Workers’ Voice in Corporate Governance - A Trade Union Perspective
Report available in: English, French, Spanish, Portugese & Korean.
01/09/2005
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Foreword
The implosion in December 2001 of Enron, the US company that was
for many a model of corporate governance, wiped out overnight over
6,000 jobs and attendant health care and retirement savings – for
many workers their entire life savings. It also took with it Arthur
Andersen, one of the world’s biggest auditing and business services
firms. For his part, Kenneth Lay, Enron’s CEO, received a salary in
2000 of $53 million, along with $123 million of exercised stock
options and a further $361 million in unexercised stock
options.
If Enron had been an isolated case, the apologists for US corporate governance might have claimed that problems were due to a few “bad apples”. However, corporate scandals continue to occur, and not just in the USA. In Europe too, governance related scandals have occurred (Vivendi, Ahold, Parmalat). They result from a failure of public policy – the implementation by governments and regulatory authorities of flawed systems of corporate governance and accountability that fail to stop the looting of companies by their elites. Indeed, much of the damage is done by means that are perfectly legal. The regulatory bite has progressively weakened in the face of changes to the form and structure of the modern corporation. These have been accompanied by a laissez-faire approach to issues of governance and accountability, by governments and by the bodies that are supposed to ensure broader market integrity, including financial market players, the auditing profession, analysts and rating agencies.
To some extent, national governments have taken regulatory action to help restore public confidence in the corporate sector - often following an outcry by employees and their trade unions. Yet this action has tended to focus on narrow aspects of governance, for example, on ensuring more thorough and credible company audits. More worrying is the fact that only a handful of governments has undertaken a comprehensive review of corporate governance or taken broad-based action, backed by effective regulation, to institute needed reforms. These should include giving workers and workers’ capital a real voice in company decision-making procedures and creating new instruments allowing them, their organisations and responsible investors to act as brakes on the excesses of unaccountable management.
Trade unions will continue to campaign for an effective national and international framework of rules and standards for good corporate governance and accountability, and market integrity, along with a regulatory system to ensure implementation and enforcement. Within this framework, we will go on pressing for effective measures to rein in the absurdly high salaries paid to Chief Executive Officers (CEOs). It cannot be right that in the USA, for example, while a CEO earned 40 times the average wage of the company’s workers in 1980, she or he now earns around 530 times that, at a time when workers are suffering real cuts in wages, health care benefits and pension provisions. Though the US situation is extreme, executive remuneration is out of control around the globe – and measures to curb those excesses are key to restoring public faith in corporate governance.
This discussion paper addresses the current crisis of corporate governance and proposes a framework for public policy reforms on corporate governance. It contests the myths surrounding the governance of modern corporations, identifies the problems, and proposes a proactive public policy response and a corresponding trade union agenda. Its aim is to assist the Global Unions’ campaign for both national and international corporate governance reforms that will create sustainable corporations for the modern world.
John Evans
General Secretary - Trade Union Advisory Committee to the OECD