Employee Shareholding and Participation in Corporate Governance

Baroness Bowles of Berkhamsted Excerpts

Thursday 11th October 2018 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I too thank the noble Lord, Lord Haskel, for securing this short debate. The topic has many aspects but today I will focus, as my noble friend Lord Greaves hinted, on the employee ownership sector, which represents some 4% of UK GDP.

In June the report The Ownership Dividend was published, after a year-long UK-wide inquiry into the effects of employee ownership—EO for short. I was the independent inquiry chair, aided by distinguished individuals from 20 leading independent business organisations, who posed questions at oral hearings and guided the report and its recommendations. The Cass Business School and the Alliance Manchester Business School also attended and provided a rigorous framework analysis of the substantial evidence. We were repeatedly informed that EO stimulated long-term thinking, collaborative behaviour, ambition, transparency, good governance and well-being. We were told, “It’s like owning a home instead of renting”, and, “You get a whoosh effect in the profits”.

The dividend of employee ownership is summarised as three things: driving productivity and performance, especially of SME and family businesses; rooting jobs in regional economies and providing resilience, especially at the succession stage; and sharing wealth and influence more equally among all employees. EO businesses are not all 100% employee-owned, in the formal acronym sense. Some are minority employee-owned, some use trusts, some use direct ownership and some a hybrid. Benefits, though, are delivered because there is both an ownership stake and true ownership culture: that is what defines employee ownership, as opposed to simply employees owning shares. There is an inbuilt meaningful say.

Following introduction of the employee ownership trust—or EOT for short—in 2014, there are now 250 EOTs. The majority are outside London and that number is growing at a rate of 30% a year, in contrast to “Save as you earn” and share incentive plans, which are declining. The Ownership Dividend reported many recommendations and has an action plan of how to grow more EO businesses, covering topics from capacity-building, awareness, regional development, training and finance to removing anomalous tax obstacles and providing tax incentives.

Just this week the Employee Ownership Association, the industry body for the EO sector, submitted a further interesting proposal to HMT for an employee share ownership trust which can hold both EOTs and SIPs. Using both elements, tax-free payments of bonuses and dividends could be made to employees of up to £14,600 per annum. That is under the current tax rules. Refinements such as shorter SIP holding periods could add further attractiveness, along with other measures. I can see ways in which an ESOT could become a vehicle for employee-corporate governance participation, even if using only the SIP side. It rolls up well with ideas such as having to spend as much on free shares for employees as is spent on executive incentive schemes. We need to attract all sizes of company, public and private, into meaningful employee share ownership for the benefit of the individual, businesses and the economy. ESOTs could be the way. I hope that the various relevant government departments and Ministers will make a good study of the ownership effect inquiry’s report and its work programme.