Directors Corporate Culture and the Role of Boards Frances O'Grady, Secretary General of the TUC

Frances O'Grady, Secretary General of the TUC

Few people have a greater insight into corporate culture than Frances O’Grady, Secretary General of the Trades Union Congress. The TUC, whose previously falling membership has stabilised over the past five years and is now growing slowly, represents 6m workers in both the public and private sectors. “Thousands of companies recognise the unions, so we do have a good understanding of corporate culture from the inside,” she says.

A key ingredient of a good culture that comes across repeatedly in conversation with her is the need for employers to listen to their staff and recognise that their commitment is often longer term than those running the company. Employees therefore normally want their organisation to succeed, and often have good ideas about how to make this happen. It makes sense to empower them. Unsurprisingly, she believes unions provide a good framework for this.

There are plenty of cases where companies have good corporate governance and a sense of purpose, she says, but there are also general structural reasons why trust in companies has broken down. Many workers and the public in general remain angry about the level of top pay and the lack of accountability. This is aggravated because workers feel their own pay has failed to grow. There is clear evidence that inequality in pay leads to poor decision-making, she adds. Management is incentivised to produce short term results.

Perhaps as important is a dwindling sense of ownership. The majority of UK shares are owned by overseas investors. Many of these come from countries which practice good industrial relations, but there is a disconnect if the corporate governance system is solely based on shareholder primacy, with shares turning over in a matter of months while workers are investing their whole lives in a business. They can easily feel completely shut out of the strategic picture and this limits the contribution they can make.

Royal Mail provides an interesting answer, she says. The deal on privatisation included a Futures Forum where unions sit around the table with the management. Critically this is not just about receiving information. It also allows them to come up with their own ideas backed by proper business plans. This combines good ideas from the workforce with wider social purpose.

For the TUC, union recognition is the starting point. It marks a measure of the company’s willingness to share power, treat workers fairly and be ready to be challenged. Where unions are recognised, she sees benefits such as greater pay solidarity (less difference between top and bottom), greater employee engagement, more investment in research and development, and better performance all round.
Unions are not perfect, she acknowledges, but they are far from automatically resistant to change. Indeed, she argues, union recognition radically improves management chances of delivering positive change. Before the financial crisis, unions in banking and finance were worried that they were being incentivised to sell products wrongly, she recalls. They identified a problem even though they may not have foreseen the extent of what was going to happen. They were the canary in the mine. The problem was that nobody was listening.

Take another example, speak-up or whistle-blowing. Hotlines are good, she says, “but there is a world of difference between asking an individual to shop somebody and having a union rep who will take up the case. It’s all part of an open culture.” Many employers would sign up to a good working relationship, but that does depend on a recognition that the unions’ job is to represent workers.

“We have different jobs but we can carry them out with mutual respect,” she continues. Particularly at the strategic level unions and employers have common interests in sustainable businesses, long term investment and better jobs where people get a chance to upgrade their skills. Tensions arise where the greater proportion of profits go in top pay and dividends to shareholders, not to investment and research and development.

What about the public sector which also has some cultural issues? Are things different there? Management in the public sector is more complicated, she replies. In the private sector it is usually about the bottom line. Measures of success in the public sector are more complicated. The over-reliance by the public sector on agency workers also makes things more difficult.

Yet the principle of empowerment is the same. For many years unions have sought a partnership in the NHS, where whole teams, not just the doctors, are involved in decision-making. “The very first people who come up with ideas are the workers themselves because they really care about what they are doing.”

Since the 1980s business schools were too focused on shareholder primacy and ignored the bigger picture, she argues. Now it comes down to leadership and the business community is at a crossroads. A big issue, however, is middle management which often holds things back, because people are too stressed, not given time for training and because staffing levels are cut.

Meanwhile, membership of the TUC is up and collective bargaining is growing. Social media is making a big change because of the transparency and opportunities to connect. Unions can work with their Indian counterparts on outsourcing. They can see UK pay rates and conditions.

The TUC had to build alliances, forming a coalition with others, including community groups to get the living wage. That has captured the imagination, she says. Employees can signal their commitment to a new culture. But there must be practical outcomes. Just talking about culture is “like nailing jelly to the wall.” The unions are looking for employers to negotiate fairly, to expect dialogue, and to listen to ideas.

The heart of this is about wealth and power. When people feel that these issues are being handled fairly, they will accept it. “If you genuinely want a culture change, you’ve got to be prepared to share more power with the workforce. The unions are the democratic expression of that,” she says.