What the political parties say about employee ownership

 

In the past, the Conservatives, Labour and the Liberal Democrats have all expressed support for the principle of wider share ownership of businesses. Indeed, in 2014, all three backed the introduction of the employee ownership trust which allowed the transfer of businesses to employees without triggering a capital gains tax bill for the selling shareholders.

It may have been expected, therefore, that the party manifestos might have something to say on the subject. In fact, a look through the documents reveals rather a mixed bag.

The Conservative Manifesto takes as its focus better corporate governance.

Boards should take account of the interests not just of shareholders but employees, suppliers and the wider community. To ensure employees’ interests are represented at board level, we will change the law to ensure that listed companies will be required either to nominate a director from the workforce, create a formal employee advisory council or assign specific responsibility for employee representation to a designated non-executive director. Subject to sensible safeguards, we will introduce, for employees, a right to request information relating to the future direction of the company.”

The document goes on to say that there would be consultation on strengthening the corporate governance of privately-owned businesses, but there is nothing on employee ownership.

Participation in businesses by employees is mentioned in the Labour Manifesto, but only alongside other “stakeholders”.

By reforming the rules our companies operate under, we can make sure they stay focused on delivering shared wealth. Labour will amend company law so that directors owe a duty directly not only shareholders, but to employees, customers, the environment and the wider public, and we will consult on bringing forward appropriate legislation within this Parliament.”

There is, however, a specific reference to employees being given a “right to own”.

In government, Labour would give more people a stake – and a say – in our economy by doubling the size of the co-operative sector and introducing a “right to own,” making employees the buyer of first refusal when the company they work for is up for sale. We will act to ‘insource’ our public and local council services as preferred providers.”

It is not clear, however, how this would work in practice, and, in particular, how this might be financed.

It is only in the Liberal Democrat Manifesto that specific proposals are to be found regarding greater involvement by employees.

“Too many people justifiably feel left behind. Liberal Democrats believe that it is vital that everyone is given a stake in our economy, that we can only be united and competitive as a country if the rewards are reaped by all.

A well-functioning economy which works for everyone cannot be based solely on companies owned by and operated on behalf of small groups of shareholders. It should seek to foster a diversity of types of business, including encouraging alternative models such as mutuals, social enterprises or community interest companies.

In all cases, it is vital to ensure the engagement and involvement of employees; successful businesses work for all stakeholders. That is why we will:

  • Encourage employers to promote employee ownership by giving staff in listed companies with over 250 employees a right to request shares, to be held in trust for the benefit of employees.
  • Strengthen worker participation in decision-making, including staff representation on remuneration committees, and the right for employees of a listed company to be represented on the board. We will change company law to permit a German-style two-tier board structure to include employees.
  • Reform fiduciary duty and company purpose rules to ensure that other considerations, such as employee welfare, environmental standards, community benefit and ethical practice can be fully included in decisions made by directors and fund managers.
  • Reduce the reporting requirement for disclosure of shareholdings to 1% in order to increase transparency over who owns stakes in the biggest companies.
  • Require binding and public votes of board members on executive pay policies.”

The proposal to give staff in listed companies with over 250 employees a right to request shares is an interesting one. EMI options, for example, are available only to companies with fewer than 250 employees. However, this proposal might be aimed at extending the operation of the tax-advantaged Share Incentive Plan which is already popular in many listed (and some private) companies.

The Liberal Democrat Manifesto also mentions, in the context of making taxes fairer and simpler, that its proposed reforms would include “refocusing entrepreneurs’ relief”. No further detail is given.

Depending on the outcome of the General Election, it will be interesting to see how many of these proposals will be progressed. We shall report on developments as they arise.