INCREASINGLY, executives and investors are coming around to the idea that companies should be run not for shareholders alone, but also for the benefit of other stakeholders, including employees. But how far can this go? Should workers, for example, be allowed to take part in any and all decisions traditionally reserved for top executives and corporate boards?
As someone who has spent a lot of time serving as a corporate director, I think not. There are some responsibilities boards and executives should never cede if they want their businesses to remain competitive.
In recent years, employees have sought to insinuate themselves into decisions far beyond the conventional union concerns of pay and working conditions. Consider the 2018 fracas at Google, which dropped collaborations with the US military on artificial intelligence and cloud computing after widespread employee protests. Or Facebook, where employees walked out last year after the company chose not to take down incendiary posts from then-President Donald Trump.
So where to draw the line? I see five areas where management must retain control.
• Resource allocation. In his book The Outsiders, William Thorndike, Jr. stresses that CEOs of the most consistently high-performing companies spend a disproportionate amount of their time thinking about how best to deploy capital. This should apply to both financial and human capital. Individual employees might have valuable insights on the best use of resources in their business units, but the chief executive must consider the needs and priorities of the entire organization when making the ultimate decisions.
• Senior-level hiring. To ensure control of resource allocation and of other enterprise-wide decisions, and to ensure companies can navigate the complex challenges of today’s troubled global economy, boards and executives must be fully in charge of selecting high-level personnel. This extends to board and advisory-board appointments, where executives are best placed to know what’s needed to compensate for their shortcomings, provide much-needed insight and lead the company into the future.
• Compensation policy. Only the senior management team has the perspective needed to set a pay policy comparing the performance across different teams and business units. The policy must be transparent and consistent to ensure equal pay for the same work throughout the organization. It must consider the complex interaction of base pay, pensions, insurance, stock options, and long-term incentive plans; acknowledge the varying difficulty of roles; and recognize the multifaceted nature of performance. In my experience, some companies apply a 50% weight to meeting financial goals; 30% to adhering to company values and targets such as diversity, inclusion and climate change; and 20% to innovation.
• Culture and accountability. Top managers are best placed to assess the zeitgeist of the entire organization, to benefit from the increasing amount of feedback available from platforms such as Glassdoor and the Layoff, and to check such external sources of information against internal employee surveys. They must accept responsibility for corporate culture, for setting standards of behavior, ensuring dissemination through the entire organization, and responding to — rather than insulating themselves from — transgressions.
• Risk management. In one recent survey of global CEOs conducted by PwC, 83% expressed concern about uncertain economic growth, and only 34% were very confident of profitability this year. That’s just one of the many challenges companies must navigate, including geopolitical tensions, automation, digitization and the greater demands of stakeholder capitalism. It’s up to senior management to consider how these phenomena might affect the organization in its entirety, to mitigate risks and to identify the opportunities that change invariably creates.
No doubt, individual employees can and should participate in each of these conversations. The quality and constructiveness of their contributions can help identify future candidates for leadership. But the final authority must lie with senior management and the board. It’s simply not in the collective interest for all decisions to be made collectively.