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EMPLOYEE DIRECTORS
– What is their say?
“Employee directors – What is their say?” is published by:
CO-industriVester Søgade 12,2DK-1790 Copenhagen VTel. +45 33638000Fax +45 33638099www.co-industri.dkE-mail:[email protected]
BAT-kartellet(The Cartel of Unions in the Building, Construction and Wood Sectors)Kampmannsgade 4DK-1790 Copenhagen VTel. +45 33142140Fax +45 33972263www.bat-dk.orgE-mail: [email protected]
GIMK-kartellet(The Cartel of Unions in the Graphic Industry and the Media Sector)Weidekampsgade 8DK-0900 Copenhagen CTel. +45 33304343Fax +45 33304088www.gimk.dkE-mail: [email protected]
Handelskartellet(The Cartel of Unions in the Trade Sectors)C.F. Richsvej 103DK-2000 FrederiksbergTel. +45 38182010Fax +45 38182019www.handelskartellet.orgE-mail: [email protected]
Ingeniørforeningen i Danmark (IDA)(The Danish Society of Engineers)Kalvebod Brygge 31-33DK-1780 Copenhagen VTel. +45 33184848Fax +45 33184888www.ida.dkE-mail: [email protected]
Text: Ingrid Pedersen Photography: Harry NielsenIllustration: Lise TrampedachLayout and printing: Hafnia Grafisk/531206 September 2004Print run: 1.000ex.ISBN: 87 - 91537 - 23 - 1CO publication no.: 2004/108
Employee directors– What is their say?
This summary has been prepared by Ingrid Pedersen, journalist, on the basis ofthe report “Employee Directors” by Caspar Rose and Hans Kurt Kvist,
Copenhagen Business School, 2004.
Great influenceEmployee directors have the same rights andduties as directors elected by the general mee-ting. Many of them feel that they really make adifference even though they can only make up athird of the board of directors.
Female employee directors rate their influencelower than the male employee directors do.
Educational background does not have anyimpact on their influence, but targeted coursesand a solid network internally in the enterpriseensure influence.
These are some of the results of the survey“Employee directors” carried out by CasparRose and Hans Kurt Kvist, Copenhagen Busi-ness School.
The survey was made in collaboration withCO-industri, The Danish Society of Engineers,The Cartel of Unions in the Building, Construc-tion and Wood Sectors, The Cartel of Unions inthe Graphic Industry and the Media Sector andThe Cartel of Unions in the Trade Sectors.
More than 30 years have passed since theemployees won the right to elect directors to theboards of directors of public limited companieswith more than 35 employees. This right is usedby the employees in about 20 per cent of theenterprises in which they are entitled to this.
The act was adopted unanimously by the Da-nish Parliament after long discussions aboutprofit sharing and union-controlled central funds,
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and Denmark’s entry into the European Commu-nity was expected to lead to the introduction ofsome sort of employee participation in the deci-sion-making processes of the enterprises.
The right-wing parties accepted the proposalfor employee representation on the boards ofpublic limited companies because it was basedon employment in the enterprise and not onmembership of a union.
The aim was to ensure the employees a rightof participation that gave them the opportunity topresent viewpoints and proposals to the boardof directors. However, the actual implications ofthis right of participation were not specified indetail.
The rules entitle the employees to occupy athird of the seats. This means that the directorselected by the general meeting will always be amajority. Still, employee participation:
• intervenes in the shareholders’ rights of ownership
• may impede the decision-making process• may mean that the employees will fight
necessary production cuts
In favour of employee participation is, how-ever, the fact that the enterprises’ activities con-cern many people – particularly the employees. Itis therefore natural that the employees partici-pate in the decisions of the management.
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Good corporate governanceRecent years’ corporate scandals in the USA,Italy, etc. have revealed that management doesnot always safeguard the shareholders’ interestsloyally. Consequently, focus has been put on“corporate governance”.
The aim of corporate governance is to streng-then the investors’ confidence in the manage-ment. This is decisive in a system like the Danishwhen new capital is to be raised.
The discussion about the composition of theboard of directors is essential in this connection.The Danish Public Companies Act lays down thedivision of work between the management andthe board of directors. The management is re-
report by the “Nørby committee”. It contains anumber of specific recommendations to compa-nies listed by the stock exchange, including con-cerning the composition of the board of direc-tors. Surprisingly, employee directors are notmentioned by one word in the Nørby report, de-spite the fact that they are found in almost alllisted companies.
In its report on good corporate governancethe Copenhagen Stock Exchange subsequentlystated that “employee directors who are by vir-tue of their employment with the enterprise notindependent may raise doubts about the inde-pendence of the board of directors if this arran-gement is not explained to foreign investors”.
