
Why U.S. Corporate Boards Don’t Include Workers - petethomas
https://www.bloomberg.com/view/articles/2018-08-27/why-u-s-corporate-boards-don-t-include-workers
======
simonsarris
"A board of three is ideal. Your board should never exceed five people, unless
your company is publicly held. (Government regulations effectively mandate
that public companies have larger boards—the average is nine members.) By far
the worst you can do is to make your board extra large. When unsavvy observers
see a nonprofit organization with dozens of people on its board, they think:
“Look how many great people are committed to this organization! It must be
extremely well run.” Actually, a huge board will exercise no effective
oversight at all; it merely provides cover for whatever microdictator actually
runs the organization. If you want that kind of free rein from your board,
blow it up to giant size. If you want an effective board, keep it small."

— Peter Thiel

More board members may increase intransigence, _decrease_ oversight (cover
over who is _really_ making the decisions and who is not), and turn US corps
more bureaucratic.

Many totally rational worker ideals (keep comfy job) are often very opposed to
a company's ideals (upgrade technology, take new risks, automate) that may
disrupt current workers in favor of fewer workers or different workers. Boards
beholden to current workers may sacrifice a lot of progress to keep things
comfy, at the expense of future workers and jobs.

I get why, as this article describes, it happens in Germany and is suggested
for the US. But on the face of it that mandating board composition is probably
not the best way to help workers in companies. There is probably some better
way that throws less sand into gears, that involves fewer attempts to mortgage
the future of a company for its present workers, etc. Obviously it "works" in
germany, for some amount of "works," but it should need no explanation that US
companies as a whole are able to move faster, and in high tech, often with
higher wages(!!) than in Germany.

Sorry that my perspective is dragging this in a tech centric, but everyone
should ask themselves: Why _are_ tech workers wages _so low_ in Germany
compared to the USA, if they have workers on the board? It seems unaddressed
in this discussion so far, which I think is a great discussion to have. But
lots of people so far are acting like its obvious that the German model will
lead to higher worker salaries but its... not true already in Germany, for
tech at least.

~~~
balabaster
It's not just Germany that has lower tech wages. I've looked at moving back
home to the UK many times so that I can spend more time with my family, but
can't reconcile the fact that I'd have to take a 75-80% pay cut to stay in
this industry. Compared to North America, software engineers are paid pittance
in the UK... now that you've brought my attention to the fact it's the same in
Germany, it begs me to ask the question - is this the same in _all_ of Europe?

~~~
stretchwithme
I was approached by a German blockchain company last year and the salary range
discussed wasn't great. Less than half. And it didn't seem cheaper to live
there.

My theory of why tech salaries are higher in the US: the US, public and
private, borrows trillions of dollars. It consumes more than it produces.
Wages are higher. And so are imports and immigration. It's all a consequence
of the borrowing.

If the US stopped borrowing so much and stopped inflating bubbles and re-
inflating them after they collapse, consumption, wages, imports and
immigration would fall.

If the US started paying down its debt, we'd be producing more than we
consume. We'd be exporting more than we import and there'd be more emigrants
than immigrants.

The growth industries are the most prone to bubbles. It's easier to believe
something that is rising will get big than something that is the same or
shrinking. So most of the VC capital goes to growth industries. Well, it would
in any case, but even more so when there is an unnatural amount of capital. So
that is where salaries get bid up the most.

~~~
chimeracoder
> My theory of why tech salaries are higher in the US: the US, public and
> private, borrows trillions of dollars. It consumes more than it produces.
> Wages are higher. And so are imports and immigration. It's all a consequence
> of the borrowing. If the US stopped borrowing so much and stopped inflating
> bubbles and re-inflating them after they collapse, consumption, wages,
> imports and immigration would fall.

Just so everyone is clear, this is a heterodox (fringe) theory that is not
accepted by economists, mostly because it flies in the face of both
macroeconomic theory and empirical research.

~~~
mschuster91
> Just so everyone is clear, this is a heterodox (fringe) theory that is not
> accepted by economists, mostly because it flies in the face of both
> macroeconomic theory and empirical research.

It has its bases in reality, though. Remember Yo? 1.5M at 10M$ valuation for
an app that broadcasts "yo". This is only made possible because borrowing
money is extremely cheap in the US compared to Europe.

~~~
chimeracoder
> It has its bases in reality, though. Remember Yo? 1.5M at 10M$ valuation for
> an app that broadcasts "yo". This is only made possible because borrowing
> money is extremely cheap in the US compared to Europe.

This is itself reductive and doesn't really represent the full story (venture
capital in particular is itself already largely sourced from foreign money).

In any case, the statement "low interest rates encourage investment" isn't
fridge (in fact, it is literally tautological). The fringe part is the idea
that the US is fueling cycles this way, and the implication that the US
economy would somehow be better off by paying off debt instead of printing
money.

