Railpen-led Investor Coalition Launches Workforce Directors Guidance

As well as exploring worker voice mechanisms more generally, the guidance provides insights into ‘what good looks like’ regarding the role, recruitment, and retention of workforce directors. This coincides with the publishing of the investor statement, to which signatories managing around £400bn have signed up to so far.

The guidance was created as a response to requests from some of Railpen’s portfolio companies for the investor perspective on workforce directors specifically. It incorporates feedback from discussions with companies, investors, regulators, workforce representatives, and academics as to how companies can take a meaningful approach to considering appointing one or more board directors from the broader workforce.

The role of a workforce director

A workforce director is a director of a company board that is drawn from the company’s wider workforce or employee base. Railpen’s definition does 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 board director, but they also have current experience of being part of the firm’s broader workforce.

Railpen, and others from the investor group, will engage with companies and their asset managers, where relevant, where it believes there is merit in considering or raising the issue of workforce directors, as well as with policymakers where it is felt that improvements can be made to create a supportive regulatory environment.

The guidance

The guidance draws upon evidence which indicates that there may be two main benefits for companies and investors from appointing one or more workforce directors:

• Potential improvements to the cognitive diversity of a board, providing a particularly valuable perspective, with diverse boards more likely to make informed and effective decisions;
• Helping workers to feel their voice is heard and acted upon, meaning they may be more engaged and motivated which in turn has financially material benefits for company performance.

The guidance discusses the “Four Rs” of good practice on workforce directors:

	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

Railpen’s guidance also draws upon research showing that workforce directors are most effective as part of a broader, coherent and intentional approach to workforce engagement and alongside other mechanisms.

Investor statement and signatories

Investors are keen to understand how the worker perspective is intentionally included in strategic decision-making at their portfolio companies because a fulfilled, engaged, and motivated workforce is important to the long-term, sustainable financial performance of a business.

Other signatories to the Workforce Directors Investment Statement include:

• Border to Coast
• Brunel Pension Partnership (BPP)
• Church of England Pension Board
• Merseyside Pension Fund
• Rathbone Greenbank Investments
• Royal London Asset Management (RLAM)
• Universities Superannuation Scheme (USS)

Caroline Escott, Senior Investment Manager, Railpen, said: “Fulfilled, engaged and empowered workers are fundamental to the long-term success of companies. The Covid-19 pandemic and the subsequent ‘Great Resignation’ have highlighted how important it is that a company’s most senior leaders genuinely consider and respond to the perspective of the wider workforce. While we do not think there is a single ‘right’ way for firms to engage the workforce, we believe more companies should at least consider the merits of appointing a workforce director to the board – such as the potential improvements to cognitive diversity. We hope our guidance provides some helpful considerations and insights into what we think is an underexplored workforce engagement mechanism, and welcome the opportunity for open and collaborative conversations with all those keen to ensure the worker voice is effectively heard.”

Bruce Jackson, Senior Responsible Investment Analyst, USS said: “We are delighted to support Railpen's Investor Guidance on Workforce Directors, which will provide company boards with meaningful suggestions to enhance workforce engagement and consider appointing workforce directors to their boards. USS has workforce directors on the board (directors that are appointed by University and College Union) and, while we recognise this may not be suitable for all companies, we believe the inclusion of workforce perspectives at board-level can align the interests of shareholders, management and workers over the long term. It can also provide valuable insight into company operations to improve strategic decision making.”

Investors can find out more about the role of workforce directors here and can support our campaign by signing our Investor Statement.