Employee representation on company boards
In an increasing number of companies and corporate groups, employees are represented on the board. Being a board member is both exciting and challenging—for the individual elected and for the employee group as a whole.
The system of electing board members from among the employees was established by law in the early 1970s. There is a wealth of experience to draw from—both from employees who have served on boards and from union representatives and others who have followed board work closely.
Common questions include:
- What qualifies as a board matter?
- How can board members raise issues for discussion?
- What role does the general manager play in the board?
- When can the board impose confidentiality, and what does that mean?
- When are board members considered disqualified due to conflict of interest?
What are board matters?
The board has overall responsibility for the management and governance of the company. It must ensure sound organisation of the business and develop strategies, plans and budgets.
Board work varies from company to company and often changes over time depending on the company’s size, activity and financial situation.
The Companies Acts and other corporate laws contain general rules about the board’s responsibilities and the division of authority between the board and the general manager.
What qualifies as a board matter—and how responsibilities are divided between the board and management—must be adapted to the specific circumstances of each company or group. In practice, board members must continuously assess whether the board is addressing the right issues, and may themselves initiate discussion of new matters.
The Companies Acts specify certain matters that must be handled by the board, but beyond that, there is considerable flexibility regarding what is placed on the agenda and how it is handled. The challenge is often that boards become stuck in a narrow view of what constitutes a board matter, rather than expanding the agenda to include borderline issues that may still be relevant.
If employee-elected board members request it, the company must provide a board instruction document. This should include rules about which matters must be handled by the board and the general manager’s duties and obligations towards the board. Although these instructions are often written in general terms, they cannot override the legal provision that allows any board member to request that a matter be discussed in a board meeting.
All board members share the same duties – but employee-elected members bring unique insight
All board members have the same rights and responsibilities. However, employee-elected board members are especially encouraged to contribute their unique knowledge and experience related to the workplace and working environment.
Example
Concerns about outsourcing and loss of expertise
A company’s increasing use of hired labour and outsourcing has raised concerns among local trade unions, who argue that this weakens professional communities and leads to a loss of critical expertise. While it is the administration’s responsibility to ensure the company has sufficient qualified personnel, disagreements may arise between management and union representatives.
Since the board is responsible for ensuring sound organisation of the business, it is appropriate for the general manager to report on such matters in their regular updates to the board. If this does not happen, any board member may request a more detailed briefing during a board meeting—and follow up accordingly.
If union representatives and board members believe that the company’s professional competence is being undermined to the point where it may lose out in future tenders, the matter should be brought before the board for a decision.
The board’s role and the right to raise matters
The board is not an appeals body for union matters, but it is the body responsible for strategic and governance-level decisions. Disagreements between unions and management are not automatically excluded from board discussions.
Any board member may request that a matter be discussed in a board meeting. Experience shows that it is sometimes worth the effort to raise unfamiliar or difficult issues. When employee-elected board members bring a matter to the board, it should be well prepared.
In practice, board members often consult with other union representatives to strengthen and quality-assure their input.
Budget and financial oversight
Budget and financial reporting are key items on the board’s agenda and form a central part of the board’s oversight of company operations and executive management. Each board member is responsible for ensuring they understand the financial figures presented and are able to ask relevant questions. If needed, they should request further explanation—usually from the administration.
The general manager and the board
The board is responsible for developing the company’s strategy, preparing plans and budgets, and ensuring sound organisation of the business. The general manager and the administration are responsible for executing operations in line with these plans and reporting regularly to the board, including any deviations from plans and budgets so that the board can adjust course as needed. The board must supervise the general management and the company’s overall operations.
The board may request that the general manager provide a detailed briefing on specific matters. Individual board members may also make such requests. If a board member knows in advance that they will ask the general manager to report on a particular issue, it is advisable to notify both the general manager and the chair of the board in good time.
In companies with employee-elected board members, the board must have a written board instruction. This document outlines how the board operates and is intended to ensure predictability and proper case handling, including helping board members understand how to raise matters. It typically includes rules on which matters must be handled by the board and the general manager’s duties and obligations towards the board.
There is positive experience with board instructions that require early presentation of plans for restructuring, reorganisation or other changes that significantly affect employment and working conditions.
Board members may take initiative
Any board member has the legal right to initiate matters for board discussion. They may request that the general manager report on a matter, demand that a matter be discussed, and insist that it be handled in a formal meeting rather than, for example, by phone.
The board may initiate any investigation it deems necessary to fulfil its responsibilities. It must do so if one or more board members request it. Most often, such investigations will concern the general management—for example, if management has exceeded its authority or failed to follow the board’s guidelines or plans.
The right of individual board members to demand an investigation is particularly relevant for those representing minority shareholders, and especially for employee-elected board members who may not have majority support to initiate an investigation into the company’s management. Legislative preparatory works note that board members representing the majority may have access to information that others do not.
Practical board work
The company’s board instruction should include rules not only on which matters must be handled by the board and the general manager’s responsibilities towards the board, but also on how meetings are called and conducted. According to the law, the general manager, in consultation with the chair of the board, is responsible for preparing matters for board discussion. The law requires that matters be prepared and presented in a way that provides the board with a satisfactory basis for decision-making. This includes sending out meeting invitations and supporting documents in time for board members to read and prepare adequately.
