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As a requirement by the law, all companies should be governed by a board, which primarily includes the company’s shareholders. Each board member brings beneficial skills and experience for progressive company growth. For instance, one board member might handle the financial aspects of the business while the other deals with legislation. Regardless of the constitution of a board, it should be diverse.
A new and unexpected trend is the inclusion of employees into the company board. While this is a complicated process, some companies find it beneficial, while other boards operate perfectly without employee input.
Concerns with Adding Employees to Your Board
Having employees on company boards might be a norm for some companies. However, such a decision isn’t obvious for some businesses, especially those who think that including employees on their board may lead to a conflict of interest. For instance, it would be difficult for the employee on board to explain labor disruption.
Besides, the board oversees the general management of the company. Therefore, having an employee essentially means that the employee becomes the boss of their supervisors, which is not an ideal situation. Nonetheless, if you trust your employees with their work, you can also trust them with conducting themselves appropriately on the board.
Advantages of Adding Employees to Your Board
Having your employee on the board comes with various benefits, especially when making business decisions. For starters, unlike other board members, employees understand the daily operations of the company in detail. Other board members can leverage their insights when making significant business decisions.
Including an employee in your board also provides an easier avenue for employees to channel their concerns to the board. With this, the board won’t be receiving employee complaints as hearsay or advanced legal claims from employment lawyers. Besides, employees understand better how business policies made by the board may affect the workforce.
Additionally, this gives employees a sense of responsibility as they will interact directly with company stakeholders. Without a doubt, companies need employees to succeed. Therefore, giving them a voice at the high table where important decisions are made makes them feel important. This boosts their morale and productivity.
Drawbacks of Adding Employees to Your Board
While giving employees a seat on the board can be beneficial, it comes with a set of drawbacks. To begin, gaining employee trust is not easy, as conflicts of interest may arise. For instance, some board members may be concerned that the employee may share or trade confidential information about the company outside the boardroom.
Conflicts between employees and leadership teams may also arise, especially due to different goals and perspectives. Labor negotiations, dismissals, disputes, and other crucial topics can place the employee director in an awkward position. This hinders transparency and trust between board members, making it difficult to have fruitful conversations and make important decisions. Additionally, companies may be torn apart when selecting the best employee representative for the board. Generally, there are no guiding rules that outline what should be considered when choosing an employee who sits on the board. There is also no framework on how the employee should be selected. Will it be based on merit, votes, or appointments?
Is it Worth It?
The perfect answer as to the worthiness of adding or not adding employee-directors to your company is equivocal. A survey done by Co-operative Grocer Network established that 62% of member stores had employee directors. The study also established that employee directors provide unique perspectives and values to the board. However, this might not apply to your business. Consider the following best practices before adding employees to your board of directors;
- All directors, including the employee director, should understand that they should act in the best interest of the business. Therefore, regardless of their individual values and beliefs, they shouldn’t consider themselves as employee representatives but as ordinary board members.
- Develop policies that restrict employees who can join the board. For instance, the general manager who reports to the board directly cannot join the board as a member.
- Employee directors shouldn’t have “officer” positions. Note that officer positions, such as president, vice-president, treasurer, or secretary-general, should have strong and continuous relationships with the management. Giving either of these positions to employee directors creates complications, as they will oversee managers to whom they report at work.
Adding an employee to a board of directors is a complicated issue best solved with professional legal guidance. After all, this is a relatively new field without many proven results. Therefore, you should be open to trying various provisions before finding what works for your business.
Kenneth joined ISACA in 2013 and presently serves as the GWDC Communications Director. He holds the CISM, CISA, PMP, CIPP/G, and AWS CCP.