Comment

Employment practices are a key plank of good corporate governance

15 Nov 2017 By Estelle Clark

Estelle Clark analyses the findings of the 2017 Good Governance Report, which identified the tech sector as having a worrying attitude towards labour law

Society’s view of what constitutes good governance is changing, moving away from the narrow definition of financial performance towards a broader definition that takes into account an organisation’s impact on all its stakeholders.

The 2017 Good Governance Report includes a range of new measures to gauge the quality of corporate governance, including whether a company has a whistleblowing policy, and is a signatory of the UN Global Compact and the Prompt Payment Code, for example. 

One of the most interesting issues to come out of the report is the potential correlation between emerging hi-tech sectors and corporate governance in relation to employment practices. Certainly, employment issues are becoming more and more of a governance issue, particularly in relation to the use of zero-hours contracts and as UK workers get used to the idea of the ‘gig’ economy.

Information technology scores poorly in relation to other sectors. While the sample size is too small to enable us to draw solid conclusions, the results do merit further investigation. My concern is that the emerging technology sectors do not regard robust corporate governance practices as being sufficiently important for their business models. I’m sure Facebook’s founding motto of ‘move fast and break things’ was never meant to apply to the law, and specifically employment practices, but there is growing evidence that is exactly what is happening.

The various scandals at Uber in recent months are a good example. The Chartered Quality Institute partners with a company called RepRisk, which tracks corporate reputation risks for both listed and non-listed businesses, and made a significant contribution to the Good Governance Report. Although concerns over Uber’s governance have only recently hit the headlines in the UK, alarm bells have been ringing at RepRisk over the taxi firm’s conduct for some time.

Discrimination lawsuits have been filed in the UK alleging that the company put female drivers at risk, while at the same time it has been appealing the ruling that recognised its drivers as employees so that it could avoid paying VAT and their social security contributions. 

The fact that Uber did not officially employ its drivers seems to have created in the minds of senior managers a situation where they are not responsible for drivers’ actions. Yet in 2016-17, Uber drivers were linked to rape and sexual assault against passengers in the UK, the US, Brazil, Taiwan, Thailand, India, the Philippines and China.

But the Uber problems go further. In the same period, the company was linked to bribery in China, India, Indonesia, Malaysia, South Korea and Russia – while consistently failing to recognise its drivers as employees.

There is clearly enough weight of evidence here for the board to know exactly what was going on and attempt to clean up the company’s act. The board’s refusal to address the problems ultimately led to the resignation of Uber’s CEO, Travis Kalanick, following accusations that he created a culture that allowed sexual harassment and discrimination against female employees.

In fairness to Uber, it is not alone. Similar employment issues, specifically in relation to conditions at Airbnb and alleged discrimination against female employees at Google, as well as the ongoing fight of employees at Deliveroo to be allowed to establish a union, suggest that digital technology companies are willing to play hard and fast with our established norms in relation to labour laws, rest periods and the minimum wage. 

The Good Governance Report appears to have cast further light on the lack of governance in emerging sectors. Its findings need further investigation – but the weight of evidence suggests that there is a case to answer.

Estelle Clark is director of policy at the Chartered Quality Institute; a non-executive director at Riversimple, a hydrogen fuel cell eco-car company; and a member of the governance advisory panel at the Institute of Directors

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