Reimagining Board Committees to Accommodate Worker Voice

Employees at U.S. public corporations have increasingly demanded that their concerns be heard at the very senior levels of management.  If current trends continue, boards of directors could also be challenged to accommodate “worker voice” more formally.  Rather than being caught flat-footed, boards should reimagine the process through which they receive information about employee sentiment with the goal of penetrating existing structural barriers.  Boards can start by establishing a dedicated board committee with the proper remit and resources, thereby creating a mechanism for, and demonstrating a commitment to, hearing and understanding worker voice.

In a recent essay, I contribute to the discussion of employees as stakeholders in the corporate governance system.  I first provide an inside look, based on research and public disclosure, at how boards receive information about the concerns of its workforces within the traditional U.S. board governance structure.  I then suggest practical mechanisms for boards to hear and understand worker voice.

The fact that boards generally do not take more proactive measures to hear the voices within the general workforce follows from the view of many corporate governance experts and directors that the board’s core role can be boiled down to hiring, evaluating, and firing the CEO.  While the board’s fiduciary duties require it to oversee the entirety of the corporation’s business and affairs, hearing and responding to the voice of workers below the CEO is seen as part of the operational responsibilities of management, not the board itself.

Historically, SEC disclosure requirements did not cover how the board or management oversees the company’s workforce.  In response to demands by large institutional investors for disclosure requirements about human capital management policies, practices, and procedures, the SEC amended its disclosure rules in 2020 for corporate annual reports filed on Form 10-K to require registrants to describe their “human capital resources… and any human capital measures or objectives that the registrant focuses on in managing the business.”

Analyses of Form 10-K filings after the new SEC disclosure requirements became effective found that companies started to provide more complete pictures of their workforces, with the most noticeable increases in the levels of disclosures that addressed COVID-19 safety measures; diversity, equity, and inclusion; compensation and benefits; and talent development.  However, very few addressed human capital governance in any significant detail.  Some companies included descriptions of how their boards oversee human capital management in reports other than the Form 10-K, such as annual proxy statements, ESG reports, and specialized reports.

Some experts have suggested that boards make changes to their own structures to ensure meaningful oversight of human capital resources.  Currently, the only mandated board committee that directly touches employee issues is the compensation committee, for which the chief priority is determining the CEO’s compensation.  Realizing that the scope of their compensation committees has been too narrowly focused on the compensation of the directors and most senior executives, boards at some of the largest public companies have expanded the scope of these committees to include talent development beyond the C-suite and cover company-wide human resources, not just remuneration.

If worker voice is to be a board priority, that initiative should start with a dedicated board committee with worker engagement specifically in mind.  Board committees are of particular interest because, unlike so many other areas of corporate governance, boards have unencumbered power to form their own committees for specific purposes.  Boards control their own committee structures, charters, members, and agendas.  Many public company boards maintain standing committees that focus on finance, risk, science and technology, and environmental health and safety.

While many experts and policymakers have repeatedly called for worker representation on boards in the form of directors selected by the employees, this essay proposes reforming the current board committee structure and creating other practical and achievable means of hearing worker sentiment to inform board oversight, decision-making, and CEO evaluation.  Board committees dedicated to hearing and understanding worker voice can be creative in how they approach that task.

This post comes to us from Douglas K. Chia, founder and president of Soundboard Governance LLC and a fellow at the Rutgers Center for Corporate Law and Governance.  It is based on his essay, “Reimagining Board Committees to Accommodate Worker Voice,” available here.