Now a shareholder has taken up that fight. CtW Investment Group, a group that works with union-sponsored pension funds, filed an unusual proposal late last year at Alphabet, Google’s parent company, that calls for the board to nominate a nonexecutive employee to be elected by investors as a director at next year’s annual meeting.
If the proposal ends up on the company’s proxy this year, it would likely be a first for a technology company and one of the rare occasions when a shareholder has tried to get an employee onto a U.S. corporate board. And at a time when several 2020 Democratic candidates have sponsored legislation that requires companies to let employees elect a percentage of directors, the filing — though considered unlikely to succeed — could garner attention. Economic inequality, scrutiny of the tech industry and corporate power are expected to be big issues on next year’s presidential ballot.
CtW’s filing, made in late 2018 but which has not previously been reported, argues that an employee director would add to the “knowledge and insight on issues critical to the success of the company” and would be “particularly useful in the board’s oversight of corporate culture.” It pointed to ways it said the company is “out of alignment with the values of its employees,” such as the revelation that Google had paid millions of dollars to executives who had been accused of sexual misconduct, as well as employee opposition to projects in China and with the Pentagon.
“We really see this as becoming a real long-term risk to the company,” said Emma Bayes, director of engagement at CtW Investment Group. An employee representative could help mitigate “risks to human capital and to corporate culture but also help prevent some of the reputation damage that these uprisings cause. Potential future employees are seeing this and wondering, ‘Is Google really a place I want to work?’ ”
Liz Fong-Jones, a former Google engineer who was involved in labor issues at the company but left in recent weeks, said in an interview that she supports the proposal.
“Management is not doing a good enough job of listening to employees,” she said, calling the company’s response to employees’ request for a board representative after the walkout “completely inadequate.” “I think it definitely is a perspective that’s not currently heard at the table, and I think that’s pretty powerful.”
Bayes and Dieter Waizenegger, the group’s executive director, said that they did not work in conjunction with Google employees or with any lawmakers on the proposal, and that the deadline for Alphabet to ask the U.S. Securities and Exchange Commission to let it exclude the measure from its proxy has passed. The union-sponsored pension funds CtW works with own about 1.15 million Alphabet shares.
Still, even if it makes it onto the ballot, it may not matter at all: The vote is advisory, for one, meaning the company could choose to ignore it, even if a majority of shareholders approved it. That is almost certain not to happen: Alphabet has what’s known as a “dual-class” share structure, where insiders’ powerful class “B” shares have 10 times as much voting power, and insiders can control the outcome of any vote. (As of its last proxy statement, Google co-founders Larry Page and Sergey Brin held 51 percent of total voting power, and former executive chairman Eric Schmidt held another 5.6 percent.) Current equity compensation that’s granted to employees, meanwhile, is in class “C” shares, which have no voting rights at all.
A spokeswoman for Google declined to comment on the proposal.
Nonexecutive employee directors are highly unusual in the United States, but not unheard of. Marc Goldstein, head of U.S. research for the proxy adviser Institutional Shareholder Services, said a few U.S. companies have an employee representative or the right to have one, as a result of union negotiations, including Navistar International, United Continental Holdings and Delta Air Lines.
While he said he had not seen investor proposals to put employees on boards, investors are filing more proposals this year at technology companies, which have come under increased scrutiny, and are increasingly focused on the broader issue of human capital management. “It’s gaining traction with mainstream asset managers as well, who are saying ‘this is an important topic — it goes to the company’s sustainability. It’s a long term issue to be able to attract and retain the best people,’ ” Goldstein said.
CtW’s proposal isn’t the first time such a filing has been made, however. In the early 1970s, employees put forward proxy proposals at companies such as General Motors, Ford and AT&T, most of which were massively opposed by shareholders, according to Ewan McGaughey, a senior lecturer at King’s College London who studies corporate governance issues. In 1974, the SEC ruled that management could exclude shareholder proposals for employee directors, he said, but several years later, Chrysler nominated the United Auto Workers leader Douglas Fraser to the board after the union helped the automaker get a federal loan.
Other countries have long employed the practice, if under different governance systems. In Germany, for instance, half of the supervisory board at large companies, which sets the company’s strategy and elects its management board, is made up of workers. And in Sweden, he said, boards have two to three workers, depending on the board’s size.
“If you’ve got more autonomy in how your job is being managed, you’re more likely to feel empowered,” said McGaughey, who has worked on the British Labour Party’s labor law platform.
Some say the practice would set up conflicts of interest in a country that has long put shareholders at the center of decision-making for corporate boards.
“The problem with it is that as an employee you’re at cross-purposes — your fiduciary obligations are to your shareholders,” said Charles Elson, who directs a corporate governance center at the University of Delaware. “The role of the board is to hire, fire and monitor management. How can an employee oversee the manager who may fire the employee?”
Waizenegger said the employee would still be expected to focus on the long-term best interests of shareholders, and that the added viewpoints he or she offered could outweigh any votes in which they disagreed with other directors. For Google, he said, “this is one more way to express their commitment to workers.”