The board itself may adopt more detailed rules for case handling in the board instruction. The point is to establish procedures that are necessary and appropriate for the company’s circumstances.
Meeting minutes
Minutes must be taken from board meetings. These should include details such as time and place, participants, how the matter was handled, and the board’s decisions. If the decision is not unanimous, the minutes must state who voted for and against. A board member who disagrees with a decision may request that their opinion or vote be recorded in the minutes. The best way to ensure that dissent is accurately reflected is to submit it in writing during the meeting. If a member expects to be in the minority on an important issue, it may be useful to prepare alternative drafts of the dissent beforehand.
The minutes may be finalised and signed during the meeting or sent to participants afterwards and signed at the next meeting. If a board member disagrees with the chair’s recording of the minutes—i.e. if the minutes do not reflect the actual events—they may request that a comment be added.
Confidentiality
Some matters discussed by the board are of such a nature that they should not be disclosed to competitors or other unauthorised parties. Typical examples include plans for new production methods, business secrets, acquisitions, closures, and changes in market strategy.
Board members have a general duty to act in the company’s best interests and not disclose information that could harm the company. While board members are required to treat information shared in meetings as confidential, this does not mean they must keep it entirely to themselves. There is broad agreement that employee-elected board members may discuss confidential matters with their advisers, such as the board of the local union, provided that these advisers handle the information responsibly and do not disclose it further.
Matters subject to confidentiality are often also covered by the duty to consult, and should therefore be known to union representatives or soon become known. Employers sometimes argue that board members must consult the chair before involving advisers. It may be useful to discuss the use of advisers in connection with confidentiality provisions in the board instruction, but not necessarily in individual cases. It should be up to each board member to manage their use of advisers.
There are several reasons why other union representatives in the company may be suitable advisers for board members, including their knowledge of the company. It is also permitted to consult subject-matter experts, such as central representatives in your organisation. As an employee-elected board member, you may discuss a confidential matter with a lawyer at Tekna, who is bound by strict professional confidentiality. This applies even if the chair demands full secrecy. In such cases, it is important to inform the lawyer that the matter is confidential. If the matter involves market-sensitive information, the Tekna lawyer must be added to the company’s insider list.
Note: There is no provision in the Companies Act that allows employee-elected board members to be excluded from the handling of specific matters or parts of a matter due to the sensitivity of the information.
Employee representative and board member – a double role?
Whether it is wise to combine the roles of board member and chair of the local Tekna group—or hold another central position—is a matter of debate. Separating the roles may make it easier to handle issues that negatively affect members, such as downsizing. On the other hand, being a board member provides first-hand insight into complex and important matters, often through presentations by subject-matter experts. This kind of information can be difficult to convey in full, even for the administration, which only has second-hand knowledge when discussing the issue with employee representatives.
In practice, combining the roles of board member and employee representative may be beneficial in certain complex cases. A middle-ground solution is for the chair of the local Tekna group to serve on the board, while another representative takes the lead on major issues affecting the group. The best approach must be decided locally, based on experience and context. There is no one-size-fits-all solution.
Tekna generally recommends avoiding dual representation, but takes a pragmatic view: in some cases, the benefits of holding both roles may outweigh the drawbacks. The decision should be based on the specific circumstances and ideally discussed with the board. However, the board cannot decide the matter—it is up to the employee-elected board member to make the choice freely.
Disqualification due to conflict of interest
Board members generally have the right and duty to participate in all meetings and discussions. The Companies Act makes exceptions when a matter is of particular importance to a board member, such that they have a strong personal or financial interest. In such cases, the member is disqualified from participating in the discussion and decision.
Disqualification means being barred from involvement due to a special connection to the matter. The same applies if the matter is of significant importance to someone close to the board member. The key point is that the interest must be strong enough to influence the member’s judgement.
For example, a board member is not disqualified when the board discusses plans affecting groups of employees—even if the member belongs to that group, such as when discussing the spin-off of a business unit or approving general guidelines for salary and HR policy. However, the member would be disqualified if the board is deciding whether to terminate cooperation with a company run by the member’s partner.
Whether a board member is disqualified due to strong involvement in a matter as an employee representative must be assessed on a case-by-case basis. The board decides whether a member is disqualified.
Employee-elected board members who may be excluded from discussions due to disqualification—especially in cases where it is important to represent employee interests—should ensure that a substitute representative is available to step in.
Responsibilities as a board member
Board members and members of the corporate assembly, like other responsible parties, may be held liable for financial losses suffered by third parties. External parties who suffer economic loss may claim compensation from board members if the loss was caused intentionally or through negligence. However, the company itself is first in line to be held liable. Only if the company cannot cover the loss will individual board members be considered for direct liability.
Substitute board members may also be held liable if they participated in the decision-making process that led to the claim. The most common type of loss is financial damage. If someone believes they have suffered a loss that can be claimed from the board, the starting point is that the board is collectively responsible. If the board acted as a unit, all members may be jointly liable. However, differences in the basis for liability and the application of mitigation rules may affect the extent of joint liability.
