Making Section 172 work for you and your employees

There’s more call than ever before for companies to give employees a greater voice in the business. Political parties have made proposals about employee representation for the future, some more radical than others. But there’s also guidance on this topic in the here and now.

Section 172 of the UK's Companies Act 2006 imposes on directors the duty to act in ways most likely to promote the success of the company for the benefit of its members as a whole. The obligations are broad ranging and require directors to have regard to the company’s business relationships with suppliers, customers and others including considering the company’s impact on the community and the environment.

Representing the interests of employees is a key element of the Act and Boards should consider how this is best achieved.

The UK Corporate Governance Code expands on the same theme as Section 172 and says that a business should establish its purpose, values and strategy, and satisfy itself that these and its culture are aligned. This is possible only if the company’s strategy, and the employee behaviors that support its delivery, are effectively communicated.

So what can companies do to represent the views of employees at board level, build support for their strategy, and encourage employees to do the things that will deliver it? As a starting point, Brunswick recommends three routes:

1. Listen to your employees

A program of listening activities may include:

• An employee survey tracking employees’ view about the business and their connection to it.

• An employee panel comprised of representative employees sharing their views on specific topics.

Modern mechanisms for participating in surveys and panels are digital and mobile. They’re quicker to deploy and analyse feedback and are less intrusive than the ‘old’ computer-based online employee surveys.

Example: Informed by regular employee listening, a global asset manager improved management training, employee development plans, and communications around individuals’ roles and contribution.

2. Appoint a NED with responsibility for representing employee interests

This is a non-executive board director with specific responsibility for understanding and representing the insights from employee listening and other methods for understanding employee views (such as works councils in those jurisdictions that require them).

The director would need to have a close relationship with the employee listening team (often a function of HR) and feel equipped to represent employee views during board discussion and when making decisions.

Example: A global engineering company has recently asked one of its non-executive directors to become a ‘Champion of Employee Engagement’ and represent employees’ views at board level

3. Support managers to be better communicators

Brunswick’s experience is that companies who communicate most effectively with their employees – and listen to their views and feedback – support their managers to involve employees in an ongoing conversation about the part they play in delivering success. These managers have the expectation and permission to communicate, the capability and training to do it well, and the information they need to be credible and impactful.

Example: A global tech company holds regular manager forums so managers can share employee feedback, align around company messages, and receive support to be better communicators.

 Brunswick helps clients develop an appropriate approach for complying with Section 172 and creating a decision-making environment that recognizes the needs of their people and engages them in delivering their strategy.