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sponsible for the day-to-day operations, and theboard of directors is responsible for supervisingthe management and makes decisions in themost important and significant matters in the en-terprise.
A few years ago, Denmark introduced its owncode of good corporate governance based on a
The role of the employee directors is not cove-red by the report, but it is hinted that the StockExchange would gladly do without them, prima-rily out of regard to foreign (especially British andAmerican) investors.
There is reason to fear that employee partici-pation as it is known today will be challenged in
Figure 1. Employee directors’ position in the enterprise%
Listed
Unlisted
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the future as the American approach to corpo-rate governance, which does not leave room foremployee participation on the board of directors,is almost uncritically copied by other countries.
On the other hand, the employee directorsthemselves – 80 per cent in the listed companiesand 70 per cent in the unlisted companies – findthat they must seriously consider the question.
The employee directorsWhat the employee directors “look like” has ne-ver been examined before. According to this sur-vey, they usually hold a supervisory/middle-ma-nagement position. This applies to about onethird. Skilled workers are strongly represented
Education of no significanceAs regards education, most employee directorshave completed vocational training or medium-cycle higher education. Only a few (11 per cent inunlisted and 14 per cent in listed companies)have completed long-cycle higher education. Acorresponding number has only completed ele-mentary school.
Between 35 and 50 years oldThe employee directors are usually between 35and 50 years old. In the unlisted companies, theshare of persons aged 50 or more is larger.
It should be noted that the younger employeedirectors (under the age of 35) themselves state
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with 20 per cent in the listed companies, but only6 per cent in the unlisted companies. There is asignificant over-representation of semi-skilledworkers – in relation to specialists – in both typesof companies. Evidently, the employee directorscome from many different trades, which is posi-tive from a democratic viewpoint.
that they have significantly less influence than theolder do. An obvious explanation would be thattheir competence or repute in the enterprise islower than that of their older colleagues.
Figure 2. Employee directors’ educational background%
Listed
Unlisted
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Do they have a say?To Jyllands-Posten, one of Denmark’s mainnewspapers, Anders Knutsen, former director ofB&O, has said that “There is considerable reluc-tance to deal with the employees on the board ofdirectors. Focus should also be put on their pro-file. Some of the employees have not said any-thing at the meetings for 15 years”.
It is also a fact that the directors elected by thegeneral meeting make up two thirds of the boardof directors, which means that they will alwaysbe a majority.
Still, the vast majority of the employee direc-tors feel that they have a relatively great influence.
29 per cent of the employee directors in thelisted companies state that they have significantinfluence, and 40 per cent state that they havesome influence. Only 8 per cent do not think thatthey have any influence. In the unlisted compa-nies, the influence is less. Here, 16 per cent indi-cate that they have a great influence, 27 per centstate that they have some influence, and 20 percent do not think that they have any influence atall.
Most say that their knowledge is sometimes ofimportance to the decisions made by the boardof directors, especially when the employee direc-tor makes proposals to the board of directors.
The employee directors think that they can in-fluence the strategy of the enterprise. As regardsthe employee directors’ own perception of theirinfluence on the strategy, the figures almost coin-cide with their perception of their influence ingeneral.
Also here, the employee directors in the unli-sted companies feel that they have less influencethan their colleagues in the listed companies do.Almost every fifth feels that he or she has noinfluence. This may be due to the fact that theowner is often also the chairman of the board inunlisted companies.
The employee directors only exceptionally riseat the general meeting or make proposals to theboard of directors. They feel that they can exer-cise their influence by being active sparring part-ners who consider the management’s proposalsprofessionally.
They only exceptionally just sit and listen pas-
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Yes, significant Yes, some Yes, in some No influenceinfluence influence matters
Figure 5. Employee directors’ influence on decisions
Listed
Unlisted
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sively. Influence can be exercised by rising andspeaking in favour of specific viewpoints.
They feel that they act as a guarantee ensuringthat account is taken of the employees’ rightsand interests.
How to gain influenceThe employees’ influence very much dependson their abilities to network with others inside theenterprise. It is of paramount importance that theemployee director discusses his or her boardwork with the shop steward, the safety repre-
the influence, but participation in targeted coursesfor board members is decisive, as such coursesmake them better prepared for the board work.
Position, enterprise size or membership of aunion does not affect the degree of influence.However, it is very important also to be a mem-ber of the cooperation committee, as a memberof the cooperation committee (who is not also ashop steward) is not seen as a person who solelylooks after the employees’ interests, and this will improve his or her clout towards the board ingeneral.
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High Some In some matters None
sentative and the members of the cooperationcommittee, whereas discussion with other em-ployees is of no importance.
Besides, the influence increases with the num-ber of years for which the employee has been onthe board of directors.