~~~
mschuster91
> The fringe part is the idea that the US is fueling cycles this way

I thought that the entire point of lowering interest rates is to fuel the
economy? Problem is when the markets have become addicted to cheap money, and
politicians don't have the guts to force them to give up the cheap money, so
eventually the bubble bursts...

~~~
stretchwithme
It exaggerates the cycles for sure. If the Fed let interest rates be set by
the market after the next bubble collapse, the recovery would be slower, less
bubbly and growth would be based on the value of things, rather than how
easily a sector is stoked by interest rates. And it would be more likely to be
sustainable and stable.

------
pasiaj
I recently had a discussion with a board professional, a female, who has sat
in boards of publicly traded companies in Germany, Finland and Sweden.

Finnish law does not dictate board composition of companies in any way. In
Sweden, companies of 25+ employees in most cases have 2 or more
representatives in company board. Germany has a dual board system. Employee
representatives have a right to seats on the supervisory board of larger
companies – one-third in companies with 500 to 2,000 employees, half in
companies with more than 2,000. If I understood this correctly, employees are
represented by a union official.

Her view was that the German system is simply a bad model that doesn't work.
At the same time she credited the Swedish system for the fairly low number of
strikes and union activities in Sweden, saying that board representation
creates a more keen understanding of business realities throughout union
representatives & employees.

She advocated for Finland adopting similar policy to Sweden.

~~~
johannes1234321
In what way doesn't it work? Germany has quite a few quite successful
companies, world market leaders in their fields and a quite good social
relationship. Certainly there are issues, but far from "doesn't work" in my
observation.

~~~
LanceH
Or, Germany has some successful companies that can afford inefficiencies.

~~~
johannes1234321
Maybe. A related question also is what a measurement for "good" is. Successful
companies with unhappy society isn't nneccisarily a good society.

That's why I asked for details instead of an anecdotal unspecific remark by
one person.

------
stretchwithme
How would a board seat even represent all of the employees? Would the
arrangement be any less corrupt than the way unions represent workers? Would
organized crime get involved?

Employees have power over the company. They can leave it for another company.
At any time, actually. Companies have to compete for employees.

Of course, employees CAN own stock and accumulate enough to get a seat,
assuming they can agree. And that, of course, is the problem. Employees won't
agree on everything so the majority of employees will get represented and the
rest of the employees will not be represented.

Winner-take-all decision making opens the door for corruption. It plagues our
democracy. Why shouldn't it also plague corporate decision making?

If you had an arrangement where employees voted on board issues and the YES
employee votes were proportionally assigned to the YES side of the board vote
and the NO employee votes were proportionally assigned to the NO side of the
board vote, that would make a little more sense.

But that would mean the workers would have to be privy to the board's
discussions, which means the world will know what they discuss.

So, without that proportionality, the employee representative can actually
make backroom deals with the other board members. Deals that might benefit him
but cost those he represents a lot.

~~~
forapurpose
There's a presumption in the parent that people who work for a living are
corrupt and that managers and executives are not. IME, people are people, and
there are plenty of corrupt managers and executives - I don't think I need to
start listing examples - as well as workers. I don't see that either group
should be denied representation or power on that basis - if we excluded people
for such things, then there would be nobody left to run the place.

> Employees have power over the company. They can leave it for another
> company.

There is clearly a great power imbalance between a company of any size and one
worker, unless that worker is a superstar (like a star coder).

> Employees won't agree on everything so the majority of employees will get
> represented and the rest of the employees will not be represented.

That's not how democracy works. In order to put together a majority, you have
to make deals with different groups and not alienate those who you might need
in the future. The 'majority' shifts over each issue and over time, and the
leaders compete to please as many as possible.

And regardless, I don't see what the parent is recommending: No power for
workers because it will be imperfect/ What makes the current setup any better?

~~~
stretchwithme
People risking their own money tend to be non-corrupt about managing it. Those
who pay with other people's money tend to be more corrupt.

It has nothing to do with the color of their collars. Either interests are
aligned or they are not. When you pay the costs and get the benefits, you are
less likely to be corrupt. When you get the benefits and the costs get shifted
to somebody else, you are more likely to be corrupt.

