Bachelor of General Studies (BGS) Degree Practice Exam

Why do several European countries require employee members on the boards of directors of public companies?

1. To ensure profit maximization.

2. To increase board diversity.

3. To explicitly represent employees' interests.

4. To comply with EU regulations.

The correct answer is: To explicitly represent employees' interests.

Several European countries have implemented regulations requiring employee representation on the boards of directors of public companies primarily to ensure that employees’ interests are explicitly represented. This approach aims to create a more balanced governance structure that takes into account the perspectives and needs of employees, who are vital stakeholders in the success of a business. In these countries, employee representatives on boards can help integrate workforce concerns into the decision-making process, fostering a sense of inclusion and potentially leading to better outcomes for both the company and its employees. This model reflects a broader commitment to corporate governance that values stakeholder input, rather than focusing solely on shareholder profit maximization. While increasing board diversity and compliance with regulations may play a role in broader discussions about corporate governance, the primary motivation for including employee members is about ensuring that their voices and interests are directly addressed at the highest levels of decision-making within the company.