An inclusive board: What UK employers can learn from Norway

In 1971 Norway legislated for the rights of employees to demand representation on company boards. This was the result of a debate dating back to before the First World War, about the right of employees to participate in the governance of companies. Among other things, concerns were raised with regards to lack of knowledge on the part of the employee representatives, but now the arrangement is uncontroversial.

While some industries are exempt they do have separate arrangements to a similar effect. Although some changes have been made over the years the main framework remains intact.  If a company (private, public or public listed) has more than 30 employees, then these employees have the right to have an employee representative on the company board. If a company has more than 50 workers, then the number is one third of board members. These representatives will be employees of the company and be elected by the employees. Companies with fewer than 30 employees chose whether or not to adopt this system. In companies with fewer than 200 employees, employees must request representation. This can happen either through a formal employee request signed by at least 50% of employees. Alternatively, unions or work councils can initiate such a demand, although this requires a majority vote. In companies with more than 30 employees a request fulfilling these requirements means that the company has to comply.

If a company has more than 200 employees, then the company should have a corporate assembly (bedriftsforsamling) in addition to a board, with at least 12 members. One third of these members will be employees elected by employees, with the remainder being elected by shareholders. The corporate assembly may, addition to having a general supervisory role, have a say on sizable investments and restructurings. Importantly this corporate assembly will also decide who sits the board of directors, with the exception of one third of which will still be chosen from and by employees. It is possible for companies with more than 200 employees to opt out of having a corporate assembly if they have reached an agreement with trade unions representing at least two thirds of all employees. Should such an agreement be reached, then the employees will as a consequence be entitled to an additional board member on top of the one third they already have. Among companies with more than 200 employees, only a small number have corporate assemblies.

Employee representatives on boards will be found more frequently among large companies than small ones.  In 2007, 74% of companies that had 200 or more employees had employee representatives on boards, whereas in companies with 50 to 199 employees, only 59% of companies had employee representatives on boards. The figure was 37% for companies with 30 to 40 employees. The legislation also applies to groups of companies, with similar patterns of employee representation on these boards.

Although employee representatives will be elected by all their fellow employees and themselves be employees, trade unions have influence over the process. In many cases, leading union figures within the companies will also serve as employee representatives on the company boards. There are also provisions in place for the election of and right to have substitute members and observers. Employee representatives on boards have the same powers and rights as all the other directors on the board.

Research finds that employee representation is generally popular with all affected parties. Employee representatives contribute information, suggestions with regards to improvements and knowledge about the attitudes of employees. They also contribute to increasing support among employees for the decisions made by the board. Both CEOs and employee representative agree that the contributions are positive. The process is described as collaborative in the way that they operate even when employee representatives are in opposition to the rest of the board. The influence wielded by employee representatives will depend on their relationship with CEO of the company. They will also have more influence in companies where the owners and the CEOs are more attuned to the interests of employees. State ownership will also increase the power of employee representatives. In general it is concluded that some employee representatives will have little power, most will have some power and some have a greater degree of power.

Importantly, research also suggests that employee representatives influence the decisions of boards in that they are successful in affecting the distribution of profits, thus reducing company profitability. Companies with employee representatives on boards will therefore have higher salary levels than companies without employee representatives on boards.

The Norwegian model, through its collaborative approach gives valuable insight to what employee representation can achieve. Whilst this alone cannot explain lower levels of income inequality and generally more positive industrial relations found in Norway compared to the UK, it can be seen as a contributing factor. In a time of reduced trade union rights, a similar approach could be a positive step forward in the UK and a constructive way of contributing to reducing information asymmetries and improving relations within companies to the long term benefit of employees and shareholders alike.

Carmen Maria Sekulic is a Young Fabian member

@carmsek

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