The Independent View: Employee ownership makes economic sense

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While Labour and the Tories debate how to reinvigorate their annual party conference programme, the Liberal Democrats democratic policymaking structure means that debates at their conference remain engaging and relevant. And with the party now in Government, the journey from the Conference floor to the statute book is rather more direct than has previously been the case.

This means that over the next few weeks, the Lib Dem gathering in Brighton is the most likely place for progressive yet plausible policy ideas to get a hearing. The Social Liberal Forum’s motion 106 on employee ownership, to be debated on Monday 24th September from 09:05-11:05, is a particularly good example. The motion calls for a number of radical measures relating to the stewardship of large companies (>250 employees) including:

• The right for employees of listed companies to request 5% of company shares
• A role for employee representatives in major corporate decisions, including conditions of employment; Director’s pay; and the strategic direction of the company
• The right for companies to implement German-style two-tier board structures, with a supervisory board (including a shareholder’s representative) and a management board (including a worker’s representative).

It is exciting to think that these kind of policies could shortly be adopted by a governing party. They would go some way to ensuring that more of the profits from businesses go back to the people who generated them, in the communities they were generated. They would also help to combat inequality and out-of-control executive pay by empowering and incentivising ordinary workers, rather than resorting to punitive taxation.

Furthermore, employee ownership makes economic sense. Research from Centre Forum found that businesses with some degree of employee ownership were more productive and more resilient than their competitors. The Employee Ownership Index of companies with more than 10% employee share ownership has outperformed the FTSE All Shares Index by an average of 11% pa since 1992.

Intuitively, it makes sense that businesses that involve their workforce in decision-making processes will also take greater responsibility for their social and environmental impact. Current business models are entrenching inequality and failing to create jobs. With an annual income of £4.86 million, the average FTSE 100 CEO currently earns 185 times the national average We have recently witnessed major scandals in the banking, media and pharmaceuticals industries. So there is an urgent need for a new way of doing business with the needs of the community at its heart. Employee ownership might go some way towards this – workers representatives on boards would bring a different perspective to strategic decisions on areas like executive pay packages, for example, or environmental pollution affecting the community in which they live.

‘Business ethics’ is the theme of the High Pay Centre’s party conference programme this year, and we are hosting an event in Brighton in conjunction with the SLF on Monday 24th September at 8pm, with speakers including Lord Oakeshott and former Gregg’s CEO Sir Mike Darrington, on the evening after the debate on motion 106. Hopefully our discussion will encompass a set of radical new Liberal Democrat policies on employee engagement.

The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.

* Luke Hildyard is the Head of Research at the High Pay Centre.

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6 Comments

  • Small thing, but The Independent View, not The Independert View,

  • Why only 5%, why not make it 10% and so be aligned with EU wide rules on ESOP’s. Given that an ESOP is the obvious vehicle for the efficient administration (both clerical and tax) of employee shareholdings.

    Provision is also necessary to ensure that the worker’s representative(s) are neither a member of management nor a union official/representative.

  • This is a welcome step but we ought not to kid ourselves that it is so ground breaking. It is nothing like as radical as the Liberal Party’s old policy and a long way from Richard Wainwright’s vision of an economy where ‘labour hires capital’. If we are to remedy the ‘gross and shocking maldistribution of wealth’ (as the Liberal Party described the situation many years ago) then we need to see employee ownership,wealth taxes, inheritances taxes etc as part of package of measures to redistribute wealth. We could learn a lot from the writings of James Meade. His ideas were taken up by David Steel and the early SDP. Talk of equal opportunities whilst there is such an unjustifiable hoarding of assets by a few is unconvincing.. The motion passed by the Liberal Assembly which set up an Inqiry into the distribution of property began:
    ‘This Assembly of the Liberal Party, indignantly aware of the grossly unequal distribution of property in this country, believes that the greatest possible measure of personal ownership, with the independence and security it brings, should be enjoyed by all. It also believes that the opportunities of a full life hitherto open only to the rich should be placed before all.’
    and the party went on to advocate government action to remedy the situation not voluntary requests.

  • Woud these rights extend to low-paid outsourced workers? I mean people like the John Lewis cleaners who are excluded from the benefits that other John Lewis employees receive.

  • Richard Swales 22nd Sep '12 - 12:05pm

    Employees currently have the right to request any percentage of a company’s shares. The owners (i.e. the people who built the company or paid full price to buy it from the people who did) currently have the right to say no.

    Why be so cowardly and pretend you are giving workers a right, which they already have and nobody would ever oppose. Be brave and say what you really mean is that you want to take away the owner’s right to offer work with remuneration in money only, rather than work with remuneration split between money and shares.

  • Ed Shepherd 23rd Sep '12 - 8:07am

    I work at a company where there are employee representatives (the company refuses to recongise trade unions even though many employees are trade union members) and where employees own some of the shares. The represtatives and the share ownership have made no difference to the company’s plans to make people redundant, to shut departments and to decrease employee’s wages. The worker representatives go to meetings and put forward their views. Their views get completely ignored by management. Sometimes the representatives have been told that a particular procedure will be followed and we later find out that a totally differnet procedure has been implemented. A small minority of worker share holders have no influence over the direction of the company. Many redundant workers end up selling their shares. Representatives are scared to speak out because they know that they might be discriminated against if they speak up to strongly. The staff have no other way of protesting or influencing company decisions. More staff are now joining unions to ensure that at least they have someone to help them prepare a case when they face redundancy proceedings. These proposals would not help low-paid, beleagured staff at all. These proposals might even make things worse for the employees. Workers are better off with cash in their bank accounts, not a few shares in a company owned by corporate investors and self-centred directors. Workers need professional representatives who have proper training and job security not whoever happens to pluck up the courage to agree to attend a meeting where they get fobbed off with promises that are never kept.

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