We should give consumers a stronger voice in companies. How do we make it happen?
Theresa May has proposed that company boards should include consumers (and workers). While there has been a lot of discussion in recent days about how this might be enacted in reality, the Prime Minister reaffirmed her commitment to the concept of accountability at PMQs on 23 November.
There are a number of things we need to consider if we want this proposal to actually happen. This includes looking at other ways we can strengthen consumer voices at companies.
Getting consumers on boards is an attractive idea. It’s also difficult to make happen.
The idea that consumers should have a voice in the boardroom is an attractive one to consumer advocates and could be an asset to progressive companies. But making it happen comes with difficulties:
There’s no evidence of business groups supporting the proposal.
If the idea isn’t widely welcomed by business and needs to be mandated, this would require legislation. In the post-referendum climate there’s likely little time and appetite for such legislation.
The skills needed to make board-level judgements aren’t widely held by consumer advocates making finding suitably qualified consumers a challenge.
One or two consumer members joining a board dominated by conventional and experienced board members could be very intimidating.
While consumer representatives might bring a special perspective to board deliberations, legally they would have the same duty to act in the interests of shareholders.
So how could we proceed?
We have no real experience of consumer representatives on boards and there’s little prospect of legislation mandating an approach. It might be better to proceed through a small-scale, voluntary route.
The government might wish to start in those parts of business where it has special influence, like sectors subject to regulation. It could use the ‘soft’ power of Ministers and the ‘harder’ power of regulators to encourage at least a few companies in major regulated sectors to try out this approach on a voluntary basis. Ministers and/or regulators could convene discussions with key companies to explore how this would work and how they could support it.
The chance of consumer representatives being effective on company boards would increase if they had training, assistance and resource. A small group of professionals could run training courses and assist in understanding key issues like business plans and investment proposals.
What else should we consider?
As an alternative or as a supplement to consumers on boards, Government and regulators should consider promoting consumer challenge groups in regulated companies. The Essential Services Access Network (ESAN) recently published a report on current experience of this model.
There are already some encouraging examples of this model working effectively.
In the water sector, all companies were mandated by Ofwat to establish Customer Challenge Groups (CCGs) for Price Review 14 (PR14) and, such has been the effectiveness of the model, that all water companies have voluntarily established such CCGs for Price Review 19 (PR19).
In the insurance sector, the Financial Conduct Authority (FCA) has required each company to establish an Independent Governance Committee (IGC).
3 years before its acquisition by BT, the mobile operator EE had an External Advisory Board that gave the company independent advice on its responsibility agenda and membership included a consumer affairs specialist.
For some years, there has been a Post Office Advisory Council which includes representatives of the trade unions in the company and stakeholders with knowledge of customer views.
The Government is preparing a consultation on the idea of consumers (and workers) on boards. This consultation should embrace these ideas and involve those with widespread experience of consumer representation, in the debate.