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Time for Labour to speak out on corporate governance

8006883_sWhilst the economic debate surges around austerity, recession and claims of recovery, it’s remarkable that next to nothing is being said about the flaws of corporate governance. As a result the dominant theme of shareholder value is accepted almost without question. Yet it is deeply compromised both in theory and in practice. Most obviously it isn’t only shareholders who bear risks or supply important inputs: both taxpayers and the workforce do. But the fundamental problem with shareholder value is short-termism. The average time that a share is held for is now measured in days.

There are several reforms needed that could diminish or eliminate the blight of short-term churning of shares or the short-termist outlook of senior managers obsessed with enhancing the share price above all else as a means of boosting their bonuses. Directors’ legal duties should be reformed so that they are required to promote the long-term success of their company as their primary aim. Ending the requirement for quarterly reporting would remove one of the key pressures that makes for a very short-term perspective. Capital gains tax should be changed to encourage long-term share ownership. Corporation tax breaks should be used to favour investment and penalise companies sitting on cash surpluses.

But it isn’t only the over-emphasis on shareholder value, it’s the under-emphasis on worker rights within the firm. The UK is almost the only country in the EU where employees lack a voice in corporate governance. Elsewhere it is a distinctive feature of European economies where it is reflected in different countries through 4 alternative mechanisms. One is worker involvement in the composition of the top management team, as happens in German companies in the iron and steel sectors. A second is worker representation at annual general meetings, as occurs in France, Netherlands and Sweden. A third is worker representation in boardrooms with a consultative voice, as is the practice in France and Sweden. And the fourth is worker representation in boardrooms with decision-making power, as is replicated across Europe. The last is by far the most common right, being found in no less than 19 European countries. So why not in Britain?

In fact there are 3 EU legal texts which include requirements covering the representation of workers on company boards. They are the European Company Statute adopted in 2001, the European Cooperative Society Directive adopted in 2003, and the Cross-Border Merger Directive adopted in 2005. All 3 provisions follow the key principle that worker involvement mechanisms including board representation are subject to negotiation between workers and the employer. This is also the keystone to a series of wider employee rights including to information, consultation and c-determination. The advantages, as they have been found in other EU economies, in terms of greater commitment to the firm, higher productivity, lower turnover and absenteeism rates, and increased innovation speak for themselves. Time for Labour to start a debate on this. It is sorely needed and would be very popular.

Image copyright: gemphotography / 123RF Stock Photo

3 Comments

  1. Mukkinese says:

    Well Michael, we are hoping that Ed’s minor, mumbled comments on this are hiding a much more radical policy. Shareholder value has become the bane of modern industrialised societies, accelerating the income gap, stripping workers of rights, even in Europe and creating fragile corporate economies which, as we have seen, can collapse like a pile of dominoes all too easily…

    1. Robert says:

      Knowing now the Government will pick up the pieces and slam down on the workers the non workers the sick the disabled while telling us all about wage caps and why they themselves need to be paid more.

  2. swatantra says:

    Labour has really tackled the City of London yet; it needs to introduce more regulation to redress the inequalities, and introduce more fairness. The City of London is a force within itself; time it was taken into the main body of political society.

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