Company Boards

Debate between Jo Swinson and Jim Sheridan

Tuesday 26th November 2013 Westminster Hall

[Jo Swinson]

That argument is always made on a range of issues, but we are trying to change the culture. The hon. Member for Paisley and Renfrewshire North rightly referred to that towards the end of his remarks, and it could be done in a variety of ways. I argue that sometimes mandation and regulation are not necessarily as effective as other methods of encouraging businesses to recognise the benefits of particular forms of behaviour. Whether on employee engagement or diversity, we need to consider what is the right tool to get the result that we want.

Further, there are a number of reasons why mandating that companies must have worker representatives on their boards would not be desirable. Part of that is because of the way in which our board system is structured. Our board system is different from other European countries that have been mentioned. We have a unitary board system, which means that anyone sitting on a board or a board committee is a director with the same responsibilities and duties as other directors, and is equally accountable to shareholders for decisions.

There is no legal distinction between different types of director, whether or not they are representing employees. All directors have a legal duty to have regard to the interests of employees in promoting the success of the company, and we need to be slightly wary of the danger that, if we force an employee representative on to boards, it could have the perverse, unintended consequence that the other directors on a board might take less seriously their existing duty to have regard to the interests of employees. We want all directors on boards to be thinking about that, rather than having it siloed into one individual position.

[Jim Sheridan]

Does the Minister agree with the comments of the now infamous Mr Ratcliffe that the events at Grangemouth would never have happened in Germany simply because there would be workers on the board who could have flagged up the problems earlier?

[Jo Swinson]

I am not sure whether I will take up the tempting offer to agree with Mr Ratcliffe, but better discussion and dialogue between workers and management is always the best way to avoid disputes. The vast majority of cases, thankfully, do not get to the stage that Grangemouth did—there were horrendous consequences, the worst of which were thankfully averted. None the less, it was difficult even to get to where we did, which is a far from ideal situation.

We must encourage such dialogue. Obviously, one way to do that could be through worker representation on company boards, but I disagree that that is the only way in which that dialogue could happen. Indeed, I suggest that employers can do a great amount, even without such representation, to ensure that they properly engage with their work force, address issues as they arise and have mechanisms in place to pre-empt difficult challenges.

The hon. Gentleman mentioned his experience at Thales, which is not far from my constituency and is still an appreciated employer. Many of my constituents work for Thales in Glasgow, but I do not know whether there is worker representation on the company’s board. Even if there is not, such representation is not necessarily what drives positive engagement. As hon. Members would agree, there are many companies out there that do not have worker representation on the board but that, none the less, manage to have very positive workplace relations, which is to be commended.

On directors, it is perfectly possible in UK law for a director to be responsible for ensuring that the views of employees are heard by the board, but having a director with a specific, legally defined responsibility for furthering employees’ interests may be unhelpful because it could risk directors pursuing competing interests, rather than coming together as a board to set common objectives for the company.

It would not be fair to portray the UK as having poor employee participation, and I have mentioned that many companies are good examples of such participation. Indeed, studies and research back that up. The latest report on employee involvement by the European Foundation for the Improvement of Living and Working Conditions shows that employee participation is high in the UK—across the EU, only the Scandinavian countries score higher. That backs up my point that formal legislative mechanisms are not the only means of achieving effective employee engagement.

Indeed, the Department for Business, Innovation and Skills recently supported a business-led initiative called “Engage for Success,” which outlines the benefits of employee engagement and provides practical best practice that businesses, large and small, may employ to improve the engagement levels of their work forces. Only one in three employees feels properly engaged in the workplace, so there are huge productivity gains to be realised. If the figure could be increased even to two in three, the UK economy would experience a significant boost. I encourage hon. Members to look at the “Engage for Success” website.

Engagement with employees is to be encouraged and promoted, but I would not go as far as prescribing that all companies should have worker participation on their board, which is perhaps not workable and not the best way to achieve the goals that we share.

Other EU member states have different board structures and systems of corporate governance, so we need a solution that works for the UK and our particular system of corporate governance and industrial relations, rather than a one-size-fits-all policy. The approach in Sweden and Norway, for example, is based on far greater levels of detailed negotiation and collective bargaining between employers and employees at all levels of company decision making. It is therefore simplistic to assume that we could just apply one element of such a system to the UK system.

The hon. Member for Paisley and Renfrewshire North is right to raise the issue of pay, because many hon. Members have been concerned about increased levels of executive pay in recent years. It has been excessive in many cases and the ratio between the earnings of those at the top versus those on the shop floor is also concerning. Directors’ pay in particular has ratcheted upwards, but, importantly, it has not been linked to performance. In a sense, there is nothing wrong with somebody being rewarded for a specific success, such as growing a company, providing new jobs or creating wealth for the economy, but where that reward is given when the company has not necessarily been experiencing particularly fantastic results, that needs to be questioned. Excessive pay for failure or for not bringing significant success damages the long-term interests of business.

We brought forward reforms, which came into force on 1 October, to create a more robust framework for the setting and reporting of directors’ pay. They will boost transparency, so that people can clearly and easily understand what those at the top of companies are paid. Importantly, the reforms will empower shareholders to hold companies to account through binding votes, creating a stronger, clearer link between pay and performance. We have already seen shareholders flexing their muscles in a much more welcome way on issues such as executive pay. It will take some time to see the full impact of the reforms, due to the voting and engagement patterns of investors, but there are already good examples of constructive dialogue between companies and investors.

