Profit-sharing and Company Governance (Employees’ Participation)

Gareth Thomas Excerpts

Tuesday 26th January 2016 Commons Chamber

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I beg to move,

That leave be given to bring in a Bill to make provision about the entitlement of employees to benefit from profits made by their employers in certain circumstances; to require a company to allocate one seat on its board to an employee representative; and for connected purposes.

If an employee works hard for a company and helps it succeed and make a profit, surely the owners should share a little of that profit with them and with other employees. The best companies already do that. Indeed, the best companies also want their staff involved in decision making at the highest level, using their knowledge and expertise to help plot company strategy and keep senior management on their toes.

In truth, Britain has a productivity and fairness problem. Despite numerous initiatives, we are behind our main competitors in terms of productivity, while inequality continues to grow. Changing the way companies work—how they take key decisions and who is involved in them—is essential for sorting those problems out. We lag behind the rest of the G7 and most of the G20 in how productive our economy is. Indeed, between 2010 and 2014, annual average labour productivity was lower in Britain than in any other G20 or G7 country. While executive pay has shot up in recent years, the incomes of the rest of the workforce have struggled to keep pace, even with historically low inflation.

Part of the solution involves sharing a little more of the power and profits of big business with staff at all levels. Companies such as John Lewis share some of the profits they make with all their staff, giving the most junior as well as the most senior direct incentives to work even harder, think imaginatively and go the extra mile. Employees also get to help choose the board, again giving staff direct responsibility for selecting those at the very top whose decisions they will have to follow. Ensuring that the concerns of staff are heard at the top table is particularly important, as staff depend on a stable business for their livelihood. Absent owners or disengaged shareholders may have other priorities.

In countries such as France and Germany, this “shared capitalism” is a stand-out feature of business practice. Companies such as Deutsche Bank have staff on their German board who play an important and positive role. In France, firms with 50 or more employees benefit from up to 5% of profits being shared with all staff except recent arrivals. Indeed, French Governments of all political persuasions, right and left, have a long history of encouraging profit sharing among French companies; I understand that laws on profit sharing have existed in France for more than 50 years, requiring a mandatory profit-sharing scheme to be negotiated with French employees. Companies in France can choose to distribute rewards, either as a flat rate to employees, in proportion to wages, in proportion to the hours worked in the previous year, or through a scheme based on a combination of those principles. Arguably, the prevalence of profit sharing makes an important contribution to higher levels of productivity in France. Between 2010 and 2014, France had a level of productivity per hour almost double that of the UK.

Having employees on boards is the norm in many other successful countries. For example, in Denmark, France, Finland, Norway, Sweden and Germany at least one director is elected by the employees. In Norway—favoured by some for being outside the European Union—once a business has 30 employees, one director has to be chosen by the workforce. In Sweden, another key UK ally, once a company has 25 employees, around a third of directors have to be workers in the business. IKEA, that staple of the British high street, has worker directors on its Swedish board. In France, private companies with 1,000 or more employees, or 5,000 or more if they are worldwide, must have at least one or two staff on the board, while a third of all board members for state-owned companies are elected by the staff. In Germany, a third of the supervising board in companies with 500 or more employees are staff, but that rises to half in companies with more than 2,000 employees.

For a long time, this country has been happy quietly to endorse having workers on boards, so long as they are overseas businesses. EDF, France’s leading nuclear energy company, which is in the process of being handed the keys to Hinkley Point, has a board in which one third of members are elected by its workers. Indeed, as a French company, EDF also has a profit-sharing scheme. Deutsche Bahn, which runs much of our rail network through its subsidiaries, has six directors elected by its staff. Even though both companies are key players in British markets, particularly in England, English workers in those companies do not get to vote for board members; it is only German and French staff who do. In short, if German, French and Swedish workers are good enough to sit on a company board, is it not time that British and English workers were given their chance, too?

A number of companies operating in tough markets in the UK have demonstrated that employee directors work. John Lewis is one, and FTSE 100 company First Group is another. Mick Barker is the employee director of First Group. He has been a railway man for 39 years and is employed as a train driver for First Great Western. He serves on its board and various other key bodies. Indeed, First Group encourages its operating companies across the UK and north America to elect employee directors to their boards so that, in its words,

“the views and opinions of staff are represented at the highest level”.

In the UK, concerns about high levels of executive pay and falling workers’ wages have led to some debate about broadening the membership of the remuneration committees of big companies to include staff. Indeed, the Department for Business, Innovation and Skills considered reforming remuneration committees in 2011, but sadly nothing happened. Analysis by the House of Commons Library suggests that if a French-style profit-sharing system was introduced in the UK, corporate household names could be allocating to their staff an extra £500 to £1,200 a year once profits have been declared. Those are not huge sums of money to those at the very top of those businesses, but it would help to reward better the collective hard work required for any business to succeed.

That would neither add to business costs, nor undermine pay differentials between skilled and unskilled workers, or between founder and recent employees, but it would offer an incentive to all to co-operate together to support business success and achieve higher returns for both staff and owners alike. As the Institute for Public Policy Research has noted, if every private sector company in the UK with 500 or more employees had a profit-sharing scheme, over 8 million people in 3,000 British firms could benefit from hundreds of pounds a year extra.

Company law needs to change to reflect modern Britain. Employees’ crucial stake in the success of their employer needs recognition in law. It is about strong businesses, better rewards for staff, higher productivity and a less unequal country. The Bill is a step towards those ambitions, and I commend it to the House.

Question put and agreed to.

Ordered,

That Mr Gareth Thomas, Chris Evans, Meg Hillier, Mr Steve Reed, Mrs Louise Ellman, Mr Adrian Bailey, Rachael Maskell, Stephen Twigg, Mr Mark Hendrick, Stephen Doughty, Kate Osamor and John Woodcock present the Bill.

Mr Gareth Thomas accordingly presented the Bill.

Bill read the First time; to be a Second time on Friday 11 March, and to be printed (Bill 124).

CHARITIES (PROTECTION AND SOCIAL INVESTMENT) BILL [LORDS] (Ways and Means)

Resolved,

That, for the purposes of any Act resulting from the Charities (Protection and Social Investment) Bill [Lords], it is expedient to authorise:

(1) the charging of fees; and

(2) the payment of sums into the Consolidated Fund.—(Mr Rob Wilson.)

CHARITIES (PROTECTION AND SOCIAL INVESTMENT) BILL [LORDS]: PROGRAMME (No. 2)

Ordered,

That the Order of 3 December 2015 (Charities (Protection and Social Investment) Bill [Lords] (Programme)) be varied as follows:

(1) Paragraphs (4) and (5) of the Order shall be omitted.

(2) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion two hours before the moment of interruption on the day on which those proceedings are commenced.

(3) Proceedings in Legislative Grand Committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on that day.

(4) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.—(Mr Rob Wilson.)

[Mr Speaker]

I remind the House that at the end of the Report stage, I am required to consider the Bill, as amended on Report, for certification. My provisional certificate is available on the “Bills before Parliament” website and in the Vote Office.