Inclusive Ownership Funds - a trade union perspective.
| Author | Williamson, Janet |
Inclusive Ownership Funds can play an important role in creating a corporate governance system that would support inclusive and sustainable companies, as part of a package of measures, including strengthening collective bargaining and putting workers on company boards.
On 2 September, the front page of the Financial Times declared that 'Labour would cost UK companies [pounds sterling]300 billion by shifting shares to staff'. (1) The article referred to the Labour Party's policy, announced at its 2018 conference, to require large companies to set up 'inclusive ownership funds' comprising ten per cent of equity for their staff. Shares would be issued to the fund at the rate of 1 per cent equity per year. The fund would pay dividends of up to [pounds sterling]500 to each worker, while the governance and voting rights of the shares would be used by the workforce on a collective basis.
Inclusive Ownership Funds have been presented as a mechanism for democratising companies and tackling inequality: 'Alongside wider corporate governance reforms and the strengthening of organised labour', writes Commonwealth's Mathew Lawrence, 'it would democratise the governance of the firm. Through broadening ownership via new collective forms of property, the Funds could act as a powerful mechanism towards the redistribution of resources and power within companies and wider society.'(2)
The problems that Inclusive Ownership Funds are designed to tackle are real and stark. The UK economy has become increasingly unequal in terms of both wealth and power. Over time, the share of GDP going to wages has fallen--from an average of 57 per cent between 1945 and 1975 to 49 per cent in 2018. This shrinking wage share is also divided increasingly unequally, with a higher proportion now going to the top earners. Average wages are still lower in real terms than before the financial crisis. (3)
At the same time, there has been a significant rise in precarious employment. The TUC estimates that 3.7 million people, one in nine of the workforce, are now in insecure work, including workers on zero-hours and short-hours contracts, agency workers and those in false self-employment. A majority work in the private sector. (4)
A democratic deficit in the workplace
These developments reflect the fact that most people lack effective means to influence the decisions that affect their working lives. Despite the fact that we spend a significant proportion of our lives working, we have no automatic right to be informed, let alone consulted or negotiated with, on decisions that affect us at work. In 2011, the Workplace Employment Relations Study found that just 35 per cent of UK employees thought that managers were good at allowing them to influence decisions, while less than half said managers were good at responding to suggestions from the workforce. (5) This is a relative, as well as an absolute, weakness: in a European league table of workforce participation, the UK comes sixth from bottom, with only Cyprus, Lithuania, Latvia, Bulgaria and Estonia performing worse. (6)
This democratic deficit, the shrinking wage share and growth of precarious work all reflect the decline of union coverage over the past forty years. In 1979 union density was 54 per cent and collective bargaining coverage over 70 per cent; in 2018, they were 23.4 per cent and 26 per cent respectively, with just 14.7 per cent of the private sector protected by a collective agreement. (7)
The rise of inequality and precarity also reflects the UK's corporate governance system, which gives significant rights to shareholders, but none to workers or other stakeholders. Shareholders elect company directors, now annually at the FTSE 350, and vote on executive pay proposals and shareholder resolutions. Shareholder primacy is enshrined in directors' legal duties, which require directors to prioritise the interests of shareholders over those of other stakeholders. The prioritisation of shareholders in corporate governance leads companies to pay dividends even when the company is struggling, at the expense of both wages and investment in longterm, organic growth.
The question, then, is not whether we need corporate governance reform, measures to boost workplace democracy and urgent action on inequality, but what are the best...
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