Last month John McDonnell told the BBC that the Labour Party would “legislate for profit-sharing” and “expect companies to profit-share as well as ensure they have a decent wage policy”. Commentators were incredulous: how could the Shadow Chancellor endorse such interference with private business? But the notion that all workers, rather than just an exalted few, should benefit alongside shareholders is not only commonplace in many highly productive European nations, but also legislated for in some.
In countries such as France and Germany, “shared capitalism” is a stand-out feature of business practice. In France firms with 50 or more employees benefit from up to 5 per cent of profits being shared with their staff. French governments of all political persuasions, right and left, have a long history of encouraging profit-sharing among French companies.
If an employee works hard for a company, helping it to succeed and make a profit, it makes sense for its owner to share a little of that profit with them. If we look at some of our most profitable companies in the UK, the potential dividends their workers would provide a huge shot in the arm to an economy, which – according to the Governor of the Bank of England – is as much as two per cent smaller than forecasts due to Brexit.
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. Not huge sums of money to those at the very top of those businesses, but a significant boost for many of Britain’s workforce that would help to reward the collective hard work required for any business to succeed.
Britain has a productivity problem. The latest figures show both France and Germany are each 25 per cent more productive than the UK. Despite numerous initiatives, we are behind our main competitors in terms of productivity, while inequality continues to grow. Arguably, the prevalence of profit-sharing makes an important contribution to higher levels of productivity in France.
Providing workers with representation on the boards of the companies they work for is another European idea that could help stimulate UK productivity. In her campaign to become leader of the Conservative Party back in July 2016, Theresa May included in the launch of her national campaign the line: “If I’m Prime Minister, we’re going to change that system – and we’re going to have not just consumers represented on company boards, but employees as well.” Of course, many of us were not surprised that this strong pledge has since been watered down beyond recognition.
However, the best companies do and should 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. This codetermination aims principally to give workers a voice in company decisions, from the organisation of the business to the conditions of work and the management of personal and economic decisions affecting the future of the company.
Having employees on boards is the norm in many other successful countries. In Denmark, France, Finland, Norway, Sweden and Germany, at least one director is elected by the employees. In Norway one director has to be chosen by the workforce. In Sweden once a company has 25 employees, around a third of directors have to be workers in the business.
In the UK 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.
Changing the way companies work — how they take key decisions and who is involved in them — is essential for sorting out those problems. As 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.
Company law must 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 more equal country.
Gareth Thomas is chair of the Co-operative Party and MP for Harrow West.