Individual responsibility is also assessed, taking into account factors such as whether all members had access to the same information and whether they could reasonably have acted differently. This is where the value of membership in a professional organisation becomes clear.
Board members who intentionally or negligently violate provisions of the Companies Act or regulations under the Act may be fined or, in serious cases, sentenced to up to one year in prison. A board member who demonstrates gross negligence in performing their duties may also face fines or imprisonment under aggravated circumstances.
It is essential to carry out board duties responsibly and always understand the implications of decisions. If you do not understand the consequences of a decision, you should find out before giving your approval. Likewise, you must speak up about serious concerns.
If you have formally reserved your position in the board minutes—for example, stating that the matter was not sufficiently prepared to allow a responsible decision—it is highly unlikely that you would be held liable.
Generally, board members are not held liable for decisions that turn out to be wrong or overly optimistic. Liability arises primarily in cases where the board has failed to act or neglected to assess critical issues.
Board liability insurance
Board members may be held personally liable and risk their own assets. Many companies have taken out board liability insurance for their members. These policies come in various forms and can be tailored to the company’s needs.
A standard board insurance policy covers liability arising from negligence—for example, if the board should have realised that the company was operating at the expense of its creditors. However, the insurance does not cover losses caused intentionally, such as when board members knowingly continue operations in an unsustainable situation.
It is important to read the insurance terms carefully. It remains good practice to record dissent in the minutes. Board insurance is not a reason to lower the quality of board work. Gross negligence may result in recourse liability, even if the insurance initially covers the third party’s loss.
Information from board meetings
There is strong experience showing that sharing information from board meetings with employees is highly beneficial. In some companies, this is done by the company’s communications officer in collaboration with one or more employee-elected board members. The information may be shared via circulars, noticeboards, intranet posts or at general meetings.
Employee-elected board members may also need to inform employees directly about what is happening in the board and which matters and positions they have supported.
Board work and employee representatives
Information provided by the general manager to the board is not a substitute for the employer’s duty to consult with employee representatives under the Working Environment Act and the basic agreement. This applies even when employee-elected board members also serve as Tekna representatives.
It is the company’s responsibility to inform and consult with employee representatives about plans that may affect employment and working conditions. The rights and duties of employee representatives vary across different agreements, but the system assumes that consultation takes place as early as possible and before decisions are made. This ensures that the views of employee representatives are included in the decision-making process—for example, in board discussions.
If the board is considering matters that affect employees, such as a reorganisation with employment consequences, and consultation has been “forgotten”, employee-elected board members may request that the matter be postponed until consultation has taken place. Alternatively, employee representatives may request consultation before the board meeting if they know the matter is on the agenda.
In companies with multiple unions, it may be useful to jointly raise the issue of consultation procedures under the agreements.
Election procedures
Employee-elected board members must be elected by and from among all employees. The “representation regulations”, which govern election procedures, allow local unions to initiate elections—for example, by requesting proportional representation, which makes it easier for minority groups to gain a board seat than through majority voting.
Note: When a specific number of employees is required, part-time employees (less than 50% position) count as half. They also receive half a vote in elections.
Board elections can be conducted in three ways: majority voting, proportional representation, and constituency-based elections. If one-fifth of employees or local unions representing that proportion request it, the election must be conducted as proportional representation.
Proportional representation is list-based. A group of at least six employees or local unions may propose a list of candidates and their order. The list must include the same number of names as the number of board members, observers and substitutes to be elected. Names are listed in the proposed order of election.
Each list’s vote count is divided by 1.4, 3, 5, etc. The first seat goes to the list with the highest quotient, the next to the second highest, and so on. Substitute representatives must come from the same list as the elected member. For example, if a list wins one board seat, the second person on the list becomes the first substitute, and the third becomes the second substitute. If only one list is submitted, the proposed candidates are elected in the order listed.
One or more local unions representing two-thirds of employees may request constituency-based elections. The company or group may be divided into as many constituencies as there are board members and observers to be elected. Constituencies may be based on geography, business area, or employee type (e.g. operators vs. office staff).
If two or more members or observers are to be elected in a constituency, proportional representation may be used. Otherwise, majority voting must be used in each constituency.
In majority voting, all eligible voters may nominate candidates. All nominated candidates are listed alphabetically on the ballot, and voters may vote for as many candidates as there are seats. If two members are to be elected, the two candidates with the most votes become board members, and the next becomes the first substitute, and so on.
The role of the local Tekna group
Regardless of the election method, employee-elected board members represent the company’s owners—not the employees who elected them. They are expected to act in accordance with what they believe is best for the company in each case.
This does not prevent them from emphasising the importance of employees and their role in helping the company retain and recruit talent to achieve the strategic goals set by the board, based on decisions made by the general assembly.
Employee-elected board members often take a broader view of strategic operations, favouring reinvestment of profits into the company—such as investments in equipment, skills development, improvements to the working environment, and research and development—rather than maximising dividends to shareholders.
How closely board work should be linked to the work of the local Tekna group must be discussed locally. The same applies to collaboration and working relationships with other organisations and board members who are not affiliated with Tekna.
