Jurisprudence

Elizabeth Warren’s Plan for Corporate Boards Would Be a Boon to Businesses

Sen. Elizabeth Warren just chillin' in Cedar Rapids.
Sen. Elizabeth Warren speaks to potential voters during a campaign stop at the Veterans Memorial Building on Sunday in Cedar Rapids, Iowa.
Scott Olson/Getty Images

In her official presidential campaign launch over the weekend, Sen. Elizabeth Warren returned to an idea she’s championed before: worker representation on corporate boards.

This proposal, although popular in a recent poll, has been dismissed by business leaders as a pie-in-the sky mandate that doesn’t make business sense. What the detractors don’t realize is that companies themselves would benefit from the sort of change that Warren is proposing.

To clarify upfront: Warren’s bill would not convert corporations into nonprofits or drive our country toward socialism. In her proposal and others like it, the majority of board members would still be primarily devoted to shareholders and to seeking profits. But having at least some worker voices at the table, even a minority voice, would add a new and terribly absent element to the dynamics of decision-making.

Over the years, working on labor issues for New York’s government, I discovered that teams in the C-suite often first learned about a serious problem affecting their workers when they heard it from labor officials, not workers. In 2013, for example, the state attorney general’s office received complaints from workers at various companies who were suddenly getting their wages via payroll cards (debit cards reloaded each pay period). Some workers lived far from any ATM in the card’s network and couldn’t access their wages without a fee. One company’s card system had no locations within the entire state. There were unexpected overdraft penalties. And the cards didn’t work at all for the digitally disconnected: One elderly worker kept calling customer service to ask his balance, and it kept going down by a dollar or two each time (which turned out to be the cost of each customer service call).

In communicating with companies when we looked into these programs, we discovered that managers in these companies weren’t actively seeking to hurt their workforce in implementing a new method of payment. For the most part, they just hadn’t given any real thought to the impact on their workers. And they had no way of getting honest feedback on their decisions.

Another example: In 2015, our office took on the retail industry’s use of “on-call shifts.” Employees assigned to such shifts must check in an hour or two before a shift to find out if they’ll be working that day; they have to keep the day open, arrange for child care, and not accept other work, often for nothing. Worker advocates on the ground had been vocally protesting on-call shifts for years, but their objections never reached the highest levels. As a government enforcement agency, we could obtain meetings with general counsels and heads of human resources. We explained how the on-call shifts wreaked havoc on people’s lives and discussed other ways to address operational needs. Again: Company decision-makers simply had no mechanism, habit, or inclination to consider the impact of their actions on workers. Ultimately, they were readily able to stop using on-call shifts.

Why did it take an inquiry from a law enforcement office for leaders in these companies to learn that their policies created problems for workers? With worker representation on the board, this could have been avoided, especially since these practices were not essential to company operations. Not to mention, there’s value in having employees invested in a business, and there are costs from treating them badly, like low morale and high turnover.

Worker representation on boards can also lead to win-win decisions that a company itself might not explore. For example, in tough times, worker representatives might focus more on avoiding layoffs, and might investigate mutually beneficial but little-known options, like the “shared-work program,” which allows employees of participating companies to receive partial unemployment benefits while working reduced hours. Win-win: Companies retain experienced employees; workers keep their jobs. In fact, a study of Scandinavian countries during the recent financial crisis showed that companies with workers on their boards were more effective at negotiating other ways of reducing costs than firings.

Right now, how could a non-unionized company find out what its workers think about anything? A lawsuit, a protest, a bad news article? An anonymous inbox for employee complaints? There are not many options, and Warren’s proposal would address this gap. And although this idea sounds strange to American ears, it’s standard business in a number of other countries. Germany in particular has a long and successful history of such “co-determination,” suggesting that the sky won’t fall if we try it here.

While there are legitimate practical concerns about how employee board members might operate within these new roles, every board member has to navigate competing interests while maintaining a fiduciary duty to the company. And workers’ board representatives would be elected, thereby ensuring a level of competence. Finally, current board compositions are by no means perfect. Many board members in our current system, for example, engage in overly short-term thinking, single-mindedly focusing on quarterly dividends and not longer-term investments. Consider the way many companies have used the recent tax cut for short-term stock buybacks.

Worker representatives may be even more likely than others to focus on a business’s long-term health and viability. Most workers want their companies to succeed. Their own futures rely on it. Toys R Us workers were devastated when the company closed down. Former Sears employees still get together in alumni groups. People rightly take pride and feel invested in many different kinds of jobs.

There are still questions about how best to effectuate this idea: How many employee representatives should be on the board, for example, and how would they be selected? Bills by Sens. Warren and Tammy Baldwin set different threshold amounts (40 percent versus 33 percent). The thousands of Google employees who walked out in November sought, among other things, a single employee representative on the company’s board.

Whatever the correct number for this country, one thing is clear: Everyone would benefit if the people who do the work each day had an official seat at the table.