More widely, the Government is committed to tackling short-termism through the recommendations of the Kay review. Earlier this month, the Government’s response to the Select Committee on Business, Innovation and Skills set out the progress made on this important agenda. Of particular help are our reforms, now in place, of narrative reporting and the governance of executive pay. We have also secured changes to EU law to end mandatory quarterly reporting by companies and will soon implement that reform in the UK.

The Financial Reporting Council updated the stewardship code last autumn to emphasise that investors should be focused on long-term company strategy and not just on governance arrangements, but more may need to be done. The FRC is undertaking a further review of the stewardship code with a view to strengthening its application and ensuring that it enhances engagement between investors and companies focused on long-term value creation. We have seen various initiatives from investment industry groups to develop good practice on stewardship, which we hope will continue, and on the disclosure of costs and charges in the investment chain. We have committed to publish next summer a full progress report on the delivery of the Kay review’s recommendations.

The hon. Member for Paisley and Renfrewshire North mentioned women on boards, and I agree that it is an important issue. Having more women on boards is important not only from the point of view of women or equality, but also in the same way that having more diversity of ethnicity, background and discipline is important.

One would not want a board comprised solely of accountants, lawyers, men or people who happen to be white. People bringing a diversity of views and experiences to a board can stop group think and make it a much stronger group that can really drive a company forward. Worker representation can lead to such diversity, but we should not necessarily mandate it. We want a mix of talents and experiences on boards to encourage higher performance. We are making good progress on gender diversity through the proposals put forward by Lord Davies in his excellent review.

The hon. Gentleman also mentioned the Government’s work on encouraging employee ownership, which is another way of encouraging employee participation in business. Last week, I launched the “The Nuttall review of employee ownership: one year on report”, which follows up on the recommendations of the Nuttall review. Many businesses are discovering that employee ownership can be an excellent model of governance that works incredibly well and that encourages an engaged and motivated work force.

The success stories include not only John Lewis, although it is obviously a great example, particularly given its increased sales at the moment, which can partly be put down to the rather fantastic bear and hare advert, but also Arup and the Baxi partnership—now Baxendale Ownership. A whole host of small companies up and down the country are showing the benefits of this particular model. It is perhaps not right for every business, but it is an important part of the mix, which is why we are supporting it further through tax breaks that we will announce more on shortly.

The hon. Gentleman suggested that we could promote employee representation through Government procurement or regulation, and we are open to further thinking about how to encourage that. Last month, the Government asked Professor Chris Ham of the King’s Fund to conduct a wide-ranging review of how best to encourage wider employee participation in health.

Payroll Companies

Debate between Jo Swinson and Jim Sheridan

Wednesday 16th January 2013 Westminster Hall

[Jo Swinson]

The debate today gives us an opportunity to discuss a range of related issues and for the Department for Business, Innovation and Skills to look at what it can do. HMRC plays a significant role in the matter, so it would be worth engaging with Treasury Ministers. I will undertake to contact my counterparts in the Treasury after the debate to express the concerns that have been raised, particularly those in the UCATT report. I will make sure that they have a copy of that report and are aware of the issues. Anyone who likes can report any concerns about tax evasion directly to HMRC. The authors of the report and, indeed, hon. Members may want to do so on 0845 915 3296.

The resourcing of HMRC was mentioned, and we are investing more than £900 million in HMRC to tackle tax evasion, criminality, unpaid tax debt and avoidance. We announced on 3 December an additional £77 million by the end of 2014-15 to expand the anti-avoidance and evasion activity, because it is important. Some issues have been mentioned today not only in the construction sector but through false self-employment, which we recognise is a problem. More widely, there have been well publicised cases of tax avoidance, and we want to ensure that they are dealt with.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

It is estimated that some 300,000 people are falsely registered as self-employed. I do not know whether that figure is correct. Perhaps the Minister has the correct figure. If she does not, will she write to my hon. Friend the Member for Leyton and Wanstead (John Cryer) with her Department’s estimate of the number of people who are falsely registered?

[Jo Swinson]

I do not have the estimate of the number of people who are falsely registered, but the Government’s estimate of the cost of false self-employment in this area is £350 million. I will certainly see whether HMRC has additional estimates of the number of people who are falsely registered. I would be surprised if it were as high as 380,000, given HMRC’s estimate of the cost. I will endeavour to find out and to write to the hon. Member for Leyton and Wanstead.

The construction industry scheme was mentioned, and it has an important role to play in tackling tax evasion. We do not want to fall into the trap of thinking that many people are trying not to pay tax. Most people pay what is due and pay it on time, and that is as true in the construction sector as anywhere else. We are aware, however, that because of the flexible contracts in construction, where itinerant labour is often used, there can be challenges. That is why the construction industry scheme was set up, so that a deduction or withholding payment of 20% can be made from the payments to a subcontractor if their track record indicates that that is necessary. The scheme secures £3.2 billion a year that might otherwise be at risk. In cases of genuine self-employment, at the end of the year appropriate reports and returns are sent in and a refund is paid.