
• Only one company appointed a worker director as a direct consequence of the revised Code (adding to the four FTSE 350 firms with worker directors that pre-date the Code).

What are the key findings?

The study highlights that the more successful outcomes of workforce engagement come from companies that have properly considered why they are facilitating board-level employee voice – coming from a genuine desire to engage with employee views and a recognition of the benefits such engagement can bring to the company; rather than just approaching it as a narrow compliance tick-boxing exercise. The FRC suggests that companies consider a meaningful, rather than a procedural approach which would include considering the following action points:

• ensuring broad employee representation – the employee voice in the boardroom should reflect the geography and demography of the workforce across company structures and hierarchies;
• effective integration of the chosen methods and practices to ensure deep coverage within the organisation – any worker directors, NEDs and advisory panels should be well aligned with each other. For example, an effective approach could involve an NED operating as a link between the board and an advisory panel where the NED is able to properly communicate worker sentiment in the boardroom after consultation with the panel – and vice versa;
• providing for regular and structured input from the workforce - especially during periods of rapid change, such as during the  Covid-19 pandemic where remote working posed further challenges to effective engagement. Additionally, employees should be properly informed about relevant issues and have the opportunity to provide feedback, together with being briefed on any results in a clear and consistent manner;
• consulting the workforce when appointing workforce representatives - whether sitting on a panel or as worker directors; and
• balancing topics of management interest and workforce interest - when setting the agenda for panel meetings or for consultation meetings between NEDs and the workforce.

Your workforce engagement strategy

The report sets the tone for, and provides some useful insight into, emerging best practice in this area – one that has intensified as we come out of the COVID-19 pandemic with – as the report notes – many arguing that any long-term recovery strategy must be premised upon working towards a more inclusive and sustainable economy, with greater resilience for the future. Our Corporate and Employment teams have the expertise to advise companies looking to adopt and implement a meaningful and bespoke workforce engagement strategy.

Some key areas where we can help you include:

• reviewing and stress-testing your existing workforce engagement practices – what works well, what could be strengthened and what could plug in the gaps?
• providing innovative and bespoke training for designated NEDs, worker directors and advisory panels – but also for the board on engaging with these key stakeholders and ensuring that engagement objectives are met;
• drafting terms of reference for advisory panels, job descriptions and engagement letters for NEDs and worker directors; and
• drafting and/or reviewing your annual report disclosures.

If you would like to discuss the report, your engagement strategy or have any other queries, please do contact your usual contact at Hogan Lovells or one of the listed contacts.

Authored by Maegen Morrison, Nicola Evans, Ed Bowyer, Stefan Martin, Pasan Wijesuriya, Danette Antao and Jo Broadbent.