Strategy & Operations » Governance » TUC warns FDs of ‘de-risking’ backlash

Finance directors that implement strategies to ‘de-risk’ their companies face a growing set of challenges including industrial action, warns a senior officer of the Trades Union Congress (TUC).

Kate Bell, Head of Economic and Social Policy at the TUC, says: “With zero hours contracts, companies have shifted risk onto workers. Now you’re seeing at companies like McDonald’s workers saying they are not happy with zero hours contracts and low pay and starting to organise demonstrations across the UK.”

Bell says the backlash comes as more legal challenges to zero hours and low pay contracts are being upheld, including a demand for backdated bonuses at sportswear company Sports Direct and calls for Uber drivers to be entitled the status of company workers.

“We’ve seen most of these employment judgements saying these people are not self-employed- that they’re working for your company, they work for you regularly and that you should be paying them the national minimum wage and holiday pay,” she says.

The reputational impact to companies that are seen to be implementing zero hours contracts and low pay is growing, says Bell. “Most people don’t want to see people treated like that. I think most people do notice these things,” she adds.

Death of pensions

More broadly, Bell says that these issues are happening in the wider context of companies reducing their exposure to pension schemes- as part of a wider drive to ‘de-risk’ their balance sheets.

“Although 57 of FTSE 100 companies still have an open defined benefit pension scheme, what we know is the best form of pension, we have seen a big decline in pensions- with many companies closing their schemes,” says Bell.

She says that FDs that seek to ‘de-risk’ by replacing DB schemes with defined contract (DC) schemes were trying to shift risk onto workers. “An example this is where the individual bears the risk of the stock market performing less well than it might have done in a DC pension, as opposed to the company thinking about those risks collectively in a DB pension,” she adds.

“We’re also seeing a lot of that risk being transferred to the State, because if that DC pension promise isn’t met, if they find themselves not putting in enough income for retirement, the State then picks that up.”

In the context of the collapse of outsourcing giant Carillion, Bell says that there are major corporate governance issues where companies with big pension deficits continue to pay out dividends. “One of the key things we’ve been saying in that context is whose interests get prioritised, who is the board accountable to?”

The TUC has been pushing for reforms to the Corporate Governance Code to include worker representation, so that the long term interests of the company, its shareholders and workers are aligned. “Carillion is a great example of that not necessarily being the case,” says Bell.

Part of the approach is to encourage companies to move away from focusing solely about shareholder primacy, that can result in short-termist behaviour, through promoting worker representation on boards, she says.

“Most companies  say their workers are their most important asset- so it makes sense for them to recognise that and say it might be useful to allow workers to speak when decisions about the future of their company are made. What is it about this that seems scary or difficult for companies?” asks Bell.

The productivity challenge

Britain’s weak productivity levels are a reason to try an alternative approach to current thinking, featuring employee representation, says Bell. “We know it works in other countries, let’s put some workers on our board and see what happens,” she argues.

“It’s not just in countries with two tier board structures. Sweden for example has a unitary board structure with worker representation,” she says.

“I’d like to say to finance directors: Surely you want to be investing in the productivity of the firm, to be growing by offering better working conditions, and thinking about innovation rather than finding new ways of denying workers their rights?

“What are the new products you can be creating? How can technology make you more innovative and efficient in your service delivery, what are the real opportunities for innovation rather than what is dressed up as innovation- simply finding a new way to keep someone from being paid sick pay,” says Bell.

The TUC argues that continuing development of new technologies ought to be a spur to think about what jobs can be undertaken in the UK, capitalising on the country’s strength in areas such as science and technology.

“All political parties are now signed up to the idea of an industrial strategy,” says Bell. “It gives us some opportunity to think- where are the opportunities, what are the technologies of the future going to look like, how we can make sure the UK capitalises on those?” she says.

Referencing the approach of unions in the UK’s highly successful automotive sector, Bell says: “They have long established bargaining arrangements and are very used to working with management- leading to innovative thinking. Unite is calling for investment in electric cars because they see it as a real growth sector,” she adds.