As I've already said, workers have power. They just don't have power that
rightfully belongs to the owners. It seems like another way to create a
monopoly over the labor supply and it would be destructive in the long run.

~~~
rexpop
> They just don't have power that rightfully belongs to the owners.

Tell me more about how rightfully these venture firms acquire their capital?

------
JumpCrisscross
Tech companies' employees usually receive equity. Perhaps we could provide an
incentive for giving stockholding employees, collectively, with a Board seat.
This Board member would represent stockholding employees' interest, not all
employees, and so find natural alignment with the broader shareholder base.
It's probably not the final solution, but it's a moderate and _prima facie_
sensible step.

Carrots which to mind include:

* Lower reporting requirements from the SEC;

* Tax benefits from state tax authorities or the IRS;

* Limited liability shielding in employee lawsuits; _et cetera_.

~~~
dannyw
Employees receive stock options, which are not yet equity. Employees generally
also have to sign away their rights to vote.

~~~
JumpCrisscross
> _Employees receive stock options, which are not yet equity_

These vest and are exercised. Biasing representation, at least initially, to
those who have been at the company longer and bought their stock seems
prudent.

> _Employees generally also have to sign away their rights to vote_

Above is a proposal to amend that.

------
jnordwick
Just ditch the Unions and most of the Wagner Act.

VW tried to create a workers board in TN similar to the German model, but the
UAW got in the way.

[https://www.nationalreview.com/2015/12/adversarial-labor-
law...](https://www.nationalreview.com/2015/12/adversarial-labor-laws-
volkswagen-tennesee/)

I saw a quote from a German labor leader (I think) saying American unions are
overly adversarial against firms and don't care about keeping them running.

I think a lot of firms would gladly include worker representation in various
form an there isn't a need to create laws to require it.

~~~
ppseafield
Isn't the history of labor abuse, company towns/script, corporate thugs at the
ballot boxes, etc., a counterexample? Does Germany have a similar history?

IIRC most German engineering firms are privately owned, many of them family
businesses. Negotiations would definitely be easier than with typical large,
publicly traded US companies.

Edit: I should add that I'm not necessarily defending hostile unions, or
unions that do more harm than good. On just pointing out that the
labor/corporation relationship in the US has been less than friendly.

~~~
zaarn
Germany does have a history of abusing labor, notably from the 1800s, back
then if you worked in a factory you likely didn't make enough to live, so your
wife worked there too as well as your kids once they're old enough to cry.

A lot of social reforms followed eventually, in part due to pressure from
worker parties, and we got most of the labor law up to 1919 when the weekly
hours worked was limited at 48 hours. Up until 1945 the laws around labor were
updated continuously and around 45 they were cleaned up and unified.

This included a lot of other stuff like overtime payments, break times,
required time between work shifts, etc.

Unions also started appearing in that timeframe, first ones in ~1850, and that
interacted with the labor law. Around 1870, Labor Unions were integrated into
the corporations, which at that point basically consisted of the rich factory
owner and the starving workers (cliched, but that was the situation here). The
unions immediately went about fixing that and were subsequently banned out of
fear (by pressure through the rich factory owners) and then later unbanned
again. (Then in the two following wars abused and centralized)

The modern history is less interesting, there is some abuse through the unions
but in general they had collective bargains which enabled workers to get a
labor contract between their union and the corporation which basically sets
the hours worked, compensation levels, days off per year and various other
parameters.

Having such a contract basically rids you of most of the protections afforded
by the state since you're now in the union and the union is strong enough to
negotiate fair labor conditions for you (if it isn't this doesn't apply).

If you're not part of the union then this also doesn't apply, this is only if
you're part of the union (though usually the collective labor contract is
favorable and people use those even if not in the union).

Generally unions don't have a purely negative image (unless they manage to
piss off a lot of people like when you effectively halt public transport).
Most of them work along with the corporation to protect workers, ie if the
corporation is short on profit they'll suggest that instead of firing a lot of
people they could reduce hours worked instead.

------
hirundo
Why doesn't the mechanic who fixes my Volvo have a vote in my choice on
whether to replace the clutch or where to drive it this weekend? Because it's
my Volvo, and my money I'm spending on it not his. He can choose to work for
me or not, but can't reach in my wallet or choose a destination. Certainly he
is a stakeholder in such decisions. But that doesn't make it his choice.

If a law is passed that gives my mechanic a vote on such things it would
partially transfer the car's ownership from me to him, a redistribution of
wealth. Whether you consider that to be justice or theft or both or neither,
it isn't a great incentive for me to own a car or hire someone to fix it.

