Did asset managers walk the workers’ rights talk in their submissions to the UK Corporate Governance Code review?

Through 2018, the Committee on Workers’ Capital has been working to expose the discrepancies between the statements and the actions of asset managers around the topic of sustainability – particularly the human and labour rights dimension. In this installment of the CWC Blog series on asset manager accountability, we evaluate one dimension of asset manager actions that has not yet been placed under scrutiny: how do asset managers weigh into regulatory consultations, and what impact do their submissions have on the strengthening of workers’ power?

In December 2017, the UK Financial Reporting Council (FRC) announced a revision of its Corporate Governance Code. One key revision to the code was a proposal asserting that the board of directors had the “responsibility for considering the needs and views of a wider range of stakeholders.” Among the most groundbreaking proposals was a suggestion that boards should do more to take into account the views of the workforce. The revised code listed three ways to this could be accomplished: 1) a director appointed from the workforce, 2) a formal workforce advisory panel, or 3) a designated non-executive director. This proposal generated much attention as discussions of the merits of a shift in corporate governance regimes away from an exclusive focus on shareholders and towards a more stakeholder-based model unfolded.

These proposed revisions emerged against a backdrop that will be familiar to many. In the UK, scandals of the likes of Sports Direct, BHS and Carillion rattled the country and prompted Theresa May to call for an end to “the excesses and irresponsibility” of some top executives whose actions were damaging “the social fabric of [the] country.” Meanwhile, across advanced economies, the share of national income paid to workers has been falling since the 1980’s. This means that a larger share of this income has been going to investors, which include pension funds.

The UKs Corporate Governance Code Consultation appeared at an important point in time for trustees with an interest in responsible investment, such as those who participate in the activities of the CWC. Indeed, it has become increasingly clear that the actions of asset managers contracted by pension funds may run against the interests of the workers and the beneficiaries that sustain the funds. Worker and union-nominated trustees now need to be equipped to critically evaluate how well asset managers integrate ESG – particularly social issues – into their investing.


We undertook an analysis of the submissions of key global asset managers to the UK Corporate Governance Code Consultation to shed light on the matter. As a network that connects the global trade union movement with the worker-nominated trustees on pension funds that invest a large sum of capital in financial markets, we used the submissions from the Trades Union Congress (TUC) and the International Transport Workers’ Federation (ITF) as a benchmark. The two submissions outlined, in detail, best practice for corporate boards on issues related to the workforce in relation to the draft code.

Our starting point in examining whether asset manager discourse on social issues was consistent with their policy positions was their high-level public statements. In January 2018, for example, BlackRock chief Larry Fink famously told companies that they “must benefit all their stakeholders, including shareholders, employees, customers and the communities in which they operate.” In February, State Street joined influential asset managers under the banner of the CEO Force for Good, urging company executives to report on long-term plans, including interactions with shareholders and key stakeholders. And Fidelity, for its part, published a white paper on inequality as an ESG risk, noting that “enhancing shareholder returns at the cost of labour may well become more difficult.”

We then analyzed the UK Corporate Governance Code consultation submissions of BlackRock, Fidelity, State Street and UBS — the same set of asset managers that were profiled in our analysis of their proxy voting records. Our question was straightforward: Did the responses of these asset managers align with their public statements in support of considering the interests of stakeholders, as articulated by the TUC and the ITF?


The TUC and ITF both supported worker directors on boards, providing additional recommendations to enhance the Code’s effectiveness in engaging the workforce. Both union organizations emphasized that at least two worker directors should be elected by the workforce, with candidates nominated by unions where they are present. And both questioned the FRC’s failure to make any mention of trade unions, despite their important role in engaging the workforce and representing workers’ interests to management. Noting a distinction between worker voice and directly representing worker interests, the TUC maintained that the latter is “best done through collective bargaining with trade unions.”

Our set of asset managers offered no support for the proposal of worker directors on boards. The reasons why were varied.

BlackRock, to begin, felt that stakeholder representation on boards could create special interest groups and that the best way to account for stakeholder views “is to ensure more purposeful discussion at board level.” It advised assigning stakeholder considerations to management rather than the board.

The TUC was a step ahead of BlackRock in 2016, when it published an extensive review of research documenting how worker directors at the highest level of a company have contributed to more balanced and broadly based corporate strategies across Europe. The benefits they bring to the table include a specialized understanding of company operations, diverse perspectives and a means of accounting for labour conditions that may increase productivity. There is no evidence that workers on boards create special interest groups. One Swedish study, for instance, found that the vast majority of chairmen and managing directors considered the role of employee directors to be positive.

“…introducing workers’ voice at the highest level of the company would bring real business benefits and make a concrete difference to the culture and priorities of company decision-making and the lives of working people.”

– The TUC

Fidelity, in turn, suggested that any of the three methods proposed – and described above – to gather workers’ views “could be effective” but maintained that boards be accorded flexibility for other mechanisms to gather the views of the workforce. In a similar vein, UBS stated that “directors’ duties are appropriately drafted in law and that they support the needs of investors as they already require directors to take into account the interests of employees, customers, suppliers, the community, and the environment.”

The issue with Fidelity’s assertion is that in the absence of clear standards, boards already have flexibility in gathering workforce views – and the results have not been overwhelmingly positive. In fact, the UK corporate governance model is characterized by a lack of worker rights to representation or voice in the companies they sustain – and this has been identified as an overall weakness within UK companies.

This lack of clear guidance is precisely what a stronger version of the FRC provision could have helped address. The same argument may be extended as a response to UBS’ impression that directors’ duties as defined in law are already sufficient. If the interests of workers are already considered by boards, why did the UK government and the FRC see a need to make mention of workers in its move to shift boards from a purely shareholder to a more stakeholder-centric approach?


The influence of the large asset managers in regulatory and public policy matters is sizable, and the trajectory of the UK corporate code provides an interesting case study. Theresa May’s initial pledge to place worker directors on boards in 2016 was welcomed by the trade union movement but generally opposed by the UK business community. Indeed, it has been suggested that the UK business community, with the quiet support of the investment community, contributed to the demise of the proposal. As outlined in an op-ed written by the TUC’s Janet Williamson, the proposal was watered down significantly in the blueprint that established a framework for the three workforce engagement mechanisms proposed in the revised code.

That said, when the consultations ended and the final code was released, slightly stronger language appeared on the provisions concerning workers on boards (click here for details). Furthermore, it is significant to note that the final version makes specific reference to trade unions.


Asset managers are supposed to be working in the best interest of their clients. Indeed, Blackrock states that “We work only for our clients. Our promise is to give them insight into what to do with their money.”

However, the results of this analysis on the UK Corporate Governance Code Consultations suggests that the capital that is invested by asset managers on behalf of asset owners – including the retirement savings of unionized workers – can be used to weigh into public policy processes with positions that run against the very interests of workers.

As a result, some trustees are refining how they evaluate asset managers when it comes to capital stewardship, ESG integration and responsible investment. With respect to social issues –including worker rights – we urge trustees to assess whether an asset manager is effectively working in the best interests of its clients and providing insight into how their capital is used. Our analysis suggests that questioning asset managers on how they have responded to key strategic regulatory and public policy consultations is one way to assess their performance.

We would like to thank Janet Williamson for her input and contributions to this piece.

The CWC is available to support trustees in determining which key consultations they could use to question their asset managers.

Photo credits: kumoma lab