Workforce Inclusion and Voice: Investor Guidance on Workforce Directors

It is important that companies, including senior executives, effectively engage with and listen to the voice of their workers. This is because a growing body of evidence shows that a fulfilled, engaged and motivated workforce is fundamental to long-term sustainable financial performance. Effective worker voice mechanisms are a necessary part of ensuring a fulfilled workforce, as they enable senior decision-makers to understand the views of people who are often closer to the day-to-day company activities.

Investors are therefore keen to understand how the worker perspective is intentionally included in strategic decision-making at their portfolio companies. Companies can use several initiatives to ensure that the workers' voice is heard and acted upon, including surveys to provide high-level feedback and opinions, and focus groups to provide more in-depth discussion and insights. These initiatives can help companies to gather valuable feedback from their workforce and create a culture of open communication and collaboration.

Some companies have decided to go a step further and have appointed employees to a Board director position. This can help enhance the cognitive diversity of the board – leading to better decision-making – can provide a valuable additional information set to board discussions and can also encourage the workforce to feel more empowered and engaged. We call such directors Workforce Directors, but they are also referred to as employee directors or worker directors.

Rise of the Workforce Director 

What is a workforce director? A workforce director, also known as a worker or employee director, is a director of a company board that is drawn from the company's wider workforce or employee base. In our definition, we do not consider the workforce director to be a representative of the workforce. Rather, they have the same set of fiduciary duties and stakeholders to consider as any other director,  but they also have current experience of being part of the firm's broader workforce.

Here are four key reasons why we think more companies could at least consider appointing one or more workforce directors to their boards:

1. Improved decision-making: The executive board can draw on Workforce Directors’ new perspectives, ideas, and experiences to aid decision-making, leading to the kind of well-rounded and effective decisions provided by cognitively diverse boards.
2. Improved employee morale: The appointment of a Workforce Director can demonstrate to employees that their opinions and perspectives are valued and can contribute to a more positive workplace culture and increased employee morale.
3. Increased understanding of the workforce: Providing insight into the daily experiences and challenges employees face can help the executive board make informed decisions that align with the needs and concerns of the workforce.
4. Improved communication: Where part of their role involves acting as a liaison between the executive board and the rest of the workforce, Workforce Directors can improve communication and help to build trust and understanding between both groups.

Railpen has, together with major institutional investors Border to Coast, Brunel Pension Partnership, Church of England Pension Board, Merseyside Pension Fund, Rathbone Greenbank Investments, Royal London Asset Management (RLAM) and the Universities Superannuation Scheme (USS), launched new guidance to support companies who are considering workforce directors to understand what a meaningful approach might look like, and encourage more companies to at least consider whether one or more workforce directors might be a workforce engagement mechanism which particularly benefits their business model, strategy and decision-making.

You can download our guidance below, with thoughts split across “Role, Recruitment, Retention and Reporting”:

	ROLE Consider alongside other engagement mechanisms Be clear that the role has the same fiduciary duties as other directors Consider broader impact on board composition Appoint on same contractual basis as other directors Support on management of conflicts of interest				RECRUITMENT Explicitly incorporate input from the workforce Consider involving board recruitment firms Consider selection vs. election (we prefer a hybrid approach) Undertake outreach to workforce during process Act early on succession planning
	RETENTION Ensure a structured induction and training process Work closely with the board Chair to create an inclusive environment Be mindful of workforce directors' priorities when setting meetings Ensure that board meeting discussions do not become 'segregated'				REPORTING Discuss approach on a 'comply or explain' basis Disclose in line with best practice reporting on workforce issues Include the workforce director(s) in the plan for reporting on progress back to the workforce

Investors can support our campaign by signing our Investor Statement.

Companies are encouraged to get in touch to learn more about our guidance or to feed through their thoughts and perspectives.

For any further questions about our guidance, please get in touch with SO@railpen.com.