People are our greatest asset, at least until the robots take over

July 30, 2018

The UK government is strengthening reporting rules about employees. But Mike Tuffrey asks how this squares with longer term trends towards automation.

New corporate reporting rules, released in recent months, would seem to confirm the UK government believes that old adage – beloved of CEOs in their introductions to the annual report – that “our people are our greatest assets” (before they go on to describe the latest restructuring for ‘optimalisation’.)

First up, in July the Financial Reporting Council released the new UK Corporate Governance Code, aiming to “put the relationships between companies, shareholders and stakeholders at the heart of long-term sustainable growth in the UK economy.” A quarter of a century on from the original Cadbury Code, the emphasis is even more on building trust and strong stakeholder relationships. See here for the highlights – all about establishing a corporate culture aligned with the company purpose and business strategy, one that promotes integrity and values diversity. Once again, the talk is about principles, applied flexibly, not a rigid set of rules.

Yet in one area, employees, the Code is highly specific. Under the Code, large companies are required to engage the workforce in decision-making, through some combination of an employee director on the board, an advisory panel or a designated non-executive director. Those with long memories will recall the firm promise by Theresa May in her July 2016 leadership bid “If I’m Prime Minister, we’re going to change [the] system – and we’re going to have not just consumers represented on company boards, but employees as well.” Well, not quite, as it turns out. (I wrote about her u-turn on that point soon after here.)

The second big change is a set of rules about mandatory reporting each year of how directors of large companies have acted on their so-called section 172 ‘inclusive’ duties. These require them to promote the success of the company for the benefit of its members whilst “having regard to” matters such as long-term thinking, the interests of employees, the need for good relations with suppliers and customers and likely impacts on communities and the environment. Also included is the desirability of maintaining a reputation for high standards of business conduct.

These directors’ duties have been in place for a decade now, but without any obligation to say how they have been acted on. You noticed a big shift in corporate behaviour since then, with rising levels of trust in big business? No, me neither. So now there is to be annual reporting. In June the government tabled draft regulations before parliament affecting all large companies (private as well as public) for financial years commencing on or after 1 January 2019.

The government went further on employees, extending the workforce reporting aspects to all companies with more than 250 UK employees; and went further still for quoted companies – with prescriptive rules about how CEO pay relates to the median and 25th and 75th percentiles of their UK employees, plus a narrative about how that is changing and about wider policies on employee pay, reward and progression.

So much for a principles-based, not rules-based, approach. Actually, I have some sympathy for getting tougher; after a decade, patience with corporate (in)action is wearing thin.

The trouble is, this focus on direct employees is also a decade behind some really big shifts in the composition of the workforce. First we had the huge globalisation of the economy, with manufacturing and services ‘off-shored’ to Asia and with big reductions of employment back home. At the same time, many on-site ‘core’ services are actually provided under outsourced contracts. Now the so-called gig economy means vital parts of the labour chain are self-employed, not directly employed – think drivers and delivery riders. Next comes the automation of high-skill, high value-adding jobs thanks to AI and the accelerating digital revolution.

The full implications of the onward march of robots is a topic for another day. Meanwhile, for anyone wanting a deep dive on trends and likely impacts, this thoughtful speech by Adair Turner back in April – “Capitalism in the age of robots” – got little publicity at the time. He warns that the “rapid, unstoppable, and limitless progress of automation potential will have profound implications for the nature of and need for work, and for the distribution of income and wealth”, adding that “in a world where work per se is decreasingly required, we cannot rely on the free-market reward for different types of work to deliver acceptable social balance”.

For those with a less dystopian, more optimistic outlook, a PwC report just out – “Will robots really steal our jobs?” – concludes that job losses from automation will be “broadly offset” by new jobs created as a result of the larger and wealthier economy which the new technologies will make possible. They don’t believe there’ll be mass technological unemployment by the 2030s, any more than the first decades of the digital revolution have caused.

Continued work then for corporate lawyers – and sustainability professionals? – in reporting on the shifting, but perhaps not shrinking, workforces of large companies. Our people, with their friendly robot helpers, are assets after all.

 

Mike Tuffrey is Co-founding Director of Corporate Citizenship.

 

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