Amplifying employee voices in the boardroom

Royal London Asset Management’s multi-year drive for the employee’s voice to be heard in boardrooms started in 2020 to enhance workforce engagement across investee companies.

We believe more can be done by boards to amplify the voices of their most valuable asset – employees.

Our objective is to integrate employee perspectives of our investee companies into boardroom discussions and decision-making processes more fully, fostering a more inclusive and responsive corporate culture. While we have seen good progress in many companies, we believe more can be done by boards to amplify the voices of their most valuable asset – employees.

Why? By integrating diverse employee perspectives on issues such as working conditions and pay into corporate governance discussions, companies can make more informed and effective decisions. This leads to better business outcomes and a more resilient organisation, where employees feel valued, with opportunities for greater job satisfaction - leading to greater productivity.

In 2020 we commenced a comprehensive initiative   to enhance workforce engagement practices across our investee companies.

We believe an engaged and satisfied workforce will be more likely to perform well over time, thereby enhancing the long-term value of investments for clients. 

Laying the foundations

Despite the mandates set out in Section 172 of the UK Companies Act 2006 and the updated UK Corporate Governance Code (the Code), our engagement with various companies revealed that workforce engagement activities often failed to penetrate the boardroom. The UK Companies Act sets out a duty to promote the success of the company while having regard to the interests of the company’s employees. The updated Code includes a provision stating that the board should understand the views of the company’s stakeholders and how these have been considered in board discussions and decision-making. It also provides companies the flexibility to choose the specific methods of engagement with the workforce.

The Financial Reporting Councils (FRCs) 2020 annual review of the Code concurred with our experience, that while there was progress, the outcomes of workforce engagement remained conspicuously absent from annual reporting. Key engagement insights early in the initiative highlighted:

• Benefits of appointing multiple directors to be responsible for workforce engagement and of inviting different directors to advisory forums to ensure comprehensive employee representation.
• Companies need to tailor employee engagement activity to the size, location, and composition of each company’s workforce to ensure it remains adequate.
• Off-the-shelf approaches don’t work and it must involve more than a tick-box style staff survey.

Addressing lagging practices 

In 2021, we leveraged the knowledge gained from our early interactions with companies to assist those who were not meeting best practice. Our discussions highlighted several common issues:

• The use of boilerplate language
• Vague follow-up on employee surveys
• Lack of specific examples and outcomes of engagement activities; and
• Limited overall workforce disclosure.

Acknowledging the upheaval caused by the COVID-19 pandemic emphasised the importance of customised engagement practices. We found that many companies were making significant efforts to focus on employee welfare. However, these efforts often did not translate into robust reporting.

We found some companies did leverage technology for real-time employee engagement and set specific targets for director interactions with employees. One company transparently shared how employee feedback revealed areas for improvement in communication and information flow. These examples underscored the importance of detailed and transparent reporting.

Piotr Kwiatkowski, corporate governance analyst commented:

“Early in the initiative we found that most companies were open, listened to our feedback, and made commitments to improve workforce engagement reporting in the future. But we continue to look for specific examples of employee feedback that have been considered by the board and the resulting outcome. We are also interested in the general disclosure of survey results and subsequent steps taken to address any concerns.”

We were surprised to hear from some of these companies that we were the first shareholders to directly engage with them on the issue of workforce engagement.

“We were surprised to hear from some of these companies that we were the first shareholders to directly engage with them on the issue of workforce engagement, with one acknowledging the value of active shareholder dialogue in bringing reporting to life and to understand where improvements can be made.”

Case studies: High-profile issues

Prominent workforce-related incidents characterised activities in 2022.

Rio Tinto is a multinational mining group whose external review of its workplace culture uncovered systemic issues such as bullying, sexism, and racism.

Our engagement with Rio Tinto’s chief people officer and chair called for not only the need for significant improvements in its corporate culture, but for executive bonuses to be linked to delivering the actions the review called for. Despite progress, further incidents highlighted the ongoing challenges and the need for stringent safety and inclusivity measures. We continue to monitor Rio Tinto’s progress and keep track of improvements in implementing the Everyday Respect Report’s recommendations. We abstained from voting on the company's remuneration report in 2024 (it was passed by 94.3%). This reflected our recognition of progress while emphasising that we still need to see a rigorous assessment of safe and inclusive facilities.

In our view, the proposed pay outcomes did not sufficiently reflect some of the remaining challenges that the company continues to face in this area.  We welcomed the company’s transparency on this issue and continued to engage once the progress report was published in November 2024.

Looking at the results of the progress review released in 2024, the company is making some improvements. However, some concerns remain, especially around sexual harassment, bullying and racism. Women’s representation across Rio Tinto globally seems to be increasing. There is some level of optimism among the employees regarding cultural changes. But the data indicates that it’s mostly from staff who joined the company after the release of the first report, rather than the more tenured employees. This is a point of ongoing dialogue with the company.

British shipping company P&O Ferries’ programme of redundancies with little to no consultation with its employees ahead of redundancy notifications via a pre-recorded video.

In contrast, our engagement with DP World, owner of P&O Ferries, following the sudden layoff of nearly 800 seafarers, was less fruitful. Employees and unions were not given prior notice or consulted about the layoffs. The incident was covered widely in the press. We have challenged the company on whether any alternatives were considered, as well as the risk of fines or litigation and wider reputational damage. We also raised potential safety concerns related to the replacement of employees with agency staff, as well as the company’s decision to pay the new staff below minimum wage. Given that during the Covid pandemic the company had benefitted from numerous forms of government support and had paid a dividend to DP World’s shareholders, we questioned how they could justify their actions. The lack of prior notice and consultation with employees, coupled with unsatisfactory responses during our engagement, led us to divest from DP World in our global credit funds.

Collective industry engagement to drive greater change

In 2024 we became signatories to the Workforce Directors Guidance. A coalition led by Railpen and other investors who collectively manage more than £400 billion. The coalition aims to define excellence in workforce engagement and representation. We have subsequently participated in several collective engagement meetings and will continue to collaborate to bring about broader change across sectors – not just isolated improvements within individual companies.

Piotr Kwiatkowski continued:

“We want to see workforce engagement that translates into meaningful boardroom actions. As we look ahead to the 2025 proxy season, we will be looking for more companies to foster a corporate culture that values employee perspectives and is transparent and accountable in their approach.”

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.