~~~
citation_please
HN loves it's metaphors and analogies. This one falls apart quite quickly
because the transaction between you and your car mechanic is orders of
magnitude more elastic/liquid than that of a employee and an employer. This is
why the laws that govern those transactions are wildly different.

Once your car mechanic's single source of income is your transaction, which
feeds their children and puts a roof over their family's head (as is the case
for many employees), then maybe we can revisit this analogy.

Finally, because your analogy was so weak, I would also recommend to reexamine
your opinion on employee rights at large, because they may be formed around
similarly broken logic. Remember, the more your neighbors are protected from
poverty and destitution, the less likely they are to be caught in a lifestyle
of drugs and violence, which also benefits you and your family.

------
onetimeusename
I could be mistaken but I believe there are rules in place for public and
private companies, as well as non profits, regarding director independence and
employees are not considered "independent directors". This came, I believe, as
a result of the Enron scandal. Surely this has some role in why employees are
not on boards.

Here is a link to a Nasdaq policy on the matter[1].

[1]
[https://www.sec.gov/rules/sro/34-47516.htm](https://www.sec.gov/rules/sro/34-47516.htm)

------
mbostleman
There are something like 25,000 companies in the US with revenues over $100
million. How is it that 25,000 actors - who at that level of revenue are
likely pretty sharp business people that are highly motivated by the bottom
line - are not coming up with this idea on their own?

~~~
perfmode
are you invoking the efficient market hypothesis?

~~~
mbostleman
Actually I think it's more akin to Natural Selection.

~~~
perfmode
has the notion of natural section which you’re invoking been articulated in a
way that can be shown to be applicable and falsifiable with respect to your
claim?

------
all_blue_chucks
Why would this even be a question? Boards are nothing more than a way to
represent owners. You can't have shareholders vote on every single decision.

------
chrisseaton
Can workers not get representation on boards already by buying shares and
voting on board membership? Or is that not effective for some reason?

~~~
nerdponx
No individual worker can hold enough shares to matter. Unless you're talking
about a labor union buying a non-trivial stake in an employer? I've never
heard such an idea before, but I'm sure at someone else has thought of it in
the past I would be curious to see how that went. It also doesn't do anything
at a private company.

~~~
chrisseaton
Yes I mean the workers collectively buying shares, if they want collective
representation on the board. Why do workers need to be a special case? Anyone
interested in the direction of a public company can get involved this way
already.

~~~
LyndsySimon
I completely agree - this is the mechanism through which it makes sense, _for
public companies_. Privately-held companies don't typically have such a
mechanism.

------
rdl
I wonder if this would make any sense in a tech company. I would generally
think a CEO (who is on the board) is going to be more aligned with an
engineer's interests than the CEO and a walmart cashier, but they still have
some distinct interests. Maybe a representative of non-founders holding the
"standard" employee form of stock?

~~~
nerdponx
Isn't this basically what CTOs and CIOs do?

Would the non-tech equivalent would be something fanciful like a Chief Cashier
Officer?

~~~
forapurpose
CTOs and CIOs are management and represent management. Their priorities aren't
wages and working conditions, but bottom line performance and their own power
and careers. They represent employee interests as much as the HR director
does.

------
iamleppert
A good movie about why this is a bad idea is “Other People’s Money” (Danny
Devito).

Employees will always optimize for themselves, eventually leading to the
destruction of the company.

In power law systems, the enemy of efficiency is local optimization. The very
thing that allows the behemoth corporations of today to exist and scale to
work is the fact that there are compounding factors working - which is the
work of the board. These factors would be less likely in a more locally
optimized system, which would naturally result in the case of employee run
corporations where the employees are treated fairly.

I think it says a lot that many of the most large corporations are the result
of this kind of organization structure. It’s clear that this isn’t the best
structure for human beings but is probably very much needed by very high level
business like the tech industry. Do you really think employee run business
would have led to enough free capital and accumulation of wealth to invest
billions of dollars in a pair of AR goggles?

~~~
rileymat2
Minor Quibble: Many times the CEO is both an employee and has a voting seat on
the board.

------
useful
I'm pretty sure I can get a job if my company dies.

Workers don't have a good incentive to offset the human need to want more more
in worker wages which may be counterproductive to the long term viability of a
company to compete.

------
Kinnard
No mention of startup employee compensation and board structures? Seems like a
conspicuous elision.

------
throw2016
The simple answer is to privilege capital over all else. And in the US it
denotes the triumph of capital and dilution of the value of labour. It's as if
labour is an afterthought and not an integral part of value creation.

This bitter struggle has been ongoing for the last 300 years and has seen the
rise of communism, socialism and other struggles. And its going to continue.
The solutions are simple but entrenched interests with capital will obviously
protect their interests.

------
sunstone
Because according to American accounting standards workers are an expense and
not an asset.