It is also essential that the employee director isable to understand the material handed out atthe board meetings.
The educational background of the individualemployee director does not have any impact on
To gain influence, it is also important that theemployees coordinate their efforts, which theyusually do. Besides, whether the employeesown shares in the enterprise is also crucial.
It is surprising and striking that female em-ployee directors feel that they have less influencethan their male colleagues do.
An obvious explanation would be that mentend to overrate their own influence, whereaswomen tend to be more realistic in their as-sessments. But the result is surprising.
Figure 7. Employee directors’ influence on decisions broken down by gender
Women
Men
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Which interests do they safeguard?Should management exclusively safeguard theinterests of the owners – or should it also safegu-ard the interests of other stakeholders, i.e. em-ployees, customers, suppliers and society ingeneral? This is a fundamental issue in the dis-cussion about corporate governance.
The employees’ right to be represented on theboard of directors is an expression of the consi-derable orientation towards the other stakehol-ders in the Danish system in contrast to, for in-stance, the American system where only thedividend to the shareholders counts.
The employee directors must necessarily con-sider the employees’ working conditions and theexistence of the enterprise and not just focus ona narrow profit goal.
The enterprise and the surrounding society in-teract, and the employee directors do not seethemselves as spokesmen of the employeesonly, but of society in general.
Figure 8
In this context, it does not matter how longthey have been on the board.
In general, women put more emphasis onthe consideration for the share market thanthe men do, and they attach more impor-tance to the consideration for the profit to theowners than the men do.
Even though other surveys indicate that wo-men are more left-wing than men, the femaleemployee directors do not prioritise the environ-ment or other “soft” values higher than their malecolleagues do.
The international challengeIn Germany, the employees – appointed by theunions – hold half of the seats on the large enter-prises’ boards of directors. In Sweden, theunions have greater influence on the appoint-ment of the employee directors, but otherwisethe Scandinavian countries have almost thesame system as Denmark. In countries with well-
Positive difference from board in general
• Employees’ reaction• Social considerations• Positive interaction with the departments
of the enterprise• Union’s reaction• Environmental considerations• Safety considerations• Local community
Negative difference from board in general
• Shareholders’ dividend• Reaction of the share market• Quick financial yield• Owners’ reaction• Media’s reaction• Market threats• Reaction of the legislators
No significant difference from board in general
• Long-term financial yield• Positive interaction with other companies
According to themselves, the employee direc-tors differ from the other directors in that theyconsider social interests to a higher degree thanthe directors elected by the general meeting do.They want to safeguard other interests than justmaximum profit to the owners.
developed welfare systems the employees tendto have greater influence.
During the more than 30 years that have pas-sed since the employees won the right to partici-pate on the boards of directors, this approachhas not been questioned.
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However, there is reason to believe that it willbe challenged by the American influence. Still,the survey indicates the investors do not haveany reason to fear the presence of Danish em-ployee directors, as the owners are still control-ling the enterprises.
Instead, the fact that the employees take theirshare of the responsibility and seek influence onthe corporate strategy, etc. should be seen as apositive development.
Therefore, the Nørby committee should relatefar more actively to the employee directors ensu-ring that they are not seen just as a necessaryevil, but as active sparring partners who cancontribute to the creation of added value in the
BOX 263 employee directors from listedcompanies and 236 from unlisted com-panies participated in the survey. Theywere randomly selected from the DanishCommerce and Companies Agency ’sregister of 3,087 employee directors.The survey was carried out as a telep-hone questionnaire survey by StatisticsDenmark in September 2003.
enterprises for the benefit of owners, employeesand society in general.
CO-industriVester Søgade 12,2DK-1790 Copenhagen VTel. +45 33638000Fax +45 33638099www.co-industri.dkE-mail:[email protected]
BAT-kartellet(The Cartel of Unions in the Building,Construction and Wood Sectors)Kampmannsgade 4DK-1790 Copenhagen VTel. +45 33142140Fax +45 33972263www.bat-dk.orgE-mail: [email protected]
GIMK-kartellet(The Cartel of Unions in the GraphicIndustry and the Media Sector)Weidekampsgade 8DK-0900 Copenhagen CTel. +45 33304343Fax +45 33304088www.gimk.dkE-mail: [email protected]
Handelskartellet(The Cartel of Unions in the Trade Sectors)C.F. Richsvej 103DK-2000 FrederiksbergTel. +45 38182010Fax +45 38182019www.handelskartellet.orgE-mail: [email protected]
Ingeniørforeningen i Danmark (IDA)(The Danish Society of Engineers)Kalvebod Brygge 31-33DK-1780 Copenhagen VTel. +45 33184848Fax +45 33184888www.ida.dkE-mail: [email protected]