November 7, 2017 @ Quartz at Work
As executives in Hollywood and other industries hold their breath to see who will be the next subject of an exposé on sexual harassment in the workplace, the nation’s board members should be on high-alert: They are also culpable for harassment in the companies that they are supposed to steward.
Corporate boards are the institution that the law imbues with ultimate responsibility for company performance. That the Weinstein Company board and others failed so completely to understand what was going on within their firms should give impetus to new thinking about how corporations are governed.
In the United States, corporate boards are often homogenous, with long-standing members, few women or people of color, and no worker representation. Though the number of women and people of color on boards has expanded in recent years—with half of the 397 newest independent director positions at S&P 500 companies filled by women and minorities—still only 22% of S&P 500 board members are women. Unsurprisingly, there were no women on the Weinstein Company’s board. Certainly, there were not employees of the Weinstein Company on the board either.
This is a problem. Academic research supports the premise that board composition makes a difference in how corporations behave. For example, the research suggests that more diverse boards with shorter term limits may include a wider range of perspectives that can lead to better decision-making. This is in-line with research that shows generally greater diversity in the workplace leads to better long-term results.
The absence of worker voice on company boards is also damaging. In a service-based economy, where the knowledge and motivation of workers is key to firm success, workers are investors, and they are at least as important as the capital investors. To let our firms be governed solely by the capital investors misses the value that worker voice can add—in raising red flags about bad behavior, but also in improving firm performance.
Without greater representation of women and representation of workers in the governance of firms, there is no reason to expect greater accountability for CEOs who engage in sexual harassment or otherwise ignore the plight of the people who work for them.
One way to help prevent the next Weinstein scandal is to reform the rules governing board composition. European countries are moving in this direction: the European Parliament passed a law requiring non-executive corporate directors to be 40% women by 2020. Moreover, worker representation on European boards is not unusual. A new book argues that we should formally recognize the value and voice of labor investors by mandating a role for workers in corporate governance.
If we are serious about making corporations more responsive to how their workers are treated, we need structural reform that will give workers a voice in the governance of their own work lives and the right to bring a greater diversity of views before the board.
Sharon Block is executive director of the Labor and Worklife Program and a lecturer on law at Harvard Law School.