It's been an interesting day for those of us on the Left with an interest in issues of governance and ownership. At Labour conference it has been announced that a future Labour government would both mandate that workers form a third of the board of companies and that new funds would be created to increase worker ownership.
On the latter point, here’s what John McDonnell said: “We will legislate for large companies to transfer shares into an “Inclusive Ownership Fund.” The shares will be held and managed collectively by the workers. The shareholding will give workers the same rights as other shareholders to have a say over the direction of their company. And dividend payments will be made directly to the workers from the fund. Payments could be up to £500 a year. That’s 11 million workers each with a greater say, and a greater stake, in the rewards of their labour.”
According to media coverage, the idea is that each year 1% of the equity of public companies would be transferred to these funds, and eventually they would hit a maximum 10%. The shares could not be sold, but workers would gain from dividends paid out.
On the face of it, this is a scaled down version of the Meider Plan in Sweden, which involved the creation of sectoral “Wage Earner Funds”. Labour’s proposal seems to be pitched (sensibly in my view) more in terms of ensure that those who create wealth get their fair share of it than in terms of socialisation of the economy. But it is still quite an important development.
There are some rather over the top comments out there today from corporate groups who frequently extol the benefits of employee share ownership. I really don’t see why it’s so terrible to make this reality by proactive policy rather than being content with the very limited extent of employee ownership that exists today.
There are few other important effects of this policy that don’t seem to have been covered, so I thought I’d spell them out.
- 1. Relations with the company: With 10% of the equity, a worker ownership fund would be one of the biggest shareholders in most PLCs, and the largest in a majority of them. To put this in context, in most cases the worker fund is going to be a bigger player than Blackrock (and the people involved with the fund are going to know a lot more about the internal workings of the company. This means that any company’s investor relations department is going to need to pay close attention to them, along with the board.
- 2. Relations with other shareholders: Any significant shareholder interaction with a company would have to sooner or later involve the respective worker owner fund. A bidding company in a hostile takeover will have to try and win it over and the expectation has to be that in most cases the fund is going to be predisposed to reject a bid. Imagine the dynamics if a bidder can’t get them onside, and how that would affect the views of other market participants. And presumably groups like the Investor Forum would have to find a way to work with these new funds too.
- 3. Shareholder rights: Once you get over 5% your rights as a shareholder increase substantially. That means worker owner funds could, if need be, file shareholder resolutions, or call EGMs. In practice I’d imagine that the capacity to do this would be a significant enough bargaining tool, but the powers would be there.
Taken together, employee ownership and board representation would mark an important shift in the UK model, though in reality it would only move it towards a more fully-fledged social democratic approach to the economy. You really don’t need to be a Corbynista to sign up to this.
Here, for example, is Roy Hattersley backing a Meidner-style approach in his (really quite interesting) 1987 book Economic Priorities for a Labour Government: “I am for the diffusion of wealth and power — in principle. And I rejoice that the methods of bringing such a diffusion about are likely to improve our economic performance. The creation of co-operatives and the acquisition, by employees, of shares in the companies which employ them — coupled with rights to promote employee participation — is a far more effective way of providing economic enfranchisement than the creation of vast state monopolies which are insensitive to the needs both of workers and consumers…”
And he also recognised that employee ownership could not be a subsitution for other forms of worker representation: “Unless employee share ownership schemes are coupled with rights to information, consultation and representation they may be treated with justified suspicion by many trade unionists. Giving employees more say will not come for a long time — if ever in some large and multinational companies — if we just rely on ownership schemes.”
So it’s not a “far left” plan, it’s entirely within the tradition of a thoughtful approach to political economy that really belongs within the Labour Party. I think we just set our sights too low for too long. And I am glad that Labour is getting its ambition back.