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Part - II

It's Time for Worker Directors on Corporate Boards

Enron, WorldCom and the other crises of corporate accountability are about more than a few bad apples; they're about a profound failure of corporate governance. And there's a key solution no one's yet talking about: putting worker directors on corporate boards.

The American companies needs, what practically all our European counterparts have long had: a 'loyal opposition' of non-managerial employee representatives on company boards. Beginning in Germany after World War II, worker directors have become a key part of European corporate governance, typically comprising a third or more of the boards of major European corporations. Holding the power to hire financial consultants with company funds, worker directors have provided a significant counterweight to managerial abuse of power. They have also proved a counterweight to the failure of boards to protect stakeholder - or even shareholder - interests.

The nostrum widely recommended today is more 'independent directors.' Yet firms like Enron and WorldCom had many prominent outside directors, and still routinely rubber-stamped management schemes that impoverished employees, communities, and shareholders alike. It's a myth that outside directors can be good representatives of shareholder interests, when by definition they have no personal knowledge of the firm, are nominated by management or its buddies on the board, are ratified in uncontested elections, and fly into town a few times a year for high-level meetings disconnected from the life of the firm.

Compared to the conventionally selected boards at Enron and WorldCom, worker directors could have been far more effective - and certainly would have been no worse. Does anyone imagine worker-directors would have voted for exorbitant executive pay packages, or to forgive millions of dollars in loans to corporate officers? If workers with knowledge about falsified accounting were looking for a place to turn, they might have found worker directors more approachable than faceless directors from out of town.

Experience shows worker representation works well. A study shows that employee-owned companies with worker directors tend to outperform those without.

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* Contributed by -
Swastik Rath,
Class of 2004,
Goa Institute of Management,
Ribandar, Goa.