Does the presence of employees on corporate boards help companies?
In what could be something of a first, a group of employees will meet with top executives as part of a “mirror board” — similar to a board of directors, only in this case it’s made up entirely of employees.
The company in question is, interestingly enough, the reconstituted Toys “R” Us, which will be a much smaller version of the nationwide toy retailer that declared bankruptcy last year, costing 33,000 people their jobs. The new company will initially consist of only two retail stores—one in Houston, the other in Paramus, N.J.—along with an online operation.
A mirror board is similar to a board of directors in some respects, giving the employees on it access to vital corporate information and the opportunity to provide candid advice to company leaders.
“I think it’s a great idea,” Thomas Kochan, a professor at MIT’s Sloan School of Management who studies labor issues, told Fast Company. “These are real people who come from the workforce and are in touch with the workforce.”
The new parent company of Toys “R” Us, Tru Kids Inc., created the mirror board in partnership with United for Respect, a union-supported organization that advocates for better working conditions for retail workers in the U.S. United for Respect played a key role in negotiating a $20 million hardship fund for former Toys “R” Us workers after the private-equity firms that controlled the retailer eliminated severance agreements for employees immediately prior to the bankruptcy.
“As a management team, we wanted to be proactive about this,” Tru Kids CEO Richard Barry told Fast Company.
While uncommon in the U.S., employees serve on corporate boards in many European countries or on “supervisory boards,” as in Germany. In some cases, employee representatives are elected directly to the board by their fellow workers; in other cases, they’re appointed by unions or selected by special committee. The goal is to ensure that employees are given a voice in how a company operates.
U.S. Senator Elizabeth Warren is among those pushing for legislation that would require companies in this country to have employee representation on corporate boards. Under Warren’s proposal, companies with more than $1 billion in revenue would have to let workers elect 40% of board members.
How would having employees serve on corporate boards affect companies? Not a whole lot, concluded the Organization for Economic Cooperation and Development’s Andrea Garnero in a piece last year in Harvard Business Review. The available evidence shows no clear causation between the presence of board-level employee representatives and better or worse company performance, she wrote.
However, the evidence does show that having employee representatives on corporate boards during times of economic strife better enables companies to survive such challenges.
“By taking an active part in the life of the company, workers and managers can engage in win-win negotiations at times of economic difficulties, as workers are more aware of the constraints a company is facing and the rationale behind the choices made,” Garnero wrote.