Employee Shareholding and Participation in Corporate Governance

Lord Stevenson of Balmacara Excerpts

Thursday 11th October 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, my noble friend Lord Haskel made a number of very good points in his excellent speech, including arguments for greater diversity on boards and more statutory regulation, particularly by the FRC. I hope that they will be taken forward. His key point was about the growing agreement he detected on the case for having employees on the boards of major companies and making them shareholders as well as stakeholders. He is to be congratulated on this and perhaps should feel a little smug. All those years ago, he put his money where his mouth is, and he has thrived as a result.

There is a wider issue about the structure of the public company. The Bank of England’s Andrew Haldane recently made a speech in which he said,

“despite its durability and success, across countries and across time, this corporate model has not gone unquestioned ... with a rising tide of criticism of companies’ behaviour, from excessive executive remuneration, to unethical practices, to monopoly or oligopoly powers, to short-termism. These concerns appear to be both strongly-felt and widely-held”.

If he is right, our modern company model is coming to the end of its useful life. What should we be doing about it? As has already been said, there are some good ideas to be found in the IPPR Prosperity and Justice report, which I am sure the Minister has read carefully in preparation for this debate. One specific recommendation focused on the central point of this debate and was about controlling executive pay and providing wider pay equality by putting one-third of the membership of remuneration committees out to elected worker representatives. The report goes further. It recommends that large companies with more than 250 employees should have at least two elected workers on their main board.

As has already been picked up, in other ways the report echoes the Prime Minister on the steps of Downing Street when she enthused about workers on boards and puts into sharp contrast the current, very limp, proposal by the Government to give one existing non-executive director the additional role of looking out for workers’ interests, which is a very poor substitute.

If we are to tackle more than just the executive pay scandal, and we should, we need to go further. The underlying theme of Mr Haldane’s speech and the IPPR report is that the idea that a company owes its only true allegiance to its shareholders does not reflect the relative risks shared by the wider group of stakeholders involved in the economy in the modern world. Shareholders, especially as they are now almost universally represented in pooled funds by fund managers, can diversify their risks and have no fear of bankruptcy. Workers, by contrast, have their livelihoods at stake and, usually, a longer relationship with the company. Financial creditors and suppliers take risks which they cannot diversify and suffer badly from poor management and unregulated management practice in, for example, late payment of invoices. A governance model that tries to balance these various interests looks fundamentally fairer. Why should promoting shareholder value above all else be the overriding duty of directors?

I hope that when she responds the Minister will be able to give some thought to this and I hope that in general her response will be a step-change from what we have been hearing on this topic from her colleague, the noble Lord, Lord Henley, who has repeatedly said in this House that he recognises the need for reform but has singularly failed to come up with any significant proposals. I shall mention one example. In Oral Questions on 13 March 2018 he said:

“We have also made it clear that we need to see some degree of reform of corporate governance … we think it is very important that the voice of those working for companies should be heard on the board … It is certainly something that should be looked at”.—[Official Report, 13/3/18; cols. 1507-8.]


Nothing has happened, so perhaps the Minister can go further than that.