As the UK heads into a worrying winter, Charlie Thompson examines the risks for senior teams as they manage the tensions created by unpredictable economic pressures.
A combination of the pandemic, Brexit and economic uncertainty is generating a febrile atmosphere in many companies, increasing the risk of in-fighting, with conflict likely to arise at all levels from the shop floor to the boardroom. Shareholders, too, in businesses of all sizes are flexing their muscles.
A recent investor rebellion at Ryanair, saw 34.2% of investor votes opposing resolutions on executive pay, including a 92% bonus for the CEO, at a time when the business’s revenues had collapsed and it was taking on state support.
A similar, albeit smaller revolt also took place at British Airways. In both cases, the pay resolutions were passed, but they are symptomatic of tensions across the economy in businesses of all sizes.
This is because there is so much for stakeholders to have fundamental disagreements about.
One of the intentions of the furlough scheme and the new job support scheme is to avoid the need for redundancies or at least slow down the rate of job cuts. While these schemes are undoubtedly welcome, they may only delay the inevitable for many employees. There have already been large numbers of redundancies, and more are likely on the way. Where there are dismissals, there are disputes.
Similarly, the unprecedented level of government support has sought to prevent vulnerable companies from going out of business during the extreme circumstances of the pandemic. Yet it seems inevitable that for many businesses, government measures are only a stay of execution, and they will soon plunge into insolvency. Many will feel highly uncomfortable about a business collapsing on their watch.
In this context, board directors and shareholders have to make significant strategic decisions under extreme pressure that will have a long-lasting impact on the business. Accordingly, the level of engagement from board directors and shareholders is heightened, as everyone seeks to exert their influence. There have been and will continue to be fundamental and irreconcilable disagreements among shareholders and in boardrooms about the right way forward.
With household debt at high levels and a sluggish job market, many employees have agreed to changes to contracts through gritted teeth, knowing that it is better to have a job than not”
This heightened level of engagement can exacerbate any existing tensions in the boardroom, and increase the risk of factionalism and civil war. Those who have been looking for an excuse to oust senior employees may see a combination of economic uncertainty, Covid-19 and Brexit as a perfect opportunity to make their power play.
In that context, we can expect an increase in boardroom disputes and exits, and many more allegations of mismanagement and directors being in breach of their duties under the Companies Act 2006. Senior employees and directors who fear being tarnished by their association with a company that is being poorly managed and in danger of collapse may feel a greater incentive to make formal whistleblowing complaints.
Long service opportunities
Among the surviving workforce, the mood is also dark. Some employers have imposed pay cuts or required staff to sign new, less favourable contracts. Measures of this nature are genuinely necessary to avoid redundancies. For others, especially those with long-serving staff on historical contracts, it is the first major opportunity in many years to save costs, change bonus structures, withdraw benefits or require employees to sign up to more employer-friendly contracts.
In many cases, these changes cannot be made lawfully without employee consent. But, with household debt at high levels and a sluggish job market, many employees have agreed to changes through gritted teeth, knowing that it is better to have a job than not. Still, some will hold their ground and allege breach of contract.
This tense dynamic is set to continue, and there will be flashpoints in the near future.
Despite their best efforts, many employers will not get returning to work right. Some employees will feel pressurised to return too soon, and others will continue to suffer from the isolation and extension of the working day that happens with working remotely. An employer’s legal duty to provide a safe system of work applies where employees work from home, and when employees have severe breakdowns, questions will be asked about whether the employer met that duty.
Similarly, bonus season will be fraught. Paying bumper bonuses to executives while the company has taken on government support and made others redundant will divide opinion. While the overall economy has struggled, there some businesses have performed extremely well in the last year. Executives in those organisations (and the shareholders who back them) will rightly feel aggrieved if their individual performance is not rewarded. In some cases, those employees will allege breach of contract.
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