Labour and corporate governance

By Alex Tawanda Magaisa

THE assessment of the role of labour in the governance of companies falls within the stakeholder approach to corporate governance.

Helvetica, sans-serif”>The Anglo-American approach to corporate governance places emphasis on the primacy of the shareholders’ interests and attempts to close the gap between separation of control and ownership. On the other hand in continental Europe and Japan broader approaches that take into account the interests of other stakeholders are given priority.

Through the broad stakeholder approach we can take into account the interests of local communities, the environment, the employees and customers. The role of employees/labour in corporate governance has begun to take a more prominent profile as the key players seek ways of dealing with some of the excesses of capitalist systems of production.

The first key question is whether employees can be considered as members of the firm. Traditional company law leaves little room for the interests of employees and places more emphasis on the internal operations and relations between shareholders and directors of the company. Labour is an important political constituency such that most governments have statutes that are specially dedicated to the protection of the rights of employees.

In Zimbabwe, the Labour Relations Act is meant to regulate the relationship between employers and employees with emphasis on the protection of the rights of the latter. The need to protect the employees is predicated on the assumption that the relationship between the employer and the employee is one of inequity and because the employee is vulnerable to the economic might of the employer, he needs protection.

The existence of labour laws and the idea that the employee is the supposed beneficiary of protection often causes confusion as to the true position of the employee in relation to other constituencies such as shareholders and management. It may, rather unfortunately, create the impression of a relationship of conflict and close space for possibilities of the employees’ active involvement in the actual running of companies.

Instead of being seen as outsiders, employees ought to be taken in as part of the company for purposes of governance.

It is good practice to have structures that permit the inclusion of employees within the echelons of corporate governance. Companies perform a social welfare role within the community. As a result, long serving and loyal employees can often be included in corporate boards upon retirement. The involvement of labour can also be improved through employee share ownership schemes.

As long as they are properly run, these schemes enable employees to have a shareholding in the company and therefore an incentive to promote the interests of the company. This is because they would also benefit from the success of the company. Besides, there is also a growing phenomenon of union shareholders. This is when labour unions at the national level such as the Zimbabwe Congress of Trade Unions or sectoral level as the Zimbabwe Bankers and Allied Workers or indeed company level participation in the capital market by investing as shareholders in companies. That way, employees become shareholders of various companies through their unions. Through that avenue, unions can represent the interests of their members by actively voting in general meetings or taking up seats on the corporate boards of particular companies.

In the same way, institutional investors should be doing more to represent the interests of their members. For example, most pension funds such as the Mining Industry Pension Fund play a prominent role in the capital market in Zimbabwe. They invest in companies in order to achieve good returns to enhance the welfare of their members upon retirement.

However, by failing to take active roles in the governance of companies in which they invest, these institutional shareholders are also failing to represent the interests of the various members that they represent. Through their economic muscle, they can enhance employees’ conditions of work and ensure that the company’s directors do not make decisions that adversely affect employees’ interests.

Of course, it does not mean that the unions or other institutional shareholders can always make choices that otherwise affect the company because they can be outvoted by other shareholders. However, their interests can be better represented if they have a voice at board level and if they exercise the alternative voice in the meetings.

Some of the major problems that employees face are poor and unsafe working conditions at their places of employment. Despite that some companies make huge profits, the working environment is generally unsafe and unsurprisingly many employees have lost lives or broken limps as a result. Many employees in mining and manufacturing environments are exposed to health risks due to lack of proper safety equipment.

Simultaneously the board may be approving hefty remuneration packages for directors and senior management.

One is reminded of those 15 construction workers who lost their lives in 1999 when the hoist at a construction site in Harare broke down during an upward flight. More workers are exposed to unsafe chemicals and gases in the industries in which they work. When companies try to demonstrate that they are socially responsible citizens, they are often keen to be shown donating to a selected charity or orphanage yet the welfare of their own employees is not properly catered for. Although there are laws which oblige companies to adhere to safety standards and require the state to inspect premises and machinery to safeguard the welfare of workers these are rarely enforced effectively.

The realm of corporate governance may be a viable option to address these issues. It may become necessary to call on companies to produce reports about the working conditions and more crucially, to provide figures in respect of injuries or fatalities arising from their operations. The unions can act as watchdogs to ensure that companies do not misrepresent the facts. Calling for such disclosure as good corporate practice might force companies to adopt better working and safety standards for their employees.

There can be no doubt that the role of employees in corporate governance is gaining more prominence under the stakeholder approach. European Union law already provides for models of corporate governance the majority of which assign a role to employees.

Countries such as Germany, Denmark and Sweden already provide for employee representation on the boards of certain companies. Human capital is as important as financial capital and companies that take leading roles in improving the status of employees in corporate governance are likely to attract the best human resources available in the market. Better representation can reduce the gap between captains of industry and the foot soldiers on the ground.

Companies can benefit a great deal from retired employees who understand the needs and concerns of human capital. Thus the pool of potential non-executive directors is not as narrow as we tend to believe because companies always recycle the same old men on their boards.

In turn workers can increase their voice through share ownership, better union involvement in the capital markets and institutional shareholders such as pension funds that depend on workers’ contributions can play more prominent roles in representing the interests of employees.

The safety of workers is of paramount importance. It is all very well for companies to demonstrate their commitment to the environment and communities in which they operate by donating to charities and sponsoring sports tournaments, but they must desist from seeking cheap publicity when the interests of their own employees are at risk and not properly represented. The first step in corporate responsibility is not to look beyond the community but to ensure that the employees have safe and conducive working environments. After all, as they say, charity begins at home. And so it must.

* Alex Tawanda Magaisa is Baker & McKenzie Lecturer in Corporate & Commercial Law at The University of Nottingham. He can be contacted at