~~~
hirundo
definition of asset:

1\. A useful or valuable quality, person, or thing; an advantage or resource:
proved herself an asset to the company.

2\. A valuable item that is owned.

The accounting term is closer to the second definition. I assume that you
don't think a company should consider a worker to be "a valuable item that is
owned."

~~~
adiusmus
Given how I’ve been treated by various corporations, I’d say that plenty of
companies consider workers as “a valuable item that is owned”. I had a clause
in one contract they tried to insert that stated I was not allowed to work in
any company that was a client of theirs or start a business of my own that
might compete against them. My lawyer laughed out loud at that clause.

------
prolikewh0a
Corporate boards in USA don't include workers because workers would pull money
away from the shareholders and executives in the form of pay raises and better
benefits for lower level employees.

~~~
atmosx
Hm, it did not work like that in Germany in the 90s and 00s. Workers were
persuaded not to go after raises, although profits soared, to avoid losing
jobs to countries like Poland. The German government decided to keep the
surplus from exports and indirectly brag about it, as if countries are
households. The result of this idiotic policy was of course that German
industry scored record profits, but wages remained stagnant for ~20 years
since by not investing in infrastructure the govt kept wages low “virtually”.
Then negative interest rates came, the EU went berserk and the AfD is the
third political power in Germany. So much for the surplus.

Back to the matter at hand... having workers in the board helps, but doesn’t
secure raises.

~~~
mpweiher
Er...in the 90s and 00s, Germany was "The Sick Man of Europe", significantly
lagging the other Western European countries.

So there were no soaring profits to distribute at the time, and wage restraint
agreed by the unions was one of the factors in bringing Germany back (note:
not "the" factor, as usual there were many).

~~~
pluma
The reason for Germany carrying that title at the time was the cost of
reunification, not the economy itself. West Germany was still doing relatively
fine but East Germany required massive investments. Germany was hit by the
early 00s recession but that was hardly unique in Europe.

------
s73v3r_
I would hesitate to say that the US system arose out of completely "voluntary"
agreements. In the US, most employees, even if they were to band together,
have nowhere near the bargaining power to be able to negotiate a seat at the
table. As the article itself showed, when companies started falling on hard
times, or even when one manager became aghast that the workers were sharing in
the profits, the employee councils were out.

------
jstewartmobile
Having rank-and-file employees on the board seems a little iffy. Maybe it
would work if the ownership had some interest in employee perspectives and
well-being--like in the Filene case. Filene strikes me as an outlier though.

Without that interest, you're just putting high schoolers up against an NFL
team--no match for the wealth, power, and credentials of shareholders and
their representatives.

------
_rpd
tl;dr: the author's answer to the question in the headline is that US unions
have become too weak to negotiate adding union representatives to corporate
boards.

~~~
pm90
I wonder how much of the "unions are horrible" view that most of us have today
was just a effective marketing campaign, much like the "welfare queen"
stereotype.

Weakening unions seems to have caused much more damage than whatever evils
they were accused of (profligate compensation for unproductive workers)

~~~
asmithmd1
Most of it is marketing. Notice how hard companies fight whenever there is an
attempt at unionizing a workplace.

My wife is a member of a nurses union and it is nice to have a contract with
your employer (something all top executives have) instead of work conditions
being at the whim of a manager.

A downside of most contracts is there is little room for performance bonuses -
almost all contracts are based on time in the union and not performance. The
effect is an A player and a D player all get the same wages and benefits.
There is no reason a union contract has to be structured this way, but for
some reason they almost always are based on time and not performance.

~~~
asmithmd1
So what does every nurses get in terms of pay and benefits after they are all
averaged together? A pretty good deal! After 20 years almost $100/hour of
work, 1.5X that after 40 hours per week. 6 weeks vacation, paid sick time and
paid major holidays. The contract is renegotiated every 2-3 years to keep the
rates increasing with inflation

~~~
rileymat2
Are you sure about your numbers outside of a few select localities with high
cost of living?
[https://www.payscale.com/research/US/Job=Registered_Nurse_(R...](https://www.payscale.com/research/US/Job=Registered_Nurse_\(RN\)/Hourly_Rate/e57a1cea/Late-
Career)

