CIPD Voice: Issue 16
This year’s Labour Party conference saw the party put forwards new proposals on corporate governance designed to give employees more say in the decisions taken by their employers and to give employees a greater stake in their employers’ success. But like any good three-card trick, while attention was focused on one headline-grabbing proposal – 'shares for workers' – the likely impact will depend on the effect of all the proposals.
In his speech Jeremy Corbyn said Labour were 'proposing to give the workforce of all large UK businesses the right to elect a third of the seats on the board'.
This is not a new idea. Labour governments in the 1970s struggled with how to best promote 'industrial democracy' (as it was then known), even setting up a committee to develop proposals, though these were never implemented. In the 1990s, employees were one of the key 'stakeholders' in models of capitalism in vogue at the time. And more recently, in her 'steps of Downing Street' speech, Theresa May appeared to float the idea of workers on the board. However, the corporate governance Green Paper rowed back from the idea of legislation. Companies have tended to resist compulsion and they are able to deploy the - arguably credible - threat of relocating overseas, with possible damage to jobs and tax revenues in the UK.
There’s also a question as to whether worker-directors would change anything, in terms of company decisions. Supervisory boards in Germany must include worker representatives, yet their presence didn’t prevent the vehicle emissions testing scandal. More generally, employees’ representatives understandably identify with the interests of the company. Advocates of worker representation, however, point to cases where board decisions appear to have privileged groups such as executives much more than 'ordinary' employees.
'Shares for workers'
John McDonnell's speech doubled down on this, targeting the ownership structure of large firms, rather than simply who takes the decisions. All UK listed companies with 250 or more employees would be required to transfer some of their shares – up to 10% of the value of the company eventually – into an Inclusive Ownership Fund, a company fund supervised by employee trustees. The shares in these funds would be eligible for dividend payments, the same as other shares, and these dividends would be shared out to employees, becoming a type of profit-related pay.
'Social dividend' or stealth tax?
However, these aren’t quite the same as other shares. For one thing, they can’t be sold. And the dividend for the worker would be capped at £500 per year. Where the value of the dividend pay-out exceeds this, the excess goes to the Treasury to pay for the 'social dividend', by which McDonnell seems to mean helping to pay for higher government spending that benefits business and society.
It could be argued, though, that this is a disguised increase in corporation tax. And the sums of money involved aren’t shabby: the BBC suggest revenues raised from one company – Shell – could be more than a billion pounds a year.
The devil is in the detail
The next election may not happen until 2022. Floating policy ideas at this stage in the Parliament supports the narrative of Labour being a government-in-waiting and gives them time to develop the practical details of implementation. But it also gives time for their opponents to identify potential weaknesses in their position.
Certainly, questions remain, such as how or whether these proposals overlap, or how these proposals would work in cases where companies already give shares to all of their employees. More fundamentally, companies would appear to have a reason to avoid these proposals, and one way of doing so – relocating abroad – appears to be at hand. And companies can always blame it on Brexit.
Mark's role includes leading the CIPD’s respected labour market analysis and commentary, while also strengthening the CIPD’s ability to lead thinking and influence policy making across the whole spectrum of people management and workplace issues.
Prior to joining the CIPD, Mark was an economic consultant and for over 20 years worked as an economist in the Civil Service, latterly at Chief Economist/Director level, in a range of Government departments including the Department for Business Innovation and Skills (BIS), the Department for Innovation, Universities and Skills (DIUS), the Department of Trade and Industry (DTI) and HM Treasury.