Sunday, 17 August 2014

A bit more from Roy Hattersley on equity ownership

A few nuggets from Choose Freedom.

First a general bit on shareholdings:

The acquisition by working men and women of small shareholdings in unlikely to change the nature of society. Conservatives may call it people's capitalism. But most of the capitalist people will see their small portfolios as another form of saving which may give them a feeling of middle class prosperity which normally goes with a bank account but which does not emotionally commit them to support for the enterprise culture of stock exchange and commodity markets. For although the possession of a share certificate will provide a slice of theoretical power, the whole process of appearance or proxy (not to mention the likelihood of being swamped by institutional power) will diminish the feeling of real involvement. On the other hand, the possession of equity holdings which are organised to maximise the influence of employees within the company can induce a wholly different attitude, for the employee-shareholder is doubly involved with the company.

Attitudes of institutional investors (in the 1980s) to extended employee share ownership:

One of the principal barriers to the extension of real share ownership is the criterion laid down by the investment protection committees* of the big institutional investors - the insurance companies, the pension funds and the unit trusts. They fear that, notwithstanding the evidence of improved performance, worker share-ownership will dilute the value of traditional holdings as new shares are issued to employees. Therefore they stipulate that the the firms in which they invest should not allocate more than 5% of their pre-tax profits or 1% of their existing share issue to employee shareholders. That prejudice could be overcome by law, but even such a statute would have to be accompanied by the gradual education of slow learners. In the meantime, we need to establish trusts which can purchase existing shares on behalf of employees without diluting the value of the shares in general. Unless such new institutions are created, investment protection committees will inhibit the development of worker-shareholder schemes in a way which tax incentives do not have the power to overcome.

Employee ownership and power vs state ownership

Socialists who are serious about the extension and diffusion of power and ownership need to start thinking about how [widespread employee share ownership] can be achieved. Unity Trust Bank - the trades union bank - has begun the process. Extending it is a classic socialist cause. Ownership and wealth is being spread more evenly; the state is employed not to enhance its own power but to organise the distribution of power to the people - theoretical rights are changed into reality; the mechanisms of government, the tax system, the legislative process, are all being used to provide individuals with a greater influence over their daily lives. To fail to provide that process because of some half-digested notion about collective action, centralised planning or state ownership would be a denial both of the individual rights which ought to be at the heart of socialism and the long-held belief that the emancipation of the worker requires his relationship with his employer (and his relationship with the capital which provides his employer with power) to change...

[T]he more different schemes to extend worker control and influence proliferate - co-operatives, ESOPs, investment funds - the more the whole nature of society changed. That is surely a more noble objective than the transformation of a few private monopolies into state monopolies.

* these were the committees that dealt with 'ownership' issues and rights before corporate governance, stewardship etc (I think they were, basically, the NAPF Shareholder Affairs Committee and ABI Investment Committee, though they may have had different names at the time). The Institutional Shareholders Committee was originally an extension of the existing investor protection committees, so it's possible there is an ISC policy doc out there somewhere setting out the proposed limits on employee ownership and profit sharing. Personally I quite like the language of 'investor protection'.

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