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Boards grapple with post-pandemic workforce problems

By Jessica Tasman-Jones

This article is brought to you by FT Specialist’s Agenda, a publication that focuses on corporate boards.

Having a human resources leader in the boardroom has become more important as staff turnover rises and shareholders show a greater interest in workforce issues.

In the UK, the involvement of HR teams has increased since 2018 when changes to the corporate governance code placed a greater emphasis on culture, fair and proportionate pay and employee engagement.

More HR leaders now report directly to chief executives and sit on executive committees and the trend is accelerating, says Katie Jacobs, senior stakeholder lead at the Chartered Institute of Personnel and Development.

“The pandemic shone a light on social and economic inequalities and employment practices, which made HR and people and other workforce issues more of interest to boards,” Jacobs says.

Another issue is the post-pandemic “great resignation” that is happening as workers reassess their futures. A global survey by PwC found that a fifth of employees were looking to change jobs this year.

“Boards are having an epiphany on this shift of power from the employer to the employee because of the reality of Covid. Companies are getting wake-up calls,” says Kris Pederson, leader of EY’s Centre for Board Matters.

Boards are spending more time than before the pandemic on attracting and retaining talent and discussing pay, says Dana Maor, global co-head and European leader of McKinsey's people and organisational performance practice.

“Employees are seeking flexibility tailored to their individual needs, like work-life balance, physical and emotional health or caring for family, as well as wanting to feel valued and treated as an individual,” she says.

“If they don't get these things, they are willing to look for other places to work.”

Boards should regard HR departments as strategic partners and a bridge between the organisation and its workforce, Maor says.

At large companies, boards should discuss issues that relate to people and culture at every meeting, according to the CIPD. Remuneration committees should scrutinise workforce pay, people matters and culture alongside executive pay.

It is not only workforce turnover but also investors that are pushing boards to act, says Pederson.

At its annual meeting in May, Amazon faced investor proposals on labour issues, such as employee representation on the board, support for freedom of association and collective bargaining and an audit of working conditions.

None of the proposals passed but they did win backing from leading asset managers including Schroders and Legal & General Investment Management.

Tim Goodman, Schroders’ head of corporate governance, describes the vote as “just one opportunity in a longstanding engagement to influence the management and board of the company”.

Boards should talk to investors, Pederson says, rather than offering up managers to answer questions.

According to Proxy Preview, the annual report published by As You Sow, Proxy Impact and the Sustainable Investments Institute, shareholders filed more than 60 proposals related to “decent work”, which covers fair pay and working conditions, for the 2022 proxy season.

In the US, BlackRock voted against a proposed executive pay package at Warrior Met Coal, a miner, in part because of a year-long strike at the company. The asset manager said senior leaders should not be rewarded when the company was beset by industrial unrest and a fall in production.

One problem faced by UK investors is that workforce reporting remains low under any measure or code.

A third of FTSE 100 companies report their recruitment data; 6 per cent report the cost of hiring freelancers, consultants and other temporary workers, and only nine companies reported their ethnicity pay gap, according to analysis by the CIPD carried out in association with Railpen, the £37bn railway workers’ pension fund, and the Pensions and Lifetime Savings Association.

The membership body has called for the Financial Reporting Council to introduce minimum standards for workforce reporting.

This article is based on a piece written by Lindsay Frost for